Bureau of Industry and Security FY26 Budget: Export Controls and the AI Arms Race

2025-06-12

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Summary

This meeting focused on examining the fiscal year 2026 budget request for the Bureau of Industry and Security (BIS) and its crucial role in safeguarding U.S. technology leadership, particularly in the context of the AI arms race with the Chinese Communist Party (CCP). Participants discussed the proposed increase in BIS's budget, the challenges of enforcing export controls, and the broader implications for national security and economic competitiveness. [ 00:13:13 ] [ 00:13:22 ] [ 00:17:18 ]

Themes

BIS Budget and Enforcement Priorities

The proposed fiscal year 2026 budget for BIS requests $303 million, marking a 133% increase in enforcement funding, which Under Secretary Jeffrey Kessler described as a significant investment to bolster national security. [ 00:15:55 ]

[ 00:19:41 ] [ 00:19:48 ] This funding aims to hire almost 200 export enforcement special agents and double the number of overseas export control officers from 12 to 30, enhancing BIS's capacity to disrupt illegal diversion of U.S. technology to adversaries. [ 00:20:01 ] [ 00:20:09 ] [ 00:16:40 ] While acknowledging the need for more resources given the doubling of license applications, some members questioned the lack of a detailed budget justification from the Commerce Department. [ 00:19:05 ] Under Secretary Kessler confirmed that significant efforts are being made to divert AI chips and other controlled products, underscoring the necessity of the budget increase to detect and prevent more wrongdoing. The "BIS Strength Act" was introduced as proposed legislation to grant flexible hiring authority to attract leading technologists, which Under Secretary Kessler found very useful for keeping pace with technological innovation. [ 00:54:38 ]

US-China AI Competition and Export Control Challenges

The discussion emphasized that technologies like AI, biotechnology, and quantum computing are critical for both economic prosperity and military power, placing the U.S. in an "AI arms race" with the CCP. [ 00:13:41 ]

[ 00:13:57 ] [ 00:13:22 ] The CCP is actively trying to dominate these technologies through various illicit means, making robust export controls essential to prevent U.S. and allied innovations from fueling China's military and surveillance state. [ 00:14:26 ] [ 00:15:05 ] Chinese AI companies reportedly acknowledge their dependence on U.S. technology, particularly advanced chips, highlighting the impact of current controls. [ 00:15:22 ] [ 00:15:25 ] Under Secretary Kessler noted that Huawei's Ascend chip production capacity for 2025 is estimated at or below 200,000 units, mostly for domestic use, but warned against complacency due to China's substantial investments in increasing its AI chip production capabilities. [ 00:25:18 ] Concerns were raised about "diversions" of U.S. AI chips to China and the effectiveness of current controls, with proposed solutions like location tracking and closing "subsidiary loopholes" being discussed. [ 00:43:14 ] The "AI diffusion rule" was rescinded due to being "problematic," "hastily constructed," and "not ready for prime time," illustrating the complexities of effective AI export regulation. [ 00:50:40 ]

Broader National Security and Economic Context

The geopolitical rivalry between the U.S. and China is seen as defining the trajectory of current technologies and global AI development. Some members raised concerns that proposed budget cuts to federal R&D programs (National Science Foundation, NIST, Department of Energy) could undermine U.S. competitiveness in AI, despite the success of initiatives like the CHIPS Act. The importance of securing rare earth minerals for critical supply chains, such as automotive and defense, was also highlighted. [ 00:23:39 ]

[ 00:24:09 ] Discussions also touched upon securing U.S. technology in AI deals with Gulf states through rigorous security and monitoring agreements. [ 00:30:29 ] Under Secretary Kessler stated that BIS would ensure that AI chip exports requiring a license meet robust security requirements, including verifying the trustworthiness of data center operators and preventing illicit diversions via shell companies. [ 01:29:17 ] [ 01:29:53 ] Additionally, the need to address the "brain drain" of engineering talent and ensure a robust U.S. workforce in cutting-edge technologies was emphasized as vital for maintaining technological advantage. [ 01:08:04 ] Finally, the outdated BIS IT infrastructure, dating back to 2008, was identified as a national security risk hindering operations, with new funding being allocated for overhaul and cybersecurity improvements. [ 01:24:53 ]

Tone of the Meeting

The meeting's tone was largely serious and urgent, with consistent emphasis on the critical nature of the U.S.-China AI competition and the need for robust export controls. [ 00:13:22 ] [ 00:13:38 ]

There was a strong sense of concern from various members regarding China's technological advancements, alleged diversion efforts, and the perceived inadequacy of current U.S. responses, coupled with some skepticism about the administration's broader policy approaches impacting R&D and talent. [ 00:42:58 ] While there was general bipartisan support for strengthening BIS, some members expressed specific concerns about the transparency of BIS's actions, such as the lack of a detailed budget justification and the impact of alleged delays in license processing. [ 00:56:58 ] Under Secretary Kessler maintained a cautious and factual demeanor, focusing on BIS's adherence to national security priorities and processes, though he sometimes declined to comment on ongoing diplomatic discussions. [ 00:23:52 ] [ 00:58:55 ] [ 00:59:19 ]