Background
It has been nine months since President Biden’s Executive Order (EO) finding that the People’s Republic of China (PRC) has engaged in advancing sensitive technologies that threaten U.S. national security. The President’s EO directed Treasury Secretary Yellen to issue an Advance Notice of Proposed Rulemaking (ANPR) to limit new investment in certain national security technologies (semiconductors, quantum computing, and artificial intelligence) in China, Hong Kong, and Macau. In addition to prohibiting investments in those areas, the ANPR also requires investors to notify Treasury of investments in additional semiconductors and software technologies that incorporate an artificial intelligence system. Treasury has not yet released its rulemaking.
Running parallel to the Administration’s rulemaking, Congress has sought to codify a similar notification regime into law (making it more durable than just an EO), though progress has been limited and smaller in scope thus far. The congressional effort has been led by senators John Cornyn (R-TX) and Bob Casey (D-PA), and House Foreign Affairs Committee Chairman Michael McCaul (R-TX).
Language authored by senators Cornyn and Casey was attached to the Senate’s FY24 National Defense Authorization Act (NDAA) in July of 2023 by an overwhelming vote of 91-6. While their initial standalone legislation would have given the Executive Branch authority to ban investments in certain covered technologies, the NDAA amendment only required that American investors notify Treasury of certain investments in sensitive technologies in China, Russia, Iran, and North Korea. The senators-and Chairman McCaul-made a last-ditch effort to include the language in the final NDAA bill in December, but were thwarted by House Financial Services Committee Chairman Patrick McHenry (R-NC). McHenry prefers existing sanctions tools, rather than an untested CFIUS-like regime, and has championed legislation authored by Congressman Andy Barr (R-KY).
In the wake of the failed December effort on the final FY24 NDAA, newly installed Speaker Mike Johnson (R-LA) created an informal House working group to attempt to reach a compromise between the Financial Services Committee, Foreign Affairs Committee, and Select Committee on China (with Majority Leader Steve Scalise (R-LA) acting as a mediator). The group met throughout the winter and at times seemed poised to reach agreement, seemingly using the Barr bill as a base for the compromise. That effort has since waned, however, and the early departure of China Select Committee Chairman Mike Gallagher (R-WI) further stalled momentum.
Congressional Action
As previously stated, we are nearing the one-year anniversary of the outbound investment Executive Order. While Treasury’s rulemaking was expected in Q1 of this year, it continues to face delays. Meanwhile, the race to compete with China, particularly in the tech arena, has only accelerated-with Congress taking the lead to date. Lawmakers have been both busy and bipartisan in their work on China policy, even making law while most have been skeptical that they could. Just since the start of this year, the Congress has:
- Created two bipartisan working groups in the House on AI: the Speaker’s bipartisan Task Force on Artificial Intelligence, led by Chair Jay Obernolte (R-CA) and co-Chair Ted Lieu (D-CA); and House Financial Services Committee Chairman McHenry’s bipartisan AI Working Group led by French Hill (R-AR) and Stephen Lynch (D-MA).
- Introduced, marked-up, and passed legislation to force divestment of TikTok in an astounding total of just 10 days in the House; under political pressure to act, the Senate subsequently passed the bill, which was then signed into law by the President.
- Followed-up the TikTok success with a bicameral deal between Senate Commerce Chair Maria Cantwell (D-WA) and House Energy and Commerce Committee Chair Cathy McMorris Rodgers (R-WA) on national data privacy rules, as well as a bipartisan call for sunsetting Section 230 of the Communications Decency Act by Chair Rodgers and Ranking Member Frank Pallone (D-NJ).
- Marked up and passed the BIOSECURE Act in the House this week, legislation preventing genetic data of U.S. citizens from being accessed by the CCP, by a bipartisan vote of 40-1 in the House Oversight and Accountability Committee.
- And just yesterday, Senate Majority Leader Chuck Schumer (D-NY), Senator Todd Young (R-IN), Senator Martin Heinrich (D-NM) and Senator Mike Rounds (R-SD) released their bipartisan Senate AI Working Group’s “Roadmap for Artificial Intelligence Policy in the United States Senate,” which is intended to act as a roadmap for the committees of jurisdiction to take action on AI.
Upcoming Inflection Points
Not to be outdone, and with the presidential election in full-swing, President Biden issued on Tuesday his long-awaited Section 301 tariffs on strategic Chinese sectors, including: steel and aluminum, semiconductors, electric vehicles, batteries, critical minerals, solar cells, ship-to-shore cranes, and medical products. Meanwhile, should he be re-elected, former President Trump continues to threaten across-the-board tariffs of ten percent, with much higher tariffs on imports from China.
In light of this activity, and with the CCP’s reaction to tariffs now playing out, a few immediate and longer-term inflection points should be viewed as important to the U.S. policymaking process with respect to China for the remainder of 2024:
- May 22: House markup of FY25 NDAA
- Week of June 10: Senate markup of FY25 NDAA; House floor consideration of FY25 NDAA
- June 27: First presidential debate (CNN)
- August 8: One-year anniversary of outbound EO
- September 10: Second presidential debate (ABC)
- November 5: Presidential election
- November 6-January 3: Lame duck session (FY25 NDAA, FY25 Appropriations, various negotiations)
OUTLOOK/ANALYSIS
While the outbound investment debate has largely cooled since December of last year, China policy has picked up in the form of forced divestment of TikTok, advancement of the BIOSECURE Act, activity of the various AI working groups, and the President’s invocation of Section 301 tariffs. And though we continue to await Treasury’s rulemaking on outbound investment, the Speaker has recently jumpstarted bipartisan and bicameral discussions with Leader Schumer and House Minority Leader Hakeem Jeffries (D-NY) to reach a compromise on legislative language codifying the President’s EO.
The latter effort is all behind-the-scenes, but both the Speaker and Leader Schumer have expressed interest in moving a China-related policy package prior to the end of the Congress. This will likely entail smaller bills moving via suspension of the rules in the House so as to create a solid and bipartisan legislative history for the formation of a package at the end of the year, likely as an attachment to the final FY25 NDAA.
It remains to be seen if Johnson, Schumer, and Jeffries can find common ground on outbound investment language, however, the thorniest and most market-impacting legislation currently under consideration. But it is clear that congressional leaders are intent upon making law this year. Regardless, greater clarity (and restrictions) on outbound U.S. investment into critical Chinese industries-whether by legislation or via Treasury rulemaking-is all but certain during the calendar year.
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