Industry Preparing for Tighter China Restrictions, Penalties as Questions Surround BIS Policy

BIS officials appointed by President Donald Trump have so far excluded career officials from most detailed policy discussions, two employees said, including talks about the agency’s ongoing review of export license applications. And companies and industry officials said they’re concerned Kessler is sowing distrust against the industry representatives whose advice BIS has typically used to avoid unintended consequences on American exporters.

As they try to understand the agency’s policy direction, companies are preparing for BIS to tighten restrictions against China and gearing up for an increase in penalties, trade lawyers, industry advisers and former BIS officials said in interviews. BIS career officials haven’t yet been informed about specific policy changes, two agency employees said, which isn’t unusual this early in a new administration. But they added that they wouldn't be surprised if senior leadership chooses to significantly expand export restrictions against China.

“I mean, look at the tariffs,” one BIS official said. “It wouldn't surprise me at all.”

A BIS spokesperson didn’t respond to a request for comment.

Although the specifics of upcoming BIS export control policies aren’t yet clear, Kessler and at least one other incoming BIS official already have voiced some of their intentions. In a closed-door town hall meeting with BIS staff in March, Kessler said he wanted to withdraw from traditional export control dialogues with allies and significantly increase export enforcement against China. He also warned about possible staffing cuts and urged officials to limit conversations with exporters about anything other than pending license applications (see 2503280039).

In addition, Landon Heid, the nominee to lead the agency's export administration efforts, told lawmakers earlier this month that he’s in favor of adopting a new ownership threshold for the Entity List that would be similar to the Office of Foreign Assets Control’s 50% rule, which could automatically apply strict export licensing requirements for exports to certain subsidiaries of Entity List companies (see 2504100036).

One BIS official said Heid is expected to make greater use of the Entity List. He told lawmakers that BIS should be waging a “continuous battle every single day” to prevent China from obtaining restricted U.S. technology.

Likewise, Kessler repeatedly said at the BIS town hall last month that the agency’s top challenge is America’s “strategic competition” with China.

The agency also still lists James Rockas and Robert Burkett as deputy undersecretary and chief of staff, respectively. Both were cited as contributors to the recommendations for the Commerce Department in Project 2025, which called on BIS to significantly expand export controls against China, eliminate license exceptions for certain “countries of concern,” broaden the agency’s restrictions over foreign-made technology and software, and more (see 2502280006).

Lawyers and former officials said they don’t expect the Trump administration to act on some of the more drastic China-related export control recommendations floated in Project 2025, including one that could move China to the restrictive Country Group E of the Export Administration Regulations, which could subject it to trade controls similar to those faced by Cuba, Iran, North Korea and Syria. But they said BIS is likely studying how to tighten restrictions as a way to implement Trump’s January America-first trade policy memorandum, which ordered the Commerce Department to eliminate export control “loopholes” (see 2501210023).

Multiple trade lawyers said they’re advising clients to be careful about making deals that could be affected by future export controls, particularly related to China.

“If it has an export control dependency related to China, certainly from a commercial and just a good business perspective, you should be cautious on that right now,” said Peter Jeydel, a lawyer with Troutman Pepper. “There's a lack of predictability.”

Along with lawyers, trade compliance officers also said they’re uncertain about potential BIS policy changes. Multiple compliance officers told Export Compliance Daily that they’ve struggled to obtain updates from their usual contacts at BIS, including since Trump-appointed officials first launched a licensing pause in February (see 2502130068) before partially lifting it and reinstating it in late March (See 2504020051).

Others members of industry, including several trade lawyers, said they haven’t encountered issues speaking with BIS career officials. “BIS is still very much open for business,” one lawyer said.

Kessler has had multiple meetings with companies since being sworn in earlier this year, three people familiar with the meetings said. Two lawyers said they have continued to speak with BIS officials who oversee specific technology controls. The lawyers said they believe Kessler’s order to limit communication with companies is aimed only at sensitive discussions about future BIS policy moves.

But nearly all government and industry officials recently interviewed by Export Compliance Daily said it’s not clear how senior leadership may revise licensing policies or take other steps to increase restrictions. Some said they’re concerned Trump’s tariff strategy of introducing broad duties on a range of countries could be a signal of how the administration might tackle implementing export controls -- sweeping and sudden.

And without input from industry, they said new restrictions could lead to overbearing compliance hurdles for companies.

Jeannette Chu, vice president of national security policy for the National Foreign Trade Council and a former senior BIS policy adviser, said input from U.S. industry on export controls policies “has been crucial in helping to avoid consequences that can be harmful to national security.”

