The United States (US) and China have a very complex relationship. On the one hand, they have tremendous economic and technological interdependence; US-China trade exceeded $758 billion in 2022. On the other hand, however, both nations have imposed significant export bans and regulations on one another. The US seeks to restrict China’s access to critical technologies and relevant knowledge, whilst China has repeatedly opposed any US attempts at decoupling. This presents a truly fascinating dilemma. If US-China decoupling does happen, however, it would likely result in a global technology bifurcation, forcing countries to align themselves with the superpower that supplies their critical technology.
A recent example of this attempt at decoupling is the enforcement of regulations by the US on investment in China’s artificial intelligence (AI), semiconductor, and quantum technology sectors. On 28 October 2024, the US Department of the Treasury issued the Final Rule, which is a detailed implementation plan of President Biden’s Executive Order 14105. The Order, through which a national emergency was declared on 9 August 2023, aimed to curb US outbound investments in China’s technology sector.
The Final Rule, which will become effective from 2 January 2025, is the culmination of the Executive Order. It places regulations on US citizens, permanent residents and companies whenever certain transactions are conducted with China involving AI, semiconductors, and quantum technology. The Department of Treasury will now need to be notified in such cases, and the details of the transactions shared.
The implications of this decoupling would extend far beyond economic competition; it could very well redefine the balance of power in a rapidly evolving, technology-driven world.
This is a major development. The US is essentially arguing that these emerging technologies are vital for China’s military modernisation in the coming Fourth Industrial Revolution, and thus represent a threat to US national security. The US has labelled these technologies as being “fundamental to the development of the next generation of military, surveillance, intelligence and certain cyber security applications like cutting-edge code-breaking computer systems or next-generation fighter jets.” Some of the specific technologies being placed under regulations are AI systems, quantum computers, supercomputers, and microchips.
The US stance is clear; it simply cannot allow China to catch up with it technologically and believes decoupling is the way to do it. China’s Ministry of Foreign Affairs had earlier called the Executive Order “blatant economic coercion and tech bullying.” Clearly, both states view their relations in drastically different ways.
Under the Final Rule, US investors would not only be banned from directly investing in China, but restrictions would also be placed on indirect benefits, such as “managerial assistance and access to investment and talent networks.” In simple terms, the US is not only telling its citizens and private industry to stop investing in China, but to avoid any substantial involvement in China’s tech sector altogether.
The Final Rule also states that the “European Commission and United Kingdom (UK) have begun processes to consider whether and how to address outbound investment risks.” Clearly, the US wants its allies to follow suit and isolate China from the global supply chain. This is not the first example of such an incident. In 2023, the US pressured its allies, such as Japan and the Netherlands, to impose export controls on semiconductor-related equipment, a move that was seen as directly targeting China. In 2021, the US had influenced the UK to ban Huawei, one of China’s leading technology giants.
This, ultimately, seems to be an indication of how the future world order would look; it could very well be divided through technology bifurcation into the Western and Chinese camps. This divide would be further exacerbated by the growing importance of AI. Complex AI systems require semiconductors, advanced computers, and hardware to function effectively. Given the immense national security importance of AI, semiconductors, and quantum computing, as stated by the US, if a state were to acquire such critical technologies from the US or China, it could potentially come with some strings attached. States could be forced to choose a side. This would not only be decoupling, but also de-globalisation.
Washington’s push to dictate the global tech order over Beijing signals a shift towards a fragmented technological landscape. The US aims to curb China’s access to critical technologies through regulations and export controls, framing them as vital for its national security. On the other hand, China resists these efforts, viewing them as coercive and restrictive. As allies are pressured to align with the US, the stage is set for a bifurcated global tech order where states must navigate complex and difficult choices. The implications of this decoupling would extend far beyond economic competition; it could very well redefine the balance of power in a rapidly evolving, technology-driven world.
