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Holy hell, look at footnote 3 too. uscis.gov/sites/default/…
So let's break this down. Immigration law is incredibly complicated and illustrating it with John McCain counterfactuals probably confuses more than it illuminates. Better to start with the basics.
Under current law, there are multiple ways to acquire citizenship. With a few trivial (for now) exceptions, everyone born in the US acquires their citizenship automatically at birth. The Fourteenth Amendment of the Constitution as construed by SCOTUS guarantees that.
People born outside of the US can either acquire their citizenship at birth or later, in either case by operation of a federal law--the Immigration and Naturalization Act (INA).
The INA provides that babies born abroad to two US citizen parents who are married at conception or birth (or within 300 days of the marriage ending by death or divorce) and at least one of whom has had a residence in the US (*takes a breath*) acquire their citizenship at birth.
Other babies born abroad do not generally acquire their citizenship at birth. They either acquire it later automatically or they have to go through a naturalization process. The policy change affects kids in this situation, shifting many more of them to the naturalization route.
That long litany of requirements for automatic citizenship for a kid born to two US citizen parents in wedlock (spelled out in section 301(c) of the INA) hasn't mattered too much to date for military members and government employees serving abroad.
Military members and government employees, even though they were at their posts overseas, were deemed to be residing in the US for immigration purposes. That meant their kids could acquire their citizenship automatically through the looser requirements of Section 320.
In late October of this year, the notice says, that deemed residency is ending, which--as I understand it--is generally going to put military and govt employees abroad in the position of proving they check all the boxes of 301(c) or applying for their children's naturalization.
There are other procedures for acquiring citizenship for out of wedlock births and people with non-US residency, I hasten to add. It's complicated and typically requires pledges of financial support and proofs of residency. You can read about them here. uscis.gov/us-citizenship…
Please don't take this thread as a complete digest of immigration law, but a partial illustration that this looks to me like it will be a huge hassle to a lot of people.
An addendum, to explain in part why this gets so confusing:

If you open the US Code and look at the main citizenship at birth provision (8 USC 1401), it looks like pretty much everyone with at least one parent who's a citizen is going to be a citizen by birth.
But it's not so simple. Even though there's **absolutely nothing** in the first provision's text to warn you, the generous middle clauses about kids born overseas--(c), (d), (e), and (g)--are limited by 8 USC 1409, which adds extra conditions if the kid is born out of wedlock.
The extra conditions on automatic citizenship are particularly severe if the child's out-of-wedlock mother is not a US citizen--A LOT of paperwork.

None of that statutory stuff is new today. But it is more relevant to military/govt employees today because of this change.
Those people serving their country will have to either navigate the naturalization process (and all its burdens) for their kid or wade into this statutory thicket. It's a thicket that gets kind of rough for, e.g., a male embassy Marine who isn't married to his son's mother.
I suspect that's why, in its footnote way up there, USCIS wrote that "the U.S. citizen parent of such a child may apply for naturalization on the child’s behalf" (rather than, say, "all these kids are citizens by birth anyway so this 320 process is superfluous").
Sometimes it helps to just look at the form. This is the application for citizenship form they're now asking the affected parents to use; it can be used for both biological and adopted children of citizens. You can find the whole thing here: uscis.gov/n-600k
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