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

US-China Technology CompetitionHouse Foreign Affairs South and Central Asia Subcommittee · June 12, 2025 · 119th Congress
The House Foreign Affairs Subcommittee on South and Central Asia held this hearing to examine the Bureau of Industry and Security's (BIS) fiscal year 2026 budget request, which seeks $303–311 million including a 133% increase in enforcement funding. Begins at ▶ 0:07:54
Transcript
Highlights

Title

BIS FY26 budget: export controls in the US-China AI race

Purpose

The House Foreign Affairs Subcommittee on South and Central Asia held this hearing to examine the Bureau of Industry and Security's (BIS) fiscal year 2026 budget request, which seeks $303–311 million including a 133% increase in enforcement funding. Under Secretary of Commerce for Industry and Security Jeffrey Kessler testified on export control enforcement against China, chip smuggling, the rescinded Biden-era AI diffusion rule, and recent trade and technology negotiations with China and Gulf states. Begins at▶ 0:07:54

Who spoke

• Chairman Bill Huizenga (R-MI)▶ 0:07:54: Opened the hearing framing BIS as central to winning the "AI arms race" against the CCP▶ 0:08:40, cited a 133% enforcement budget increase▶ 0:10:57, and later pressed Kessler on chip diversion and location tracking under the bipartisan CHIPS Security Act▶ 0:19:26, China's rare earths deal▶ 0:21:36, and Huawei's chip production capacity▶ 0:23:41.

• Rep. Kim Schrier (D-CA), Ranking Member▶ 0:13:09: Noted Kessler was the first administration witness before the full committee this Congress▶ 0:13:09, said BIS's budget has stayed flat while license applications nearly doubled from 20,000 to over 40,000 a year since 2012▶ 0:14:26, and warned the administration's cuts to NSF, NIST, and DOE research (28% and 14% reductions) undermine the semiconductor pipeline▶ 0:15:38.

• Under Secretary Jeffrey Kessler, BIS▶ 0:20:38: Confirmed significant, undetected diversion of AI chips is occurring▶ 0:20:38; said Huawei's Ascend chip production for 2025 is projected at or below 200,000 units, mostly for domestic Chinese use▶ 0:24:11; stated no export controls were suspended as part of the China rare earths or Gulf AI chip deals▶ 0:29:44▶ 0:46:07; called the rescinded Biden AI diffusion rule "bureaucratic, heavy-handed" and not ready for prime time▶ 0:48:54; said BIS's past license "rubber stamping" for China "has stopped, and it will not resume"▶ 1:18:02.

• Rep. Ami Bera (D-CA)▶ 0:35:41: Asked how China is closing the AI chip gap despite small production numbers▶ 0:36:41 and pressed on workforce losses at BIS, noting roughly a third of personnel departed via layoffs, retirements, or resignations▶ 0:40:05.

• Subcommittee Chair (Rep. Self, presiding for Europe)▶ 0:41:06: Introduced the "Stop Shells Act" to close a subsidiary loophole for entities 50%-or-more owned by listed parties▶ 0:41:54, and later on foreign direct product rule enforcement pushed on whether nonproliferation allies fully comply▶ 1:12:53.

• Rep. Gregory Meeks (D-NY), Ranking Member of full committee▶ 0:46:37: Said the committee has not received Commerce's congressional budget justification despite the hearing occurring▶ 0:47:08; questioned the decision process behind rescinding the AI diffusion rule and suspending chip/EDA licenses▶ 0:48:25; pressed on whether export controls are being used as trade-negotiation leverage with China, referencing NEC Director Kevin Hassett's comments▶ 0:57:36.

• Rep. Victor Trive (R-IN)▶ 0:52:57: Noted BIS has only a dozen overseas export control officers and proposed the "BIS Strength Act" to allow flexible, market-rate hiring of technologists for one-year terms▶ 0:53:27.

