Federal Efforts to Curb US-China Tech Ties Challenge Businesses

The FBI, White House, and US officials continue to warn of national and economic security threats from China. The agencies are concerned about potential hacks to critical infrastructure, as well as curbing US dependence on China’s semiconductor and artificial intelligence markets.

Following last year’s round of hearings and meetings, the bipartisan House Select Committee on Strategic Competition between the United States and the Chinese Communist Party published a list of 150 policy recommendations aimed at enhancing US geopolitical and economic strength.

The report says China’s “economic system is incompatible with the WTO [World Trade Organization] and undermines U.S. economic security.” It also calls for investment in technology and to “stem the flow” of US capital and technology that would fuel the Chinese military.

The committee’s January hearings focused on China’s support of US adversaries and increasing cybersecurity threats to electrical grids. Its policy agenda would expand regulation of emerging technologies with investments from or operations in China, as well as trade competition with China, and increasing US technological influence at home and abroad.

However, it’s not clear whether the year-end recommendations will lead to new legislation, particularly in an election year where even bipartisan efforts can become partisan. Businesses, and especially technology companies, should anticipate congressional attention to use of and investment in certain China-based technologies.

Regulation may incentivize US technology that advances national security by reducing dependence on Chinese companies and affiliated entities. Last month, the committee asked CEOs of Intel Inc., Nvidia Corp., and Micron Technology Inc. to testify about their ties to China and their supposed hesitation about further semiconductor regulation. US companies should consider a proactive analysis of how they benefit or are affected by Chinese capitalization.

More work is needed to get a full picture of the US economic, human rights, and technological relationship with China. Particularly relevant is the nature of US investment in China-based companies that might impact national and financial security.

The committee’s proposed policies to rectify its findings are assertive. In line with Congress’s crackdown in January on widespread harms of social media on children, the committee has proposed bans on TikTok and on selling US citizens’ privacy data to companies in China, and to prohibit investment or capitalization for US public companies in China that have human rights sanctions or are implicated in Uyghur forced labor.

The committee also recommends increasing regulatory requirements for US public companies while bolstering the government’s administrative reach. It wants companies to disclose their material ties, including their supply chain, profits, and response plans.

The committee recommends that Congress strengthen the authority of the Committee on Foreign Investment in the United States by expanding the definition of “critical technologies” subject to its review; the list of military, intelligence, and critical infrastructure sites subject to its review; and granting it jurisdiction over all joint ventures involving foreign adversaries. The Department of Defense and Department of Energy could increase their investments in early-stage, capital-intensive technologies developing national security applications at home and abroad.

While these legislative goals may seem far-fetched, the committee may have continued power in Congress because of its strong bipartisan inception. Although the committee won’t necessarily exist beyond the adjournment of the 118th Congress unless the subsequent Congress re-establishes it, historically, Congress has made exceptions. The Select Committee on the Coronavirus Pandemic has been reauthorized over multiple Congresses since it was created in 2020.

Should the committee remain in the next Congress, the future of its proposed recommendations and even its continued leadership is uncertain. What’s certain is that US-China rivalry will continue in the fast-moving tech sector, and compliance risks will remain for multinationals.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Marcus Childress is partner at Jenner & Block with focus on investigations and enforcement.

Josh Hsu is partner at Jenner & Block with focus on public policy issues.

Donovan Hicks is an associate at Jenner & Block with focus on appellate and trial litigation.

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