Economy

US Tightens Export Controls: How China’s Tech Sector Braces for Impact

U.S. expands export restrictions, automatically including subsidiaries. China condemns the move, anticipating supply chain disruptions.

byAndres Castro

September 29, 2025, 9:58 PM

Robotic arms in a factory setting with bright industrial lighting

Several robotic arms, one white and one orange, are shown in a factory setting, with bright industrial lighting illuminating the machinery. By MDL.

Executive Summary

The U.S. Commerce Department has expanded export restrictions to automatically include subsidiaries 50% or more owned by companies already on its Entity List, aiming to prevent circumvention of existing technology curbs.

This new rule primarily targets Chinese entities in sectors like older chip production, aircraft manufacturing, and medical equipment, and is expected to cause significant disruptions across global supply chains.

China’s Commerce Ministry has strongly condemned the U.S. action as “extremely egregious,” asserting that it infringes on legitimate enterprise rights and severely undermines international trade and supply chain stability.

The Story So Far

The U.S. has long utilized its Entity List to restrict technology exports to specific foreign companies, primarily Chinese, citing national security and foreign policy objectives. The current expansion of these controls, automatically including subsidiaries of listed firms, directly addresses concerns that companies were circumventing existing restrictions. This action reflects the ongoing strategic competition and escalating tensions between the U.S. and China over technological dominance and global supply chain control.

Why This Matters

The U.S. Commerce Department’s expanded export restrictions, which now automatically include subsidiaries 50% or more owned by blacklisted companies, aim to prevent primarily Chinese firms from circumventing existing curbs on critical technologies. This measure is poised to significantly increase the number of entities subject to U.S. controls, creating disruptions across global supply chains, particularly impacting sectors like chip production and aircraft manufacturing, while further escalating U.S.-China economic tensions as Beijing strongly condemns the “egregious” move.

Who Thinks What?

The U.S. Commerce Department believes the new rule effectively “closes a significant loophole” in existing export controls, preventing firms from circumventing restrictions on critical technologies and reinforcing national security objectives.

China’s Commerce Ministry strongly condemns the U.S. rule, asserting it is “extremely egregious in nature,” infringes upon the rights of affected enterprises, disrupts international trade order, and undermines global supply chain stability.

Legal experts, such as Dan Fisher-Owens, anticipate that companies on the Entity List may respond to the expanded restrictions by restructuring their ownership to evade controls, suggesting that the “game of whack-a-mole will continue.”

The U.S. Commerce Department has significantly expanded its export restrictions, announcing a new rule that automatically includes subsidiaries 50% or more owned by companies already on its Entity List. This measure, issued on Monday, aims to prevent firms from circumventing existing curbs on critical technologies, primarily impacting Chinese entities and signaling potential disruptions across global supply chains.

Expanded Export Controls

The new rule requires U.S. exporters to obtain licenses before shipping goods or technology to these newly captured subsidiaries, with many such applications likely to face denial. The Commerce Department stated the action “closes a significant loophole,” addressing concerns that new foreign companies could be created to evade existing Entity List restrictions.

This expansion greatly increases the number of companies subject to U.S. export controls. It also places a greater burden on exporters to determine ownership structures before proceeding with transactions, though a 60-day grace period may apply for certain transactions.

China’s Condemnation

China’s Commerce Ministry strongly criticized the U.S. rule, issuing a statement calling the move “extremely egregious in nature.” The ministry argued that it “seriously infringes upon the legitimate rights and interests of the affected enterprises, severely disrupts international economic and trade order and gravely undermines the security and stability of global industrial and supply chains.”

Impact on Key Sectors and Companies

While the Entity List includes companies worldwide, experts anticipate the change will most significantly affect Chinese entities. Sectors such as older, less sophisticated chip production, aircraft manufacturing, and medical equipment are likely to experience repercussions.

Chinese technology giants like Huawei, video surveillance firm Hikvision, and drone manufacturer DJI are cited as examples of companies that may be impacted by the expanded restrictions. Many Huawei subsidiaries are already listed, but not all.

An analysis by data company Kharon indicated that the rule could bring thousands of previously unlisted subsidiaries in nearly 100 countries, including major trade and finance hubs like the EU, the United States, and Japan, under export control scrutiny.

Broader Context

The Entity List, first established in 1997, traditionally applied restrictions only to specifically named companies or organizations. The latest amendment is similar to the “50% rule” enforced by the Treasury Department’s Office of Foreign Assets Control for sanctioned entities.

The timing of this rule’s release is considered surprising by some, given ongoing U.S.-China trade discussions. It also contrasts with Washington’s recent decision to loosen controls on certain AI chips to China, such as Nvidia’s H20.

Despite the tightening, legal experts like Dan Fisher-Owens suggest that companies on the Entity List may respond by restructuring their ownership, indicating that the “game of whack-a-mole will continue.”

Outlook

This expansion of the Entity List represents a significant escalation in U.S. export controls, particularly targeting China’s economic and technological ambitions. While designed to reinforce national security and foreign policy objectives, it is expected to create complexities for global supply chains and draws strong condemnation from Beijing, signaling ongoing tensions in U.S.-China economic relations.