• Rep. Eddie Bernice Johnson (D-TX)▶ 0:54:56: Pressed on the $311 million budget increase and lack of a detailed AI enforcement strategy▶ 0:55:53; raised concerns about brain drain from research funding cuts driving talent to China▶ 1:06:53.

• Rep. Bill Foster/Morelle (D)▶ 1:00:20: Emphasized multinational cooperation with Japan and the Netherlands on semiconductor manufacturing equipment▶ 1:01:18 and asked about use of the foreign direct product rule to prevent backfilling▶ 1:02:29.

• Rep. Seth Moulton (D-MA)▶ 1:17:11: Cited BIS's prior approval of $60 billion in Huawei licenses and $40 billion for SMIC (Nov 2020–Apr 2021), and a 2% denial rate in FY23, seeking assurance against a return to "rubber stamp" policy▶ 1:17:40; asked about implications of DeepSeek and Huawei's self-developed laptop OS▶ 1:18:23.

• Rep. Sydney Kamlager-Dove (D-CA), Ranking Member of subcommittee▶ 1:26:50: Pressed Kessler on whether he would commit to withholding advanced AI chip exports to UAE/Saudi Arabia absent binding security agreements▶ 1:27:41; raised industry complaints of prolonged license review delays and asked BIS to share licensing-time data▶ 1:29:34.

Key moments

• Chairman Huizenga cited DeepSeek's CEO stating "bans on shipments of advanced chips are the problem" as evidence export controls are working▶ 0:10:29.

• Kessler confirmed BIS's assessment that Huawei's Ascend chip production capacity will be at or below 200,000 units in 2025, cautioning against complacency since China is investing heavily to close the gap▶ 0:24:11▶ 0:24:42.

• Rep. Schrier and Kessler disputed whether the entity list has been updated for Russia sanctions evasion since Trump took office; Kessler said enforcement continued but did not confirm new entity-list additions▶ 0:26:13▶ 0:26:44.

• Rep. Meeks revealed the committee has not received Commerce's congressional budget justification, calling it "hard to have this conversation" without it; Kessler said he'd follow up▶ 0:47:08▶ 0:47:39.

• Kessler stated the Biden administration's AI diffusion rule was rescinded before taking effect because it was "hastily constructed," bureaucratic, and drew "arbitrary distinctions between different countries"▶ 0:49:23.

• Rep. Moulton cited BIS's approval of $60 billion in Huawei licenses and $40 billion in SMIC licenses (Nov. 2020–Apr. 2021) and a 2% denial rate in FY23; Kessler responded unequivocally that such "rubber stamp" practices "has stopped, and it will not resume"▶ 1:17:40▶ 1:18:02.

• Rep. Kamlager-Dove pressed Kessler on whether he'd commit to withholding advanced chip exports to UAE/Saudi Arabia until binding security agreements are signed; Kessler committed only to enforcing "rigorous security requirements" for licensed exports, not a blanket hold▶ 1:27:41▶ 1:28:01.

• Rep. Meeks asked directly whether Kessler participated in London trade talks with China where scaling back export controls was reportedly discussed; Kessler confirmed attending but declined to detail which sessions or discuss content▶ 0:58:33▶ 0:59:00.

• Rep. Self proposed the "Stop Shells Act" targeting subsidiaries 50%-or-more owned by entity-listed parties; Kessler agreed in principle that the current entity list creates loopholes for evasion▶ 0:41:54▶ 0:42:53.

• Kessler said BIS's enforcement staff totals only about 200 people, including 12 export control officers stationed worldwide, calling it "vanishingly small" relative to the 10,000–20,000 licenses processed per month▶ 0:57:13.

Metadata

CommitteeHouse Foreign Affairs South and Central Asia Subcommittee
Chamber / CongressHouse · 119th Congress
DateJune 12, 2025
TypeHearing
Witnesses
The Honorable Jeffrey Kessler — Under Secretary of Commerce for Industry and Security, U.S. Department of Commerce
Videoyoutube
Transcript193 caption blocks · 12,138 words · 1:32:23 runtime
EventCongress.gov 118369