Export Controls and Commercial Space

How New Restrictions May Affect International Partnerships and Market Access

Jan 12, 2026

U.S. capitol Hill during nighttime — Photo by Heidi Kaden on Unsplash

In October 2024, the Bureau of Industry and Security (BIS) and the Directorate of Defense Trade Controls (DDTC) quietly rolled out what industry insiders are calling the most significant export control modernization in a decade. For commercial space companies, the changes tell two very different stories. On one hand, the shift from restrictive “National Security 1” (NS1) classifications to more permissive “NS2” designations eliminates licensing requirements for space-related exports to more than 40 allied countries. On the other, China’s concurrent rollout of extraterritorial rare earth export controls in 2025 has disrupted supply chains that space manufacturers depend on for magnets, optical systems, and propulsion components.

The result? A bifurcated market where strategic partnerships with the right nations unlock opportunities, while rising material restrictions and dual-use classifications impose compliance burdens that hit smaller players hardest. Think of it as regulatory whiplash—Washington eases the paperwork for selling satellite components to Australia while Beijing tightens its grip on the neodymium that makes those satellites work.

Eased Controls for Allies, Tightened Material Access

The October 2024 BIS/DDTC rule changes represent a fundamental recalibration of how the U.S. treats space technology in the export control framework. Under the previous NS1 regime, most spacecraft components, propulsion systems, and even certain ground equipment required individual export licenses—even when destined for close allies. The new NS2 classifications flip that script for countries in the so-called “trusted tier,” which includes NATO members, Japan, South Korea, Australia, and New Zealand.

What does this mean in practice? A Colorado-based satellite manufacturer can now ship reaction wheel assemblies to a German partner without the months-long licensing process that previously added uncertainty and cost to every deal. Export compliance consultants estimate the NS2 shift could reduce licensing timelines by 60-70% for allied-nation transactions.

But that streamlining comes with a catch. While Washington opens doors for allied partnerships, Beijing has simultaneously weaponized its rare earth dominance. China produces roughly 70% of global rare earth oxides and 90% of processed rare earth materials—elements critical to space-grade magnets, precision optics, and electric propulsion systems. In 2025, China expanded export controls to include extraterritorial enforcement, meaning Chinese-origin rare earths face restrictions even after leaving China if they’re destined for military or dual-use applications.

The timing isn’t coincidental. As the U.S. eases technology transfer with allies to strengthen defense industrial collaboration, China’s rare earth controls create bottlenecks that no amount of regulatory streamlining can solve. Space companies now face a paradox: freer movement of finished goods within allied networks, but tighter constraints on the raw materials needed to build them.

How Government Agreements Reshape Competition

Export control modernization doesn’t just reduce paperwork—it creates structural advantages that reshape competitive dynamics. Consider AUKUS, the 2021 security pact between Australia, the United Kingdom, and the United States. While initially focused on nuclear submarine technology, AUKUS Pillar II explicitly addresses “advanced capabilities” including space systems, quantum computing, and hypersonics.

What makes AUKUS different from standard export licenses? The agreement establishes government-to-government exemptions that go beyond the NS2 framework. Under AUKUS, commercial space companies in member nations can collaborate on defense-adjacent projects with streamlined approvals and reduced end-use monitoring requirements. Australia’s Strategic Policy Institute notes that AUKUS effectively creates a “preferential export ecosystem” where U.S. space startups can partner with Australian firms on projects that would face significant hurdles if proposed with, say, Brazilian or Indian partners.

Canada enjoys similar benefits through separate defense cooperation agreements, though it’s been lobbying for formal AUKUS inclusion. The asymmetry is stark: a California-based space company developing satellite imaging technology can share sensitive propulsion data with a Sydney-based partner under AUKUS protections but would need extensive licensing—and face probable denial—for the same technology transfer to a São Paulo firm.

This creates what analysts call a “tier-based market access model.” Tier 1 allied nations (AUKUS members, NATO core) get expedited approvals and government-backed partnerships. Tier 2 countries (EU members, Japan, South Korea) benefit from NS2 reforms but lack AUKUS-level access. Tier 3 non-aligned nations face continued NS1-style restrictions or outright prohibitions.

For space companies making international expansion decisions, these tiers matter enormously. Partnering with a UK firm opens doors to shared R&D and co-production that remain closed with partners in Southeast Asia or Latin America, regardless of technical capability or market potential.

Why Export Controls Hit Small Space Companies Hardest

Compliance costs are the quiet killer of commercial space innovation. While BIS and DDTC promote the October 2024 reforms as industry-friendly streamlining, the practical reality for smaller companies tells a more complicated story.

SpaceX—hardly a scrappy startup anymore—recently disclosed that export compliance consumed approximately 30% more operational resources in 2024 compared to 2022, despite the NS2 reforms. For a company with SpaceX’s scale and legal infrastructure, that’s manageable. For NewSpace startups with fewer than 50 employees, export compliance can consume 15-30% of total operational budgets.

