In late September, the Trump administration’s Commerce Department delivered a major victory for American national security. In one fell swoop, the department closed thousands of loopholes in the U.S. export control regime, which restricts access to U.S. technology by China and other foreign adversaries.

This action, commonly called the “50 percent rule,” will enable U.S. national security agencies to far more effectively stop China from using American technology against America.

The Commerce Department sanctions malign companies by placing them on its “Entity List,” which makes it harder for those companies to access sensitive U.S. technology. But this process has long been hamstrung by a bureaucratic absurdity: the list did not automatically include a listed company’s “affiliates”—i.e., its parent company, subsidiaries, or any other part of its corporate family.

This quirk was a relic of a bygone era when export controls focused more narrowly on nuclear and ballistic missile nonproliferation and normal trade relations with Communist China were considered possible. But as economy-wide struggle for technological dominance became the forefront of U.S.-China competition, the entity list became arguably the most important and commonly used U.S. national security tool to fight that competition.

Yet it has never been easier for malign Chinese state-linked firms to create countless subsidiaries hidden in a globalized economy filled with opaque supply chains—and the entity list’s failure to cover affiliates became a major national security vulnerability.

To see this, look no further than the U.S. government’s two-year-long attempt to restrict technology transfers to Inspur, one of China’s largest server and cloud computing companies, which has been identified by the Pentagon as part of China’s military-industrial complex. Inspur was added to the Entity List in 2023, but its subsidiaries were not—rendering the designation nearly meaningless.

Inspur subsidiaries continued to “acquire U.S.-origin items in support of supercomputer projects for the Chinese government and/or military” until the Trump administration listed them in March of this year. The Department of Commerce clearly intended in 2023 to cut off Inspur’s access to sensitive U.S. technology with military applications, but the technical shortcomings of their regulations subverted their intent.

Now, the 50% rule addresses such failures, ensuring that “any entity that is at least 50 percent owned by one or more entities on the Entity List will itself automatically be subject to Entity List restrictions.”

This will also make it far easier for Commerce’s Bureau of Industry and Security, which oversees export controls, to do its job.

As critical and emerging technologies become ever more central to U.S. national security efforts towards China, BIS’s national security responsibilities have exploded in scope. Recognizing that, Congress has doubled BIS’s budget over the last decade—but still acknowledges on a bipartisan basis that BIS does not have sufficient resources to accomplish its mission. The 50% rule will help ensure that BIS is not overwhelmed in a futile, endless game of whack-a-mole with a constantly proliferating number of Chinese subsidiaries.

The new rule also flips the script for private companies that sell military-capable technology to Chinese entities. Doubtlessly, private interests are lobbying ferociously to water down or reverse the change, because such sales will become far harder to conduct legally, and affected companies will have to overhaul their compliance process. Business models that skirted national security sanctions and exploited Commerce’s clerical errors will be far less viable.

That’s precisely the point. With the 50% rule, the administration has demonstrated that it expects American companies to realign themselves with U.S. national security interests. Before the 50% rule, companies transferring sensitive technology to China could easily exploit loopholes; now, they’ll have to err more towards the side of caution.

The administration deserves applause for finally closing a glaring vulnerability that China has exploited for far too long. Under the first Trump administration, the U.S. pioneered a suite of creative responses to China’s economic warfare. The 50% rule is a powerful continuation of that legacy that will deliver meaningful benefits for U.S. national security.

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