Treasury Should Tweak Outbound Investment Rules for AI, Expert Says

The Treasury Department should “carefully scope” its proposed new outbound investment restrictions (see 2308090066 and 2310050035) to ensure U.S. capital does not help China’s military develop its artificial intelligence capabilities, a U.S. congressional commission heard this month.

For example, instead of prohibiting investment in AI that is designed “exclusively” for military, government intelligence, or mass-surveillance uses, as Treasury has proposed, the department should change the language to “intended, entirely or in part” to reflect the dual-use nature of AI, said Ngor Luong, senior research analyst at the Center for Security and Emerging Technology.

"While there are AI systems designed specifically for military purposes, most are designed to have flexible models and customizable uses where users can fine-tune the model to their needs," Luong testified during a Feb. 1 hearing by the U.S.-China Economic and Security Review Commission. "There is evidence that Chinese military entities have acquired AI systems that are not exclusively designed for military uses."

While Treasury has proposed restricting investment in certain technology sectors, Luong said she favors an entity-based approach for military AI to “prevent the U.S. government from having to determine which AI systems are designed for military purposes.”

Luong also said the investment restrictions will be more effective if the U.S. coordinates with allies and partners to track the flow of venture capital and private equity funding into Chinese AI companies.

“CSET research found that Chinese AI companies also attract investment from foreign investors other than the United States,” she said. “Any unilateral U.S. action will be weaker without the help of U.S. allies and partners.”

To help U.S. policymakers better understand China’s science and technology capabilities, including in AI, Luong recommended creating a center outside the intelligence community to collect and analyze open-source intelligence and share it with allies and partners.

U.S. policymakers also need additional intelligence on China’s advances in biotechnology, said another hearing witness, Michelle Rozo, vice chair of the congressionally mandated National Security Commission on Emerging Biotechnology. While the U.S. is a “global leader” in biotechnology, “that status is increasingly threatened by China’s strategic actions,” she said.

Rozo’s commission outlined the scope of its research in a report released in January. It is developing recommendations to strengthen U.S. leadership in the sector, and it plans to include them in a report to Congress in December.

A third hearing witness, Jeffrey Nadaner, senior vice president of government affairs at Govini, recommended imposing a “much stiffer tariff” on Chinese advanced batteries and components to help re-shore the sector, whose products are used in automobiles, critical infrastructure and military weapon systems. He also endorsed tariffs for Chinese electric vehicles and parts to help U.S. companies, particularly small ones, compete against their subsidized Chinese counterparts.

Tariffs would be more effective if coordinated with allies and partners, some of which have their own battery technology, Nadaner said. “It would be extraordinarily difficult for us to do this alone,” he said. "With allies, it's eminently possible."