Why such disparity? Export control compliance isn’t just about filing paperwork. It requires dedicated personnel who understand both the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), systems to track “foreign persons” access to controlled technology, physical security measures to prevent unauthorized disclosures, and ongoing training for engineering staff. Aerospace manufacturing compliance experts estimate that maintaining a minimal ITAR compliance program costs $150,000-$300,000 annually before any products ship.

Large aerospace primes like Lockheed Martin and Northrop Grumman absorb these costs as overhead across billion-dollar contracts. A satellite bus manufacturer with $8 million in annual revenue faces a very different calculation. When 20-30% of your budget goes to compliance before you’ve addressed R&D, manufacturing, or market development, international partnerships become financially prohibitive—even when technically permissible.

The dual-use classification problem compounds this burden. Many NewSpace technologies—electric propulsion, advanced composites, AI-driven navigation systems—have both civilian and potential military applications. The SIPRI think tank notes that export control authorities in the U.S. and Europe struggle to consistently classify these dual-use technologies, creating compliance uncertainty that small companies can’t afford to navigate.

A Colorado startup developing optical intersatellite links might spend six months determining whether its product falls under ITAR (State Department jurisdiction, highly restrictive) or EAR (Commerce Department, less restrictive) only to find that different components trigger different regimes. That ambiguity freezes partnerships and investment while larger competitors with dedicated trade compliance teams move forward.

Friendshoring and the New Space Supply Chain Geography

The combined pressure of tightened material controls and persistent compliance costs is forcing a wholesale reimagining of space supply chains. McKinsey’s analysis of export control impacts across industries found that affected companies increased R&D spending by an average of 16% specifically to reduce dependence on restricted suppliers or materials.

For space manufacturers, that means pursuing what trade economists call “friendshoring”—restructuring supply chains to source from politically aligned nations even when it increases costs. Marsh’s supply chain risk consultancy documented a 40% increase in requests for rare earth supply chain diversification audits between 2023 and 2025, driven primarily by aerospace and defense clients.

The practical solutions emerging involve both market mechanisms and government support. On the market side, companies are investing in rare earth recycling from end-of-life satellites and industrial waste. Urban mining of rare earths—recovering neodymium and dysprosium from discarded electronics—currently supplies about 1% of global demand but could reach 10% by 2030 with sufficient investment.

On the regulatory side, governments in the U.S., Australia, and Canada are deploying loan guarantees and procurement commitments to underwrite rare earth processing facilities outside China. The U.S. Defense Production Act authorized $250 million in 2024 for domestic rare earth processing specifically to support defense and space applications.

But these adaptations take time and money—resources that favor incumbents over upstarts. Vertically integrated companies like SpaceX, which manufacture most components in-house, can redesign around restricted materials more easily than specialized suppliers dependent on external supply chains. That dynamic accelerates market consolidation, as smaller players either get acquired by primes seeking supply chain control or exit the market entirely.

The strategic calculus for space companies now includes geopolitical risk assessment that would have seemed excessive a decade ago. Where you source materials, where you locate manufacturing, and which nations you partner with increasingly determine not just profitability, but viability.

The Competitive Moat You Didn’t Plan For

Export control compliance is becoming what strategists call a “competitive moat”—a barrier that protects established players from nimble upstarts. That wasn’t the intent of the October 2024 reforms, which genuinely do reduce friction for allied-nation partnerships. But when regulatory streamlining coincides with material restrictions and persistent compliance costs, the net effect advantages scale over innovation.

Companies with existing compliance infrastructure, diversified supply chains, and partnerships in AUKUS nations enter 2026 with structural advantages that go beyond technology or capital. For emerging space companies, the message is clear: international expansion requires not just engineering excellence and market demand, but geopolitical alignment and compliance capacity that many can’t afford.

The space industry’s future increasingly depends not on who builds the best satellite, but on who can navigate the regulatory and supply chain complexities of an era where export controls define market access. That’s a very different competitive landscape than the one most NewSpace entrepreneurs envisioned when they founded their companies. Whether market forces and government support can rebalance these dynamics—or whether consolidation accelerates—remains the critical question for the commercial space sector through the end of this decade.

Bibliography

· PRIMARY REGULATORY SOURCES:

Arnold & Porter LLP. (2025, March 16). BIS and DDTC announce new rules to modernize space-related export controls. https://www.afslaw.com/perspectives/alerts/bis-and-ddtc-announce-new-rules-modernize-space-related-export-controls

Arnold & Porter LLP. (2025, March 18). Taking stock – Summary of BIS actions from fall 2024, and peek at what’s next under the Trump administration. https://www.afslaw.com/perspectives/alerts/taking-stock-summary-bis-actions-fall-2024-and-peek-what-next-under-the-trump

· GOVERNMENT & INTERNATIONAL ORGANIZATIONS:

AUKUS Forum. (2025, September 12). AUKUS cloud: Connecting people, data, and industry. https://aukusforum.com/f/aukus-cloud-connecting-people-data-and-industry

· THINK TANKS & RESEARCH INSTITUTIONS:

Australian Strategic Policy Institute (ASPI). (2025, June 26). AUKUS needs a third pillar: Space. https://www.aspistrategist.org.au/aukus-needs-a-third-pillar-space/

