SharePoint Online External Sharing on Subsites: "Your organization's policies don't allow you to share with these users. Go to External Sharing in the Office 365 admin center to enable it."

Scenario: You enable external sharing for a site collection in SharePoint Online. You notice that you can share externally on the parent site, but not any of its subsites.

Solution: You simply need to deactivate the 'Limited-access user permission lockdown mode' site collection feature, as shown in the screenshot below.

That is all.