How Export Controls Impact National Security

China’s Subsidiary Loophole: A Back Door Threat to U.S. National Security Introduction: A Silent Threat Embedded in U.S. Industry While the U.S. government has taken decisive steps to restrict adversarial access to sensitive technology, a critical weakness remains: Chinese subsidiaries. Despite being tied to blacklisted parent companies, many of these entities continue to operate in the U.S. unchecked—exploiting regulatory gaps to obtain controlled technologies and undermine national security from within. Key Issues and Strategic Risks: 1. The Entity List Doesn’t Go Far Enough • The U.S. Department of Commerce’s Entity List restricts companies tied to human rights abuses, surveillance, and military activities, including dozens of Chinese firms. • However, subsidiaries are not automatically included, allowing them to evade restrictions through opaque ownership structures. • This regulatory loophole allows hostile actors to retain access to U.S. technology, despite formal sanctions against their parent entities. 2. China’s Military-Civil Fusion Strategy Is Systematic • Under Beijing’s military-civil fusion doctrine, state-owned firms are directed to acquire foreign technologies and channel them into military applications. • A prime example is the Aviation Industry Corporation of China (AVIC), a conglomerate with hundreds of subsidiaries—many with benign names and deep layers of ownership. • While several AVIC branches are sanctioned, many continue engaging with U.S. firms, posing a clear and present threat to sensitive defense supply chains. 3. Consequences for U.S. National Security • These subsidiaries often circumvent export controls, allowing China to develop advanced weapons, surveillance systems, and aircraft using American innovation. • They create hidden vectors of influence inside U.S. industries—from aerospace and semiconductors to biotech and logistics. • Failure to close this loophole could undermine years of defensive export control policy and place critical defense infrastructure at risk. 4. What Needs to Happen • Experts and lawmakers are calling for automatic inclusion of subsidiaries on the Entity List if their parent companies are listed. • Increased corporate transparency and supply chain tracing will be essential to identifying hidden links to sanctioned firms. • Stronger interagency coordination and enforcement mechanisms must be put in place to block indirect access routes to sensitive technologies. Why It Matters: A Hole in the Firewall Invites Espionage and Exploitation The U.S. cannot afford to wage a defensive policy on only half the battlefield. While headline sanctions grab attention, subsidiaries are the stealth strategy behind China’s global tech acquisition. To safeguard national security, the U.S. must shut the back door before it becomes the front line. Keith King https://lnkd.in/gHPvUttw

Here's the final of the three posts (for today) on the bipartisan U.S.-China Economic and Security Review Commission top recommendations (apologies for multiple posts). 🌐 Export Controls: A National Priority 🌐 Following the 9/11 attacks, the sanctions community was dramatically revitalized and made operational. This includes a closer link to the Office of the Director of National Intelligence and law enforcement community. To date, there has been no similar comprehensive endeavor in the export control space. As a result, the export control community, while adapting, is not yet provided with the resources and prioritization needed. ( 🎩 tip to Peter Harrell) Here's the recommendation: 4️⃣. To enhance the effectiveness of export controls, Congress should: ➡ Improve the analytic and enforcement capabilities of the Bureau of Industry and Security-U.S. Department of Commerce by providing resources necessary to hire more in-house experts; establish a Secretary’s Fellows Program to more effectively attract interagency talent; expand partnerships with the national labs; increase access to data and data analysis tools, including the acquisition of proprietary datasets and modern data analytic systems; and hire additional agents and analysts for the Office of Export Enforcement. ➡ Amend the Export Control Reform Act to require that within 30 days of granting a license for export to entities on the Entity List, including under the Foreign Direct Product Rule, BIS shall provide all relevant information about the license approval to the relevant congressional committees, subject to restrictions on further disclosure under 50 U.S.C. §4820(h)(2)(B)(ii). ➡ Direct the president to: ▶ Designate a senior official to coordinate efforts across the Administration to prioritize bilateral and multilateral support for U.S. export control initiatives; and  ▶ Establish a Joint Interagency Task Force, reporting to and overseen by the national security advisor and with its own budget and staff, to assess ways to achieve the goal of limiting China’s access to and development of advanced technologies that pose a national security risk to the United States. The task force should include designees from across the Executive Branch. It should assess the effectiveness of existing export controls; provide advice on designing new controls and/or using other tools to maximize their effect while minimizing their negative impact on U.S. and allied economies; and recommend new authorities, institutions, or international arrangements in light of the long-term importance of U.S.-China technology competition.  ▶ Codify the “Securing the Information and Communications Technology and Services Supply Chain” Executive Order to ensure that as the authority is used more robustly, challenges to its status as an executive order will not constrain BIS’s implementation decisions or delay implementation. https://lnkd.in/eWwCCd5A