Stockholm International Peace Research Institute (SIPRI). (2023, February 28). Developing good practices in export control outreach to the NewSpace industry. https://www.sipri.org/publications/2023/sipri-insights-peace-and-security/developing-good-practices-export-control-outreach-newspace-industry

· MANAGEMENT CONSULTING & RISK ANALYSIS:

McKinsey & Company. (2025, April 2). Restricted: How export controls are reshaping markets. https://www.mckinsey.com/capabilities/geopolitics/our-insights/restricted-how-export-controls-are-reshaping-markets

Marsh. (2025, June 10). Diversifying and transforming rare earths supply chains: A strategic imperative. https://www.marsh.com/en/industries/mining/insights/diversifying-and-transforming-rare-earths-supply-chains.html

Investing News Network. (2025, November 2). Rare earths recycling offers path to secure, sustainable supply chains. https://investingnews.com/recycling-rare-earths-path-to-securing-north-american-supply-chains/

· INDUSTRY SOURCES & TRADE PUBLICATIONS:

SpaceX Stock Analysis. (2025, November 21). Modernizing export laws: Boost or barrier for SpaceX? https://spacexstock.com/modernizing-export-laws-spacex-impact/

A3D Manufacturing. (2025, January 1). Why ITAR compliance matters: Safeguarding your business in aerospace & defense manufacturing. https://www.a3dmfg.com/blog/why-itar-compliance-matters-aerospace-defense-manufacturing

Space Tech Expo. (2025, February 5). Top 4 pressing issues for the U.S. space industry this year. https://www.spacetechexpo.com/industry-insights/blogs/top-4-pressing-issues-for-the-u.s.-space-industry-this-year

Modus Advanced. (2025, June 29). Understanding the aerospace manufacturing industry: Trends, challenges, and opportunities. https://www.modusadvanced.com/resources/blog/understanding-the-aerospace-manufacturing-industry-trends-challenges-and-opportunities

Limitations & Gaps

This analysis is subject to the following limitations:

DATA AVAILABILITY:
• SpaceX compliance cost increase (30%) sourced from investment analysis site rather than official company disclosure. Figure represents informed estimate based on industry reporting.
• Small company compliance burden percentages (15-30% of operational budgets) derived from industry expert estimates and trade publication analysis rather than comprehensive survey data.
• Export licensing timeline reduction estimates (60-70%) represent legal expert projections rather than empirical BIS/DDTC performance data.

FORWARD-LOOKING PROJECTIONS:
• Rare earth recycling targets (10% by 2030) represent industry forecasts, not confirmed government commitments.
• Market consolidation scenarios presented as analytical possibilities, not deterministic predictions.

SCOPE BOUNDARIES:
• Analysis focuses on U.S.-based export control frameworks (ITAR/EAR) and their interaction with allied nations. Does not comprehensively address EU, Japanese, or other national export control regimes.
• Emphasis on commercial space sector; defense-only applications and classified programs excluded from analysis.
• Time period limited to 2024-2025 regulatory changes; historical ITAR/EAR evolution provided as context only.

VERIFICATION STATUS:
• All regulatory changes and government policy positions verified through official sources or authoritative legal analysis.
• Industry compliance cost data reflects expert consensus but lacks large-scale empirical validation.
• Supply chain diversification trends documented through risk consultancy reports and industry publications.

Conflicts of Interest & Disclosures

AUTHOR/PUBLICATION DISCLOSURES:
• No financial relationships with commercial space companies, export compliance consultancies, or law firms mentioned in this article.
• No investments in publicly traded aerospace or defense companies discussed.
• No consulting relationships with government agencies or industry associations related to export controls.

AI-ASSISTED RESEARCH DISCLOSURE:
This article was produced using AI-assisted research, drafting, and verification tools as part of a structured editorial process. All claims were fact-checked against credible sources, and final editorial decisions remained under human control. Estimated AI contribution to final text: 45-50% (primarily structural organization and initial drafting; substantive analysis and voice reflect human editorial judgment).

Disclaimers

INVESTMENT DISCLAIMER:
This article is provided for informational and educational purposes only and does not constitute investment advice, financial advice, trading advice, or any other sort of advice. The content discusses commercial space companies and industry trends but does not recommend any specific investment actions. Readers should conduct their own research and consult with qualified financial advisors before making investment decisions. Past performance of companies or industries mentioned does not guarantee future results.

LEGAL/REGULATORY DISCLAIMER:
This article provides general analysis of export control regulations and their business implications. It does not constitute legal advice and should not be relied upon for compliance decisions. Export control regulations are complex, subject to change, and vary by jurisdiction. Organizations subject to ITAR, EAR, or other export control regimes should consult qualified legal counsel for specific compliance guidance.

INFORMATION ACCURACY:
While every effort has been made to ensure accuracy, regulatory environments change rapidly. Information current as of December 28, 2025. Readers are encouraged to verify critical details with official sources and qualified experts.

AI DISCLOSURE:
This article was produced using AI-assisted tools for research, drafting, and verification as part of a structured editorial workflow. Estimated AI contribution: 45-50%. All factual claims were verified against credible sources, and final editorial judgment remained under human control. See “Conflicts of Interest & Disclosures” section for additional details.

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