Trump’s Election Victory: What Impact Will the US ‘Outbound Order’ Have on China? (Pt. 1 of 3)

On Oct. 28, 2024, the U.S. Treasury Department issued a “Final Rule” restricting U.S. investment in “countries of concern” in areas that may threaten national security, such as artificial intelligence, semiconductors and microelectronics, and quantum computing. This completes the implementation of the China-focused foreign investment plan proposed by outgoing President Joe Biden in Executive Order No. 14105 (hereinafter referred to as the “Outbound Order”) on Aug. 9, 2023. The rule will take effect on Jan. 2, 2025.

Although China is not the only country to which this investment review mechanism applies, it is the first and currently the only country to be listed as a country of concern in the executive order. The Outbound Order is also unprecedented on the part of the U.S. government in that it restricts personnel, products and capital at the same time.

This may not have taken China’s government and industry entirely by surprise because the U.S. government has been communicating with its allies via diplomatic channels and rehearsing just such an operation for quite some time. In contrast, on Nov. 1, 2024, the Chinese government significantly relaxed requirements for foreign institutions and companies to invest in Chinese-listed companies as strategic investors, including the range of foreign entities that can make strategic investments, the methods of investment, and asset requirements. This regulation will be implemented on Dec. 2, 2024.

However, at the time of writing, Donald Trump has just won the election, so: Will the U.S. ban on investments in key technologies like Chinese AI continue to be enforced and effective? Will U.S. allies be able to follow in the new administration’s footsteps while still fulfilling their commitments to the Biden administration? Below, the Internet Law Review provides a preliminary analysis of this policy.

Completion of the Biden Administration’s Strategy Transformation toward China

For decades, U.S. policy toward China has largely been one of achieving greater development through trade. Congruent with the logic of comparative advantage, developing countries absorbing investments from industrialized countries and developing their economies and technologies is a good thing for the U.S., both in terms of ideology and of economic benefits. This is why the U.S. government is happy for the development and production of technologies now considered “vital to national security” (such as semiconductors) to be transferred to China — and American companies have indeed long benefited from investing and selling in China, the world’s largest market.

But differences and conflicts have arisen between U.S. economic and national security agencies, starting with the ban on supplying chips and software to Huawei. Over a long period of time and after numerous discussions on policy toward China, a dynamic consensus has gradually emerged: Although some investment in China is inevitable and even beneficial, the government should still err on the side of caution and take security considerations into account.

While the Trump administration adopted a “whack-a-mole” approach to China, due to its internal rifts, the Biden administration’s national security team has been more conscious and strategic about participating in and promoting consensus on its industrial policy — that the U.S. should not only compete with China but also curb its growth — and has brought about a strategic shift in its China policy in a more logical manner.

First, it rekindled partnerships between the U.S. and its allies, aiming to build a market-oriented digital economic alliance and guiding other countries to make policy decisions that align with the U.S. through the use of ideological and economic interests.

Second, to eliminate its dependence on Chinese companies, it passed a series of new industrial policies, of which the CHIPS and Science Act and the Inflation Reduction Act are the main representatives.

Third, it cracked down on China’s technological development using the “small courtyard, high wall” approach. In theory, in concept and in policy, U.S. export controls on high-end chips represent a radical transformation of its China strategy — and that’s only the beginning. We can see that this crackdown policy has gradually opened up new areas and battlefields: data, software, and network devices, but also strategies to curb financial support for China, that have been percolating since 2022.

(Part 1 of 3)