The bill's passage comes days after President Joe Biden expanded a list of Chinese companies whose shares are off-limits to American investors due to their purported links to the Chinese military and surveillance.
The centerpiece of the bill is a $50-billion emergency allotment to the Commerce Department to support semiconductor development and manufacturing through research and incentive programs previously authorized by Congress.
The executive order, which takes effect August 2, is the latest indication that Biden has not softened the USA stance on alleged security risks from companies American officials say are linked to the Chinese "military and industrial complex".
China's parliament expressed "strong indignation and resolute opposition" to the bill.
"The bill shows that the paranoid delusion of egoism has distorted the original intention of innovation and competition", it said, according to a report by the official Xinhua news agency.
China's Commerce Ministry in early June said China and the United States had agreed to pragmatically solve bilateral issues and restart normal communications.
The bill must pass the House of Representatives to be sent to the White House for Biden to sign into law. It is not clear what legislation in the House will look like or when it might take it up. It would also allow diplomats and Taiwanese military to display their flag and wear their uniforms while in the United States on official businesses.
Senate Majority Leader Chuck Schumer, a co-sponsor of the measure, warned of the dire consequences of not funding research to keep up with China.
The possibility of a U.S. trade deal with Taiwan is likely to infuriate Beijing, which sees the democratic, self-ruled island as part of its territory which is to be seized one day, by force if necessary, and rages at any diplomatic attempts to recognize it as an independent nation. We don't mean to let those days end on our watch.
The bill also calls for stepped up cooperation with U.S. allies that possess high-level technical capabilities, including Japan, in the area of economic security.
Schumer called the measure "one of the most important things this chamber has done in a very long time, a statement of faith in America's ability to seize the opportunities of the 21st century".
"As other countries continue to invest in their own research and development, we can not risk falling behind".
However, President Biden praised the bill's passage. The bill includes $52 billion to encourage U.S. manufacturing of semiconductor chips - an effort to address the current global shortage that has hit supply chains in numerous industries.
The bill also seeks to counter Beijing's growing global influence through diplomacy, by working with allies and increasing US involvement in worldwide organizations after Republican former President Donald Trump's "America First" agenda.