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Hi Scott,
Sorry for my late reply.
I notice the site is a classic team site, not a modern team site. So, I tested it again, and I can reproduce the same situation when External User A shares the site with a new External User B.
Based on my test, currently, only the internal user or the external user with Full Control permission can share the site with a new external user. I have searched a lot, but I didn't find any settings that can change this behavior.
Based on the situation, I would like to suggest you contact your admin or IT department to raise a support ticket via Microsoft 365 Admin Center> Support> New service request. That support team there has the correct channel to help you investigate more and find what exactly the reason has caused this situation.
Appreciate your understanding and patience.
Sincerely,
George | Microsoft Community Moderator