US President Joe Biden has ratcheted up the technology trade war with China, issuing an executive order that will restrict investment in several sectors, including semiconductiors and AI. While the move - taken after a prior series of restrictions on US chip-related exports to China - threatens to further disrupt the global tech supply chain, major trade groups and US allies have reacted cautiously so far.

The executive order, issued Wednesday, gives the US Treasury the power to enact specific regulations after a 45-day consultation period in which interested parties may provide comments that will be taken into account for a draft of the new rules. The new regulations will impact three sectors - semiconductors and microelectronics, quantum information technologies, and certain AI systems.

"This program will seek to prevent foreign countries of concern from exploiting US investment in this narrow set of technologies that are critical to support their development of military, intelligence, surveillance, and cyber-enabled capabilities that risk US national security," Biden wrote in a letter to Congress.

Though no specifc country was mentioned in Biden's executive order, the People's Republic of China (PRC), including the Special Administrative Region of Hong Kong and the Special Administrative Region of Macau, were noted as countries of concern in an annex.  

US to restrict investment in China in these  technologies

While the final details of the new US investment restrictions will be worked out in the next few months, a fact sheet issued by Department of Treasury lays out a few specific technologies that it is considering:

• Semiconductors and microelectronics: Electronic design automation software; semiconductor manufacturing equipment; fabrication of advanced integrated circuits; and the installation or sale of supercomputers.
• Quantum information technologies: The production of quantum computers and certain components including sensors; quantum networking; and quantum communication systems.
• AI systems: Software that uses AI for military or intelligence operations.

The US-China tech trade war continues

President Biden's administration started to impose restrictions of exports of chips and chip-making technology to China last year, with the stated purpose of stopping China from having access to advanced technology for military modernization and human rights abuses.

In the wake of the export controls, the Biden administration has launched a number of initiatives to boost the domestic production of semiconductors. On Wednesday, the one-year anniversary of the CHIPS Act being signed by President Biden, it was announced that more than 460 companies have expressed interested in winning government semiconductor subsidy funding.

However, restricting US companies' investments in China, with national security concerns as a front, is a clear act of overstretching the concept of security and politicizing business engagement, a Chinese Foreign Ministry spokesperson said in a statement.

"This is blatant economic coercion and tech bullying, an act that seriously violates the principles of market economy and fair competition, undermines the international economic and trading order, destabilizes global industrial and supply chains and hurts the interests of both China and the United States and the global business community," according to the statement.

Trade groups take subdued response 

In the US, trade and commerce groups were cautious in their response to the news.

"The Chamber remains committed to working with policymakers to both safeguard our national security and values, and also preserve the area of commercial opportunity where we can and should engage productively," said the US Chamber of Commerce in a statement. The Semiconductor Industry Association echoed the sentiment, stating that it recognized "the need to protect national security," adding that it would be assessing the excutive order, and welcomed the opportunity to provide feedback as part of the public comment period.

Technology analysts have said that the chip export restrictions implemented last year are bound to cause supply chain disruptions for a wide range of goods for global enterprises - not just for technology like network servers but goods such as cars that rely on advanced chips for guidance systems.

European Union to take a more cautious approach

With the US-China trade war already having seen a number of countries get caught in the crossfire, the European Commission said Thursday that it will analyze the new executive order before making any decisions about its own investment restrictions.

"We will be analysing the Executive Order closely. We are in close contact with the US administration and look forward to continued cooperation on this topic," a Commission spokesperson said in a statement, adding that the EU and its member states also have a common interest in fuelling technological advances that enhance military and intelligence capabilities of those undermine international peace and security.

In June the Commission presented its own economic security plan, which includesproposals to place more stringent controls on exports of technologies that could be used for military purposes in China. However, the plan received pushback from France and Germany, which have significant trade  relations with China, with the French finance minister Bruno Le Maire stating that France was "opposed to decoupling global supply chains which would have a major economic cost" whilst on a trip to China last month.

"Current geopolitical shifts and the rapid development of sensitive technologies mean we have to strike a balancing act: we must uphold our economic security, while ensuring we continue to benefit from an open economy," said Valdis Dombrovskis, executive vice-president and commissioner for,  trade at the time.