Disagreements between key White House national security and economic officials are putting the Biden administration’s plans for new rules governing American banks that invest in Chinese technology firms and startups on hold.
For months, national security officials, led by national security adviser Jake Sullivan, have urged President Joe Biden to issue an executive order prohibiting many American investments in Chinese technology firms and startups, arguing that it is necessary to ensure that U.S. banks are not assisting Chinese firms in developing software or devices later used by the People’s Liberation Army.
According to two industry officials with knowledge of the talks, the Treasury and Commerce departments are pushing back, arguing that new rules would significantly reduce new US business in China and put American firms at a competitive disadvantage with European and Asian banks that will continue to access the world’s second largest economy.
Treasury and Commerce declined to comment, but a senior administration official said any claims of a stalemate are “inaccurate” because no final policy decisions have been made. “There are concerns across the board about the impact of outbound US investment flows,” the official said. “This is a focus for us, from Treasury to Commerce to the White House.”
The disagreement is the latest example of an administration unable to reach an agreement on a policy toward China and economic engagement in Asia. These disagreements have lingered for months and threaten to halt administration action against an increasingly aggressive Chinese government at a time when global economic and diplomatic tensions are rising.
The White House says those discussions are ongoing, but the delay has irritated China hawks on the Review Commission, which has traditionally advocated a tough stance toward Beijing, as well as lawmakers on Capitol Hill, who are considering similar legislation to review U.S. supply chains in China as part of a broader economic competitiveness package. Now, lawmakers are concerned that Russia’s invasion of Ukraine will divert attention away from congressional efforts and White House deliberations.
According to lawmakers and industry officials, part of the delay may be due to the White House waiting to see how Congress responds to Cornyn and Casey’s legislation, which would establish a federal commission to review supply chains that pass through China. The bill has been delayed for more than a year due to corporate opposition, which claims it is overly broad, but it is now being considered as part of Congress’ broad anti-China economic legislation, which is expected to be finalized this spring.
Since last year, the White House has pushed lawmakers to pass broad anti-China legislation that includes a $52 billion semiconductor manufacturing fund prioritized by Biden and congressional leaders. However, the administration has not stated whether the Casey-Cornyn legislation should be included in that package or considered separately.
Even if Casey and Cornyn’s bill is approved, trade veterans say that Biden’s executive action may still be required to address concerns about American banks funding Chinese technology development.
As written, the bill would place a greater emphasis on supply-chain security, such as US companies establishing factories or forming joint ventures in the medical, defense, or energy industries. However, it would be ineffective in monitoring the financial flows into Chinese technology firms, which the White House is likely to target with executive action.
Though no executive orders have been issued, one industry official familiar with administration discussions stated that eventual action will most likely cover American banks, mutual funds, and other financial institutions investing in Chinese semiconductors, artificial intelligence, facial recognition, and other surveillance areas. It would most likely derive its authority from the International Emergency Economic Powers Act, which gives the president broad authority to limit trade in economic emergencies, and could include export controls to limit the shipment of the technologies themselves, as well as funding flows.
However, the timing of any action is unknown. According to a second industry official familiar with White House discussions, the Ukraine invasion has consumed much of the time of national security officials such as Sullivan and those at the State and Defense departments, which would also play a role in any eventual executive order. Even if the issue is brought back to the forefront, Treasury and Commerce’s opposition may be difficult to overcome, given that they are likely to play key roles in implementing new export or investment controls.