President Joe Biden’s executive order to rein in investments into Chinese development of artificial intelligence, military-grade semiconductors, and quantum computers is part of a grander effort to freeze the Eastern superpower’s ability to develop the technology required to defeat the United States military.
“There’s a real and direct national security aspect to the development of this technology,” Jeremy Mark, senior fellow at the Atlantic Council, told the Washington Examiner.
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Here’s what to know about the “triple threat” of technologies.
Advanced semiconductors
Advanced semiconductors, or chips, which are the necessary components required for most new technologies, are the most important of the three restricted industries because “everything else flows out of advanced semiconductors,” Mark said. If a tech manufacturer wants to make a phone, computer, or even a car, it needs certain chips to work and process data. But in order to have chips, one must be able to make them.
The United States leads in terms of the tools required to design semiconductors, but it lacks the necessary facilities to build the chips. This has forced American companies to rely on manufacturers such as the Taiwan-based TSMC to produce nearly all of their chips. The Biden administration is attempting to remediate this problem through the CHIPS Act, legislation passed in August 2022 that provides tens of billions of dollars to chip manufacturers such as Intel to build semiconductor manufacturing plants, or “fabs,” in the United States.
Chinese tech companies are also attempting to build chip factories to reduce reliance on builders such as TSMC. But the efforts have been blunted by sanctions implemented by the Commerce Department in October 2022, which placed several leading Chinese tech manufacturers on the “unverified” list. This list blocks Chinese companies from purchasing high-level chips made in the U.S. or by its allies. It also restricts Chinese chipmakers such as SMIC and Yangtze Memories from acquiring the equipment required to manufacture the highest-grade chips available on the market.
“The production of the most advanced chips is confined to a tiny, tiny group of companies in the semiconductor supply chain,” Mark added. “And then the producers of the chips themselves are just profoundly difficult and too expensive to put together. If you cut off access to this technology, it makes the task for China of keeping up with the West keeping up with the U.S. just much, much more difficult.”
Artificial intelligence
These chip restrictions would limit China’s ability to continue the development of AI-powered equipment, which the People’s Liberation Army has placed as a central tool in its military arsenal. AI, when properly used, could expediently process information related to military intelligence, run cyberattack campaigns against enemies, and operate drones without a human pilot.
The country’s leader, Xi Jinping, emphasized China’s commitment to “intelligent warfare,” notably in his 2022 report to the 20th Party Congress. China’s State Council also promised in 2017 to make China the leading AI power by 2030 and has taken several significant steps toward getting ahead of the U.S. The country produces the most top AI scientists, according to Stanford’s AI Index Report. China’s research is also more widespread since Chinese AI researchers are producing 27.5% of all academic journal entries worldwide, compared to the U.S.’s 12%.
The PLA is currently seeking advances in advanced AI-powered drones as part of a broader military buildup, according to the state-operated People’s Liberation Army Daily. Chinese officials also claim that a China-operated AI-powered drone outsmarted a human-operated UAV, revealing the country’s confidence in the technology.
Quantum technology
Quantum computing is another area in which China and the U.S. are rushing to gain a technological advantage. A quantum computer uses the laws of quantum mechanics, a field of physics related to how microscopic objects can exist as waves and particles, to perform computative equations far faster than existing computers. This speed would give a computer dramatically improved capabilities, such as the ability to process information quicker or to decode a message that standard processors cannot cryptographically.
The sheer strength of quantum computing power has made it a priority for military researchers to control. The Pentagon requested more than $75 million in April to accelerate its research. China committed more than $13.5 billion in public funds to quantum technology research in 2022.
“We’re making a lot of progress,” Paul Stimers, executive director of the Quantum Industry Coalition, told the Washington Examiner. “And our international competitors are investing heavily. It’s important to take the technology seriously from a national security perspective, as well as from an economic perspective.”
While researchers have warned about the strength of quantum computing, many of its applications remain theoretical for the time being. These applications include the ability to crack existing encryption algorithms, construct unbreakable encrypted communication networks, and build sensors that are stronger than any others in the world. China claims to have had some success in quantum development, including the creation of an algorithm that can break through public key encryption and decode messages faster than the average computer. This software’s existence hasn’t been confirmed, however.
What Biden’s order would do
The order on Wednesday gave the Treasury Department the power to restrict all new investments into China-owned semiconductor, quantum, or AI-focused companies. It will also likely require U.S. investors to disclose any previous transactions they may have had with Chinese businesses involved in the three industries. The rules for what the criteria are about the quantum, semiconductor or AI-focused companies haven’t been defined since Treasury is scheduled to undergo a 45-day period of public comment on the newly proposed order.
The Treasury guidelines will go beyond existing Commerce restrictions by going directly after the ability to invest in the Chinese companies. If a company were named by the Commerce Department as being “unverified,” then it would not be able to purchase or sell regulated products such as advanced semiconductors. If a company is named by the Treasury Department, then investors in the U.S. will not be allowed to send them money or invest in them in the future.
Will it work?
It isn’t clear if Biden’s order will effectively rein in China’s ability to innovate with AI, quantum technology, or semiconductors. The advanced notice of proposed rulemaking, which Biden released as part of his request for public comment on the new rules, currently lacks definitions for what AI, quantum technology, and semiconductors include. It is also the first time that the U.S. government has attempted to impose broad investment rules on U.S. firms overseas, which leaves some uncertainties about how the order’s rules will be received.
The order is a “strategic first step” toward ensuring U.S. investments are not used to advance Chinese military developments, Senate Majority Leader Chuck Schumer said in a statement.
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Republicans were more critical. House Foreign Affairs Committee Chairman Michael McCaul alleged that the executive order’s focus is too narrowly focused. Sen. Marco Rubio argues that the order “fails to include industries China’s government deems critical.”
Past export controls may offer some clues to the order’s viability. Biden’s sanctions against select Chinese companies left several unable to expand as intended due to a lack of chip-making tools. Chinese companies such as Yangtze reported a drop in their bottom line, which forced them to lay off workers and slash their orders by half. SMIC, China’s largest chipmaker, said it expects to “struggle” to make cutting-edge semiconductors if it continues to be cut off from the required tools.
