SharePoint Site members not allowed external sharing but owners are allowed

CapibaraChrisI had this same issue for a frustratingly long time. It turns out that I had messed with the Contribute permission level, giving it it Manage Lists, Manage Permissions, and Enumerate Permissions permissions. At one point, I was trying to give members contribute access, but found that this made them unable to share entire folders. I think these changes were a relic of this attempt.

This caused other issues too, like internal links that had been generated failing to appear in the Manage Access screen. In any case, changing the Contribute permission level back to its standard settings finally resolved this problem for me.