Maintaining #H2O inference‑chip #exportcontrols on #China isn’t about politics—it’s about #nationalsecurity. Today, I joined a letter to Commerce Secretary Howard Lutnick highlighting why these controls must stay in place: 🔧 Strategic #DualUse Risk – H2O chips power far more than cloud services. Under China’s Military‑Civil Fusion doctrine, they fuel #PLA autonomous vehicles, electronic warfare systems, and decision‑support AI. 🚚 Illegal Transshipment & Stockpiling – Beijing’s firms are already routing chips through third‑country hubs and aggressively stockpiling to build hidden reserves. Relaxing controls now simply hands them the compute they need. ⚡ Preserving U.S. Compute Leadership – The United States pioneered modern AI, in part thanks to early Trump‑era export controls on advanced #semiconductors. Rolling them back risks ceding our edge to an adversary with a documented history of reverse‑engineering and militarizing Western tech. 🚨 Not a Partisan Issue – This letter brings together specialists from across the political spectrum. Our message is clear: safeguarding our compute #supplychains transcends party lines and demands a unified national‑security approach. Locking down AI‑specialized chips is one of the most urgent challenges of our time. If we don’t act now, the PLA will gain capabilities that could shift the balance in future conflicts. #H2OChips #ExportControls #NationalSecurity #ComputeEdge #PLA #MilitaryCivilFusion #TechPolicy #USChinaRelations #FDDInsights #geopolitics #indopacific #foreignpolicy #foreignaffairs #AI #AIinnovation #nvidia #sanctions #duediligence #transshipment #AIChips #SupplyChainSecurity #uschinarelations #DefenseTech #militaryinnovation #innovation #EmergingTech #techpolicy https://lnkd.in/ex3GTpGy

🚨 New report from #congress highlights significant national security risks posed by the #AI chatbot #DeepSeek. Key findings include: ➡️DeepSeek funnels American users' data to the People's Republic of China (PRC) through infrastructure connected to a U.S.-designated Chinese military company. This data transmission lacks meaningful security measures, exposing it to interception. ➡️The chatbot covertly manipulates information to align with Chinese Communist Party (CCP) propaganda as mandated by Chinese law, without user disclosure. This includes suppressing discussions on politically sensitive topics. ➡️There is a high likelihood that DeepSeek utilized unlawful "model distillation" techniques to steal reasoning capabilities from leading U.S. AI models, violating their terms of service. ➡️DeepSeek's AI model appears to be powered by advanced Nvidia chips, including tens of thousands of units restricted from export to the PRC, potentially acquired through illicit means and intermediary countries. So what should we do? 💡The report recommends swift action to expand export controls, improve enforcement, and specifically address risks from PRC AI models like DeepSeek. This includes measures such as increased funding for export control agencies, broadening the scope of export restrictions on chips and manufacturing equipment, imposing remote access controls on AI infrastructure trained with U.S. technology, and establishing whistleblower programs for export control violations. It also emphasizes the need for the U.S. government to prevent and prepare for strategic surprise related to advanced AI. through improved interagency coordination and monitoring of adversarial progress. #AI #NationalSecurity #China #DeepSeek #ExportControls #TechnologyPolicy #cybersecurity #emergingtech

📉 New CSIS visualization of U.S. EIA data highlights a looming disruption in ethane trade. Due to new licensing requirements for ethane exports to China—the largest U.S. buyer—exports are projected to fall by 177,000 barrels per day by 2026, a nearly 30% drop. China currently accounts for almost half of all U.S. ethane exports, but all future shipments now require a special license due to national security concerns. 🔍 While aimed at limiting military risk, these restrictions may prove counterproductive. China’s petrochemical sector is flexible—able to switch feedstocks—while U.S. exporters are left with stranded cargo, contract uncertainty, and weakened credibility with global partners. 💡 The bottom line: Export controls must be strategic—not symbolic. Poorly designed policies risk economic self-harm without achieving national security goals. Smart controls require rigorous sectoral analysis, interagency coordination, and clear cost-benefit review. 👉 Explore our latest: https://lnkd.in/eAh-SpCu #EnergySecurity #ExportControls #TradePolicy #Ethane #USChina #Petrochemicals #Geoeconomics #SupplyChains #EnergyDiplomacy @Center for Strategic and International Studies (CSIS) @CSIS Economic Security and Technology Program https://lnkd.in/eAh-SpCu

