The new executive order updating the sanctions regime between U.S. citizens and China is a “national security action,” according to an administration official.
President Joe Biden’s latest executive order sets up a new national security program taking aim at U.S. exports with adversarial countries, namely in regards to their usage of advanced technologies in a military, surveillance and cybersecurity capacity.
Unveiled Wednesday, the executive order delegates the Department of Treasury to administer the updated national security program that will further regulate how U.S. citizens notify the department of select financial transactions, as well as further prohibiting citizens from engaging in financial activity related to three areas of emerging technology.
These areas, specifically tailored with national security needs in mind, include semiconductors and microelectronics, quantum information technologies and certain artificial intelligence systems, specifically in transactions with the People’s Republic of China.
“This program will complement our existing export control and inbound investment screening tools, with a ‘small yard, high sense’ approach to address the national security threat posed by countries of concern to advancing such sensitive technologies,” a senior administration official said during a Wednesday press call.
Simultaneously, Treasury released a complementary proposed rule that defines how the agency will police certain economic trade activity with China, along with Hong Kong and Macau.
Administration officials also said that fellow allies are constructing similar export control regimes, as the U.S. looks to further consolidate international support amid its own political tensions with China.
“I want to be clear, this is a national security action, not an economic one,” the administration official said. “We recognize the important role that cross border investment flows play in U.S. economic vitality. And this executive order is narrowly protecting our national security interests, while maintaining that long-standing commitment to open investment.”
Treasury’s proposed rule will be open for public comment once published in the Federal Register, but some details that are under consideration include creating exceptions for certain forms of passive investments, such as U.S. financial transactions with index and mutual funds and publicly traded securities. The Department of Commerce will also help enforce the executive order and further assist in refining the detail in the draft rule.
The executive order and proposed rule are intended to safeguard innovations in emerging technologies that are considered critical for military operations.
Administration officials repeatedly emphasized how the new sanctions aim to thread the needle between intellectual property and national security protection and open capital flow. The open comment period on Treasury’s proposed rulemaking will help inform how best to balance these interests.
“In the coming weeks and months, we look forward to working to align our approaches in developing an outbound regime that best advances our national security,” a senior administration official said.