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Topic: Artificial Intelligence (AI), and Trade Blog Brand: Techland Region: Americas, and Asia Tags: China, Chips, Export Controls, North America, Semiconductors, United States, and US-China Relations What the Affiliate Rule Reversal Reveals About US Export Controls for Tech Firms December 26, 2025 By: Emily Ezratty
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The suspension of the Affiliate Rule creates inconsistent US export controls for US technology firms, introducing compliance whiplash, weakening innovation incentives, and unintentionally advantaging Chinese tech firms.
The Department of Commerce’s Bureau of Industry and Security (BIS) announced a new rule that expands export control restrictions to any entities that are majority-owned (at least 50 percent) by parties on the Entity List and Military End-User (MEU) List. While previous export restrictions required prior US identification of individuals or entities, the Affiliate Rule shifted enforcement to an ownership-based model. Also referred to as the 50 percent Rule, the imposition of the Affiliate Rule, and its subsequent suspension, reflects a broader trend in Washington where suspensions, carve-outs, and inconsistent guidance for export control policy are all too common. Since President Biden’s 2022 landmark export control policies were announced, US technology firms have been inundated with frequent BIS revisions, new rules, and increased designations. The Affiliate Rule’s suspension highlights a fundamental challenge for US industry, which must comply with shifting rules while contending with the rising uncertainty that undermines long-term planning, innovation, and global competitiveness.
The Affiliate Rule Closes Enforcement Loopholes
The 50 percent Rule drew praise for closing vital enforcement loopholes that had previously allowed Chinese firms to bypass US export restrictions through subsidiaries and affiliates. Under the rule, firms that are majority-owned by designated entities could no longer utilize front companies, affiliates, or subsidiaries to bypass export restrictions. These tactics have been particularly consequential for Chinese firms, which tend to operate large networks of subsidiaries. For example, a 2019 study from the University of Toronto found that 264 Chinese state-owned enterprises accounted for nearly 60,000 subsidiaries. In a significant move to harden export policies, the introduction of the Affiliate Rule also created new compliance requirements for US firms interacting with international consumers, including additional due diligence, BIS license applications, and license identifications (official numbers assigned by BIS to track approved exports).
However, following a series of trade negotiations between the United States and China, the White House suspended the rule for a year, beginning on November 10, 2025. The announcement came as part of a broader trade deal with China. US Treasury Secretary Scott Bessent explained that the United States would suspend the 50 percent Rule in exchange for China’s suspension of export controls on rare earth minerals. For US firms, the suspension offers short-term relief from compliance burdens and supply-chain uncertainty in exchange for continued exposure to policy swings once the one-year suspension expires.
Policy Uncertainty Dampens AI and Emerging Technology Innovation
The United States has increasingly used the manipulation of tariffs, export controls, and sanctions as foreign policy tools. While these measures are critical for advancing foreign policy objectives, rapid implementation, without providing support for firms affected by trade shifts and retaliatory measures, can make it difficult for firms to conduct their day-to-day operations. Shifting policies ultimately increases overall costs for US firms, forcing firms to renegotiate contracts, restructure supply chains, and update compliance procedures, often without clear guidance on what future regulations might require.
Following US export restrictions against Chinese tech giant Huawei, US technology companies lost $33 billion in sales between 2021 and 2024. In addition, the People’s Republic of China (PRC) imposed retaliatory measures against US firms, including restricting US firms from selling telecommunications infrastructure to Chinese firms, phasing out foreign-made technologies, and designating additional firms to China’s own version of the Entity List, the “Unreliable Entity List.” Nvidia CEO Jensen Huang complained, “All in all, the export control was a failure,” referring to the increased market share of Chinese artificial intelligence (AI) firms.
Not only do these inconsistencies undermine regulatory certainty for American businesses, making it more difficult for firms to comply with trade regulations and make long-term investments, but variable policies also adversely harm the United States’ ability to compete in the global technology race. Unpredictable guidance stifles firms’ ability to invest in long-term technological innovation and encourages foreign firms to stockpile US-made technology. Amidst an unpredictable regulatory environment, US firms across sectors struggle to manage supply chains effectively and navigate compliance requirements. When companies cannot anticipate future regulatory landscapes, they are less likely to invest in research and development (R&D) or commit resources towards emerging technologies, particularly in fast-moving fields like AI and advanced manufacturing.
Incentivizing Chinese Stockpiling of Chips
For Chinese firms, the policy reversal is a welcome opportunity to stockpile formerly restricted goods. Stockpiling in anticipation of new restrictions has become a standard strategy for Chinese companies seeking to secure critical technologies. In 2022, in advance of export restrictions on A800 and H800 chips, Chinese firms purchased $9 billion in chips from Nvidia. Similarly, preempting export controls restricting Nvidia’s H20 chips, Chinese firms ByteDance, Alibaba, and Tencent spent $16 billion on stockpiling units during the first quarter of 2025. In the case of the 50 percent Rule, Chinese firms aren’t merely guessing at when the next export controls will restrict trade–the United States government has published the date. Contrary to the intentions of policymakers, the 50 percent Rule reversal paradoxically encourages majority-Chinese-owned firms to stockpile goods that they will no longer be able to purchase come November 2026. This temporary reprieve may give Chinese firms access to larger quantities of high-performance computing (HPC) chips than they may have otherwise purchased, potentially accelerating Chinese AI and semiconductor development.
The Strategic and Military Implications of Regulatory Whiplash
Amidst an uncertain regulatory environment, international competitors race ahead in their efforts to erode US technological leadership and long-term competitiveness. Meanwhile, the PRC doubles down on state-led support for domestic industries, including funneling large subsidies, tax breaks, and direct investments into semiconductor firms to accelerate R&D and manufacturing. For sectors with military applications, including the semiconductor industry, this may diminish US military advantages that stem from high-performance computing capabilities. US firms, burdened with shifting export rules, compliance costs, and market exclusion, face shrinking revenue and diminished reinvestment capacity.
Export controls and other economic security measures are vital for protecting national security interests. However, they’re only effective when they’re predictable and enforceable. The United States must prioritize the consistent implementation of export control policies in order to balance regulatory stability and secure the nation’s technological future.
About the Author: Emily Ezratty
Emily Ezratty is an incoming master’s candidate at Georgetown University’s Security Studies Program. Her research focuses on the intersection of defense innovation, emerging technologies, and national security strategy. She holds a BA in International Affairs and Economics from the University of Georgia.
Image: Domenico Fornas/shutterstock
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Источник: nationalinterest.org