On October 10, President Donald Trump accused China of attempting to “hold the world captive” through its rare-earth export controls and threatened “financial countermeasures” in response. His remarks underscore a new strategic reality: Export controls are no longer a national security framework to regulate sensitive technologies; they are now a key instrument that can be used in the broader US-China rivalry.
Evolving role of export controls – What once operated as a technical mechanism to control the export of sensitive dual-use technology, is becoming increasingly used as an instrument for power projection. Both the US and China are racing to shore up leverage through their export control regimes ahead of their upcoming meeting on the sidelines of APEC next month. In Washington, export controls are being used to extend jurisdiction upstream through ownership and service-based rules. Beijing, meanwhile, is asserting control downstream by leveraging its dominance over raw materials and the production process. Tensions have escalated in recent months, with both sides introducing increasingly sweeping measures to shape the negotiating environment in advance of their meeting.
US Export Control Regime
- Bureau of Industry and Security (BIS) Crackdowns – A New 50% Rule and Entity List Additions – On September 29, the BIS released its long-anticipated “Affiliates Rule,” extending the sanctions-related concept of a 50% ownership threshold to export controls. Under this interim final rule, any unlisted entity that is 50% or more owned – directly or indirectly, individually or in aggregate – by a party on the Entity List or Military End-User (MEU) list is now automatically subject to the same US export restrictions as the listed parent. This new end-user restriction represents one of the most consequential regulatory shifts in US export controls since the introduction of the Foreign Direct Product Rule. On October 8, BIS added 19 Chinese entities to the Entity List, citing their involvement in supplying sensitive technology to Iran, specifically for use in Iranian unmanned aerial vehicles (UAVs).
- Red Flag 29 creates legal duty to investigate affiliate ownership – In conjunction with the Affiliates Rule, BIS updated its Entity List FAQs to clarify the compliance expectations under the new “Red Flag 29.” The guidance reiterates the language of the rule, namely that exporters are obligated to suspend transactions when ownership of an unlisted foreign affiliate, linked to a listed entity, is unclear or questionable. Red Flag 29 transforms what had been due diligence best practice into a legal obligation. Under the Affiliates Rule, an exporter has an affirmative duty to determine the percentage of ownership that a listed entity has in an unlisted affiliate. If the level of ownership cannot be confirmed, a BIS license must be obtained before proceeding. Failure to do so could result in an export control violation, if it is later determined that the affiliate was more than 50% owned by a listed entity.
- Legislative pressure – Congress is reinforcing this strategy. The House Select Committee on the Chinese Communist Party’s recent report, “Selling the Forges of the Future,” calls for an extension of US export controls on semiconductor manufacturing equipment to cover servicing, maintenance, software updates and joint-venture operations. The proposal reflects the core logic of the Affiliates Rule: jurisdiction is based on control and dependency, not geography.
China’s Distinct and Strategic Response:
- Rare-earth licensing extension – On October 9, China’s Ministry of Commerce issued Decrees No. 61 and 62 (the “Rules”), extending licensing requirements to virtually all rare-earth technologies. Critically, they apply not onlyto Chinese-origin goods, but also to foreign-made goods with 0.1% or more Chinese rare-earth technologies. Companies exporting these products now must obtain Chinese licenses, effectively projecting Chinese jurisdiction downstream into foreign supply chains. This structure mirrors the US BIS Affiliates Rule, but through material and process tracing rather than ownership. Because China produces more than 80% of the world’s rare earths, these Rules could impact the critical supply chains of semiconductors, electric vehicles and defense systems worldwide.
- Flexible leverage through licensing – The Rules are uniquely flexible; written to allow Beijing to tighten or relax licensing based on geopolitical conditions. They also introduce case-by-case reviews for exports linked to the research and development, or production of logic chips at 14 nanometers or below, artificial intelligence (AI) applications with military potential and other specified categories, effectively tying rare-earth licensing to advanced technology end-uses. In this way, China is integrating its rare-earth regime into broader technology controls. While the legal structure is designed to mirror US extraterritoriality, its leverage stems from choke points in materials and production processes, rather than ownership or services.
US-China Regulatory Symmetry
The BIS Affiliates Rule aimed to close “loopholes” in the US export control system through affiliate structures and service dependencies; Beijing’s licensing regime seeks to close loopholes in material traceability. Both systems justify and reinforce one another. US officials point to China’s material coercion as proof of the need for expanded jurisdiction, whereas Chinese officials cite US extraterritoriality to justify their export conditionality. Both measures indicate strategic prepositioning ahead of the upcoming APEC summit.
What’s Next for Firms and Industry?
Companies now face dual pressures:
- From the US, exporters must verify the ultimate ownership and end-use of certain entities before shipping
- From China, firms must navigate longer approval timelines and uncertainty around rare-earth supply
Together, these developments are tightening global supply chains, reducing operational flexibility and prompting long-term strategic adjustments.
Geopolitical Context
Both Washington and Beijing are using new trade restrictions to maximize their leverage ahead of the APEC summit. Whether a Trump-Xi meeting results in a lasting standoff, or will resume the detente in relations will likely depend on political calculations, not regulatory logic. US officials have signaled possible coordinated retaliation, if Beijing refuses to relax its rare-earth policies, while Chinese officials have defended their actions as driven by national security concerns. Neither side appears ready to compromise before leader-to-leader talks. As APEC approaches, the real question isn’t whether the two leaders can come to an accord; it’s whether either will be willing to rethink the legal and regulatory frameworks they’ve already set in motion. The answer will shape not just the future of US-China relations, but the wider operating environment for every firm and government tied to advanced technology supply chains.
