Control, Not Trade

The US-China trade conflict has entered a new phase, far more precise, more technical, and far harder to unwind. This is no longer just about tariffs and trade deficits. It’s about regulatory reach, infrastructure sovereignty, and who sets the rules for the next industrial era.

Let’s unpack the week’s developments.

The BIS Affiliate Rule: Export Controls Tighten

On October 1, the US Bureau of Industry and Security (BIS) implemented the Affiliate Rule, an extension of its Entity List regime. This move:

• Automatically blacklists subsidiaries of already-listed Chinese entities.

• Targets companies 50%+ owned by restricted entities, including Huawei and SMIC.

• Forces exporters to conduct deeper due diligence, not just on counterparties but also on control structures, co-location and shared personnel.

This effectively ends plausible deniability for exporters relying on narrow interpretations of control. It also puts compliance professionals on the hook for structural opacity, particularly where Chinese firms have used layered ownership or joint ventures to maintain US technology access.

China’s Response: Enforcement, Infrastructure, and Retaliation

Far from passive, Beijing has responded on multiple fronts, with its own playbook of export restrictions, enforcement crackdowns, and policy direction:

1. Enforcement Blitz at the Border

Chinese customs have begun seizing or investigating inbound AI chips, especially NVIDIA’s H20 and RTX Pro 6000D, even though they technically comply with US export rules. The purpose is to end reliance on even "allowed" US technology.

2. Domestic Compute Consolidation

China is building regional AI superclusters (e.g., in Wuhu and Inner Mongolia), subsidizing domestic chip purchases, and linking fragmented data centers using Huawei-developed tech. The goal is to maximize limited compute while bypassing US export restrictions.

3. Strategic Export Controls

Rare earths, battery anodes/cathodes, and magnet tech are now tightly controlled. Worth noting that these are not blanket bans, but rather gated approvals, and a signal that Beijing intends to regulate its leverage, not cut it off entirely.

4. Antitrust and Maritime Pressure

In the meantime, Qualcomm is under antitrust investigation for its Autotalks acquisition. Furthermore, the American-owned ships face RMB 400/ton docking fees, which is a near-symmetric response to US port charges on China-built vessels.

President Trump Posture: Escalation and Election Optics

President Trump has floated the following:

• 100% tariffs on Chinese goods.

• “Large-scale” export controls on software and “virtually every product they make”.

• A halt to ongoing trade talks pending a potential Xi-Trump meeting in South Korea.

The shift seems aimed at electoral optics but the policy consequences are real. Combined with the BIS rule, this forms a coherent effort to regulate global access to US technology.

What This Means for You?

These developments redefine what compliance means:

• Due diligence must be structural extending beyond shareholder registers to include control mechanisms, joint ventures, and Board interlocks.

• Legal is not equivalent to safe: Chinese importers may technically be allowed today, but become secondary exposure risks tomorrow.

• Compliance is now geopolitical, and policy can change faster than contracts.

Final Thought: Systemic Decoupling, Not a Trade Dispute

This isn’t about good guys and bad guys.

It’s about divergent industrial systems carving out separate regulatory and technological spheres. While the US hardens its perimeter around chips and AI, China is building an industrial response: consolidating compute, enforcing compliance, and weaponizing its own levers in rare earths and shipping.

Global economic architecture is being rewritten as we speak, and compliance professionals are among many on its frontlines.

Stay sharp. Stay compliant. And if your legal risk tolerance hasn’t shifted since Q2, it’s time for a recalibration.

Thanks for reading!

Alexey