In October 2022, the United States imposed sweeping restrictions on the export of advanced chips and chip-making equipment. The move, which followed steps taken in the first Trump administration to curtail China’s access to cutting-edge semiconductors, jump-started a comprehensive effort to cut China off from the world’s most powerful computer processors—the inputs required to develop and run sophisticated artificial intelligence systems that could be used to power autonomous weapons, conduct mass cyberattacks, and augment intelligence collection. Officials knew that U.S. export controls could not succeed on their own. The semiconductor supply chain is global, and countries such as Japan, the Netherlands, and South Korea produce equipment, materials, and components that are key to chip production. Truly hindering China’s progress would require persuading those countries to act in concert with the United States. Officials in the first Trump administration successfully pressured the Dutch to stop selling its most advanced chip-making equipment to China. Building on this effort, the Biden administration began a systematic diplomatic push to curtail China’s access to advanced technologies. This approach has obvious upsides. Other countries produce semiconductor technologies that would greatly enhance China’s ability to manufacture advanced chips. The Dutch firm ASML, for example, is the only company in the world currently able to build the extreme-ultraviolet lithography machines needed to print intricate designs on the most advanced chips. Plurilateral controls also prevent Chinese firms from simply replacing U.S. equipment with, say, Dutch or Japanese alternatives. And working with allies and partners fit with the Biden administration’s overall preference for diplomacy over unilateralism. The strategy achieved notable successes: the Dutch and the Japanese announced their own semiconductor export controls in 2023 and again early this year. But there were downsides, too. Coordinating controls takes time and requires difficult compromises, and in the meantime China was able to stockpile large quantities of advanced chips and equipment. It can be tempting to jettison diplomacy in favor of a more aggressive, unilateral approach, especially amid concerns about a shrinking U.S. lead in the AI competition with China. That President Donald Trump’s second administration has generally favored unilateral action makes such a move even more likely. But the United States should be realistic about the benefits and the substantial risks of going it alone. Expanding extraterritorial U.S. restrictions on selling materials and equipment to China may help Washington maintain a technological edge over Beijing in the short term only however. https://lnkd.in/gHsuUSyX

China's Mineral Export Ban: What to Know On December 3, 2024, China imposed an export ban on gallium, germanium, and antimony to the U.S., coupled with stricter graphite reviews, following expanded U.S. restrictions on advanced chip sales. These minerals are critical for electric vehicles, electronics, and military equipment. With no domestic gallium, germanium, or antimony production, the U.S. faces a significant $3.4 billion economic impact, underscoring its vulnerability to China's mineral dominance. While germanium recycling offers a stopgap, long-term supply chain resilience will be a big challenge. My Take The $3.4 billion economic impact represents the projected decrease in the U.S. GDP due to China's export ban on gallium and germanium. The U.S. Geological Survey developed the estimate using a model assessing the effects of critical mineral supply disruptions on the U.S. economy.  Disruptions to gallium, germanium, and antimony threaten U.S. national security by undermining advanced military technologies, including radar systems, thermal imaging, secure communications, and satellite infrastructure, critical for defense and intelligence operations. This latest escalation highlights the urgency of the U.S. accelerating domestic mining, recycling technologies, and partnerships with allied nations to secure critical minerals. Building supply chain resilience will support our economy and national security. #CriticalMinerals #SupplyChainResilience #Geopolitics #China #RareMetals #USManufacturing #TechIndustry #EVs #NationalSecurity #MineralShortages Link to article: https://lnkd.in/einmNRMq Credit: Visual Capitalist Get Ahead with the Latest Tech Insights!  Explore my searchable blog: https://lnkd.in/eWESid86

