How Defense Bill Tech Provisions Could Reshape U.S.-China Industrial Technology Landscape

Critical Tech Restrictions Advance Through Annual Defense Authorization Process

As Congress navigates a government shutdown and competing legislative priorities, the annual National Defense Authorization Act has emerged as the primary vehicle for significant new technology restrictions targeting China. Both the House and Senate have passed their respective versions of the FY26 NDAA, setting the stage for intense negotiations that could dramatically impact industrial technology sectors from semiconductors to biotechnology.

Critical Tech Restrictions Advance Through Annual Defense Authorization Process
Semiconductor Sales Licensing Takes Center Stage
Expanding Oversight of Outbound Investment and Critical Technologies
Biotech Restrictions Return in Modified Form
House Takes Targeted Approach to Drone Technology
Political Dynamics and Implementation Challenges
Strategic Implications for Industrial Technology Sector

The NDAA’s reliability as must-pass legislation—having been enacted every year since 1961—makes it an attractive mechanism for lawmakers seeking to advance technology policy with national security implications. This year’s bills contain several provisions that, if enacted, would represent the most significant expansion of technology controls since the export restrictions implemented in recent years., as related article

Semiconductor Sales Licensing Takes Center Stage

The Senate’s inclusion of the GAIN AI Act represents one of the most consequential proposals for industrial technology companies. This legislation would establish a comprehensive global licensing regime for semiconductor sales, creating mechanisms similar to those contemplated under the Biden administration’s previously proposed AI Diffusion Rule. The requirement for semiconductor companies to offer American businesses first refusal rights on orders destined for “countries of concern” would fundamentally alter global supply chain dynamics.

Industry opposition has been substantial, with major semiconductor manufacturers expressing concerns about the practical implementation and global competitiveness implications. The absence of a corresponding provision in the House version, combined with White House opposition, suggests challenging negotiations ahead for this particular measure.

Expanding Oversight of Outbound Investment and Critical Technologies

The Senate draft also proposes significant enhancements to Treasury Department authority over outbound investment in “prohibited technologies.” The designated categories span multiple critical technology sectors including advanced semiconductors, artificial intelligence systems, quantum computing infrastructure, and hypersonic missile technology. This represents a continuation of legislative efforts that have previously failed to survive conference negotiations.

For industrial PC manufacturers and technology providers, these provisions could complicate international joint ventures, technology transfer agreements, and investment in overseas manufacturing capacity. The broad categorization of restricted technologies creates uncertainty for companies operating in adjacent or supporting industries.

Biotech Restrictions Return in Modified Form

The revised BIOSECURE Act included in the Senate’s NDAA draft addresses constitutional concerns that derailed previous versions by removing specific company names from the legislation. Instead, it would authorize the executive branch to designate which Chinese biotech companies would be subject to restrictions on federally funded collaborations.

This approach provides more flexibility but also creates regulatory uncertainty for research institutions and medical technology companies that rely on international partnerships. The biotechnology sector’s integration with computing and data analytics means these restrictions could indirectly affect industrial computing applications in healthcare and pharmaceutical manufacturing.

House Takes Targeted Approach to Drone Technology

While the Senate proposes broad regulatory frameworks, the House version focuses on specific technology sectors, notably calling for security reviews of Chinese drone manufacturers DJI and Autel. The potential outcome—possible import restrictions—reflects growing concerns about Chinese dominance in commercial drone technology and its implications for critical infrastructure and industrial applications.

This more targeted approach may have stronger prospects in conference negotiations, as it addresses specific national security concerns without establishing sweeping new regulatory regimes. For industrial users of drone technology in sectors like energy, agriculture, and infrastructure inspection, these restrictions could significantly impact equipment availability and maintenance capabilities.

Political Dynamics and Implementation Challenges

The path forward for these various technology restrictions remains uncertain. Historical patterns suggest the House resistance to expansive new regulatory authorities may again prevail, particularly given the Trump administration’s preference for executive action over legislative mandates. The administration’s work on its own replacement for the AI Diffusion Rule provides lawmakers with an alternative to comprehensive legislation.

Implementation timing presents additional challenges. Even if provisions survive conference negotiations, the rulemaking and implementation process would likely extend over many months, creating extended periods of regulatory uncertainty for technology companies. Industrial technology providers with global supply chains would need to navigate complex compliance requirements across multiple jurisdictions.

Strategic Implications for Industrial Technology Sector

The cumulative effect of these proposed restrictions, if enacted, would represent a significant acceleration of technology decoupling between the U.S. and China. Industrial PC manufacturers, automation providers, and technology integrators would face:

Supply chain reorganization requirements for components and finished products
Enhanced compliance burdens for international sales and partnerships
Market access limitations in both directions across the Pacific
Technology development constraints for collaborative research projects

These developments occur against the backdrop of increasing global competition in industrial technology, with implications for manufacturing competitiveness, technology innovation cycles, and global market positioning. Companies with significant exposure to China-related supply chains or markets should closely monitor the NDAA conference process and prepare contingency plans for various regulatory outcomes.

The conference committee negotiations will intensify in the coming weeks, though the government shutdown may delay substantive progress. Regardless of the specific provisions that ultimately survive, the direction of travel toward more restrictive technology trade policies appears firmly established, with significant long-term implications for the global industrial technology landscape.