US Proposes Curbs to AI, Tech Investments in China

Last week, the U.S. Department of Treasury issued a proposal that would limit and monitor United States investments in China for a range of tech investments. The proposal stems from an executive order issued by President Joseph Biden in 2023 that focused on access that some countries had to U.S. dollars to finance advanced technologies that could strengthen these countries’ intelligence, military, cyber capabilities and surveillance. The order primarily centered on Macau, Hong Kong and China.

For a while now, the current administration has worked to impede the development of technologies that could enable China to dominate emerging sectors or give it a military edge. The United States even imposed a tariff on electric vehicles, solar cells, batteries, aluminum, steel and medical equipment from China. This move has political implications for President Biden and former president Donald Trump, who are both trying to demonstrate to the public who can best stand up to the east Asian nation.

Currently, the People’s Republic of China is the second-largest economy globally. The country is also a major trading partner and geopolitical rival of the United States.

The recent proposal touches on data that permanent residents of the United States as well as the country’s citizens must provide when participating in transactions with this country. It also discusses actions that would be considered as violations.

Specifically, the rule would ban investors in the U.S. from funding artificial-intelligence systems in China that could be used for military applications such as location tracking, combat and weapons targeting.

The treasury is currently open to comments on the proposed rule until the start of August 2024. Once this period lapses, the department is expected to issue a final regulation.

While officials in the Biden administration have insisted that they are not interested in severing relations with China, tensions between both countries have increased in the last couple of years. Last year, the United States military shot down a spy balloon suspected to be Chinese off the East Coast after the balloon passed over sensitive military sites. This action led China to threaten retaliation.

Since then, various incidents between the two countries involving national security concerns have occurred almost on a regular basis. For example, Biden gave an order in May 2024 to prevent a cryptocurrency mining company backed by Chinese investors from owning land near a nuclear missile base in Wyoming. In his order, the president noted that proximity to this area was a national security risk.

These proposed curbs could redirect the investments that would have gone to Chinese AI and tech companies to domestic companies such as Inc. (NYSE: AI) so that they are better able to ramp up their innovation solutions in this rapidly growing industry.

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