In its first 120 days, the second administration of U.S. President Donald Trump has fast-tracked efforts to strengthen critical mineral supply chains on which the aerospace and defense industry relies, but China continues to dominate. Excerpts from my feature story for Aviation Week Network below: Beijing has weaponized that dominance—60% of global production and 85% of processing—to gain leverage in what it sees as a long-term techno-industrial competition with the U.S. that will outlast the current trade war. China has curbed exports of at least 16 minerals to the U.S., including a ban on shipments of gallium, germanium and antimony. The flurry of actions by the Trump administration—from executive orders to boost domestic production to ambitious bilateral deals with allies—underscores Washington’s sense of vulnerability about a paramount node of its defense industrial base. Virginia-based defense acquisition software company Govini estimates that China’s export controls affect more than 1,000 Pentagon weapon systems and more than 20,000 individual parts. If China does not ease recent critical mineral export restrictions, “a risk factor for U.S. defense is the impact on production schedules in 2025-26,” Capital Alpha Partners Managing Director Byron Callan wrote in a May 27 client note. The U.S. has no domestic suppliers for 12 of the 50 metals considered critical and is more than 50% reliant on imports for 29 others, according to the Paris-based International Energy Agency, an intergovernmental organization. Mahnaz Khan, vice president of policy for critical supply chains at the Silverado Policy Accelerator, tells Aviation Week that “this administration has been very intentional” in its approach to strategic metals. “Attacking on both fronts [domestic and international] makes sense if enough investors are interested,” Khan adds. “We need American champions domestically, but we also have to compete abroad and help develop projects abroad in ways that align with America’s national and strategic interest,” Matt Sloustcher, MP Materials’ executive vice president of corporate affairs, tells Aviation Week. With a large industrial base for chemical processing, “you see the right sort of pieces in the Middle East” to build new mineral supply chains, he says. #aerospace #defense #military #nationalsecurity #commodities #mining #minerals #supplychain #manufacturing #middleeast #saudiarabia #rtx #lockheedmartin https://lnkd.in/ekHuUMiq

(c) The Secretary of State and the Secretary of Commerce, in cooperation with the heads of other agencies with export control authorities, shall review the United States export control system and advise on modifications in light of developments involving strategic adversaries or geopolitical rivals as well as all other relevant national security and global considerations. Specifically, the Secretary of State and the Secretary of Commerce shall assess and make recommendations regarding how to maintain, obtain, and enhance our Nation’s technological edge and how to identify and eliminate loopholes in existing export controls -– especially those that enable the transfer of strategic goods, software, services, and technology to countries to strategic rivals and their proxies. In addition, they shall assess and make recommendations regarding export control enforcement policies and practices, and enforcement mechanisms to incentivize compliance by foreign countries, including appropriate trade and national security measures. https://lnkd.in/ea2b798e

U.S. Announces New Semiconductor Export Controls Targeting China: Key Highlights On Monday, the United States introduced its third major crackdown on China's semiconductor industry in three years, imposing sweeping export restrictions on 140 companies, including Naura Technology Group. These measures, unveiled by the Commerce Department, target multiple facets of chip manufacturing and aim to protect national security interests. Key Actions Include: ▪️ Chip Equipment Controls: Restrictions on tools essential for advanced-node integrated circuits (e.g., etch, lithography, and metrology) could impact companies like Lam Research, KLA Corp, Applied Materials, and Dutch firm ASM International. ▪️ Software Restrictions: Advanced software tools, especially those enabling less-sophisticated equipment to produce advanced chips, face new controls. Affected companies may include Siemens’ Mentor Graphics. ▪️ Memory Technologies: Export restrictions on high-bandwidth memory (HBM2 and higher) used in AI chips may disrupt Samsung, SK Hynix, and Micron Technology, with Samsung notably generating 20% of its HBM sales in China. ▪️ Entity List Expansion: The addition of 140 entities—including fabs and private equity firms like Wise Road Capital and Wingtech Technology—means most license applications for exports to these firms will likely be denied. ▪️ Foreign Direct Product Rule: Expanded rules will regulate chip equipment exports globally, tightening controls over foreign-manufactured tools with U.S. content. These developments mark another escalation in the U.S.-China tech competition, with significant implications for global semiconductor supply chains. How might these rules reshape the industry’s dynamics? Thanks again to Reuters for the full article with more background and insights click the source link in the comments below. #Semiconductors #TechPolicy #USChinaRelations #ChipIndustry #ExportControls #NationalSecurity #AIChips #GlobalTrade