How a wonky Commerce rule could disrupt AI companies
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Megan Robinson/Axios
An export control rule from the Commerce Department is set to create a major new layer of work for AI and tech companies with global supply chains and partners.
Why it matters: The move is a clear win for national security hawks who want U.S. tech firms to retreat from business partnerships with companies in China and other countries deemed to be national security risks.
- The compliance challenges for businesses could be significant, some observers warn.
Driving the news: Commerce's Bureau of Industry and Security issued the interim final "50% rule," which extends licensing restrictions to subsidiaries of entities on U.S. export control and sanctions lists, earlier this week.
- As the name implies, the rule applies to companies more than half owned by one or more restricted entities.
- The Commerce Department says that this closes a loophole that allowed subsidiary businesses of listed companies to evade export restrictions.
What they're saying: "By flipping this kind of light switch on, you're automatically prohibiting some of the most egregious violators of U.S. export control laws over the last several years, companies that operate all over the world, not just in China," Kit Conklin, a former senior adviser to the House Select Committee on China and now a senior vice president at Exiger, told Axios.
- Industry has known this move was coming, he said, and it provides necessary clarity for companies trying to compete globally.
The other side: Some are warning that the 50% rule is too severe for companies to comply with while they're trying to accelerate on AI.
- "The irony is that this is happening at the very moment the administration is calling for an 'all-in' push on artificial intelligence and advanced technology," said Joseph Hoefer, principal and AI policy lead at Monument Advocacy, which represents tech firms.
- "If American firms are tied up chasing ownership records and watching license applications get returned 'without action,' the U.S. could end up stifling its own innovation while adversaries with looser regimes move forward."
Whether the rule is effective in protecting national security will depend on two factors, said Thea Kendler, former Commerce assistant secretary for export administration.
- One is whether companies, especially medium and small ones, can handle the compliance demands of this new export control rule.
- "You now have a whole new bunch of due diligence that you have to do regardless of whether you're in a sensitive industry, regardless of whether you're dealing with China," Kendler said.
- Two is how well the government can enforce this — and what they're going to do when they find violations.
Zoom in: One AI company, Anthropic, took action a month ago that's similar to the bureau's rule by deciding to cut ties with companies if they're more than 50% owned by a parent company in China.
The bottom line: The new rule could bolster the Trump administration's export control policy, but at the cost of imposing heavy compliance burdens that risk slowing down AI ambitions.