NFTC has called for “robust stakeholder consultation, particularly in fast-moving technology areas of high national security significance,” she said. “U.S. companies are global leaders in technology innovation, and it is important that our country’s export controls are based on the data that those affected by these measures can provide.”

Meghan Harris, senior vice president at Beacon Global Strategies, said Kessler seems to still be in the process of establishing his China policy approach. Even so, she said, "industry is struggling to understand what the new administration's mindset is on competition with China."

Whatever steps the administration plans to take, the “government needs to have access to the exquisite expertise that is available only in industry,” said Harris, who held senior positions in both BIS and the National Security Council during the first Trump administration. “The government and industry will have to navigate a way to do that.”

Along with asking BIS officials to limit talks with industry, Kessler also said during the March town hall that he wants to pull back from certain export control talks with allies. Although he specifically said he wanted to end BIS work in the U.S.-EU Trade and Technology Council, it’s unclear how the agency will approach dialogue with other trading partners, including talks that the Biden administration had with Japan and the Netherlands about restricting exports of sensitive chip equipment to China.

U.S. officials met with Japanese and Dutch government representatives in recent weeks to discuss export controls, two people familiar with the matter said, and another meeting is expected soon.

Barath Harithas, a senior fellow with the Center for Strategic and International Studies, said he’s expecting the Trump administration to lean into more coercive tactics against allies. That could include the foreign direct product rule, he said, which the U.S. could use to capture more chip exports shipped to China from both Japan and the Netherlands.

But Harithas also said it’s not clear how BIS would enforce those restrictions.

“The thing with FDPR is it only works if allies agree to it, right?” he said. “And if they don't, what are you going to do? Sanction them?”

Harithas noted that some U.S. allies, including in Asia, appear to be cracking down on companies diverting restricted U.S. technology to China. Malaysia is reportedly taking steps to track illegal shipments of advanced Nvidia chips more closely (see 2503270019), and Singapore said this month that it plans to increase enforcement against companies that may be using the country to circumvent foreign nations’ export controls (see 2504040027).

“You've finally managed to pressure countries into accepting that they have to do more, and to withdraw [from dialogue] now seems like you’re just leaving all the chips on the table that you've worked so hard to get,” Harithas said.

The Trump administration is also still discussing a way forward on the Biden-era artificial intelligence diffusion rule, which was met with strong pushback from both American companies and close trading partners, especially the EU (see 2502200051). The rule, if unchanged, could place new worldwide license requirements on exports of advanced AI chips and would likely cause a host of compliance hurdles for companies and enforcement challenges for BIS (see 2503310037), which has been understaffed for years.

“These controls are in some cases almost impossible to enforce,” said Harris, who also has served as a policy director for both the Semiconductor Industry Association and GlobalFoundries. The U.S. “needs to take that into account and improve that capacity at BIS, but then also improve the enforceability of regulations if the U.S. is going to deter violations.”

Both Kessler and Commerce Secretary Howard Lutnick have promised a significant increase in penalties (see 2503180041), including against Chinese companies and firms illegally diverting controlled technology to China.

Matthew Axelrod, who served as the BIS assistant secretary for export enforcement under the Biden administration, said all signs indicate that “BIS is going to be aggressive in going after companies that violate their rules.”

He also noted that DOJ is still focused on export control investigations. The agency has announced multiple export-control-related indictments since the start of the Trump administration (see 2502280030, 2503310049 and 2502060009).

"DOJ, as far as I'm aware, is still all in on these cases,” Axelrod said.

Even though Kessler suggested that BIS may spend less time coordinating new export control rules with allies or speaking with industry about sensitive policy topics, Axelrod said that doesn’t necessarily mean BIS enforcement agents are being directed to curb their engagement with American allies and companies as well.

“I think the BIS view is that they would rather educate industry so that industry complies with the rules on the front end rather than having violations that get enforced on the back end,” said Axelrod, now a lawyer with Gibson Dunn. “I haven't heard anything that leads me to believe that is likely to change.”

But Axelrod said there are questions about whether BIS has enough resources to enforce new controls, particularly if the agency seeks to expand its restrictions against China or other countries. “There's some tension between the policy direction, the desire for increased enforcement and the difficult budgetary environment," he said.

BIS was denied a funding increase last year (see 2403040061), and the new administration announced a $20 million funding cut for the agency in March (see 2503270005).

Although Kessler said during his February nomination hearing that the agency may need more resources (see 2502270041), he hinted to its staff in March that more employee turnover may be coming.

Axelrod said BIS is “in good hands” because of the experienced law enforcement officials it currently employs.

“But obviously, if there ends up being fewer agents and fewer analysts, that's less capacity to bring those big cases,” he said. “To me, the bigger question mark than the policy direction is whether BIS will have the resources it needs to deliver on the policy direction.”