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Washington is trying to contend with the rapid proliferation of open-source Chinese AI models, and of advanced AI systems in general. If Chinese open-source models underpin the AI ecosystem the world builds on, Beijing could have undue influence over the technical standards, safety rules, and even some of the political assumptions baked into software used by governments, militaries, hospitals and banks for decades. Chinese models are closing the capabilities gap with America’s leading labs, and their open-source models are gaining market share by offering cheaper models that give users more control.

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Open-weight models publish their core components for anyone to download, modify and run — unlike the closed models built by Anthropic, OpenAI and Google, which stay locked behind paid access. China has made open-weight release its dominant strategy, and its models are improving fast enough to rival America’s closed frontier labs, forcing a dilemma Washington hasn’t resolved: whether to try to restrict a technology that’s spreading fast.

Moonshot AI’s Kimi K3 model, released July 16, shows how close China has gotten. On the Artificial Analysis Intelligence Index, a widely used composite of roughly a dozen individual AI benchmarks, K3 scored 57, just three points behind the top closed U.S. model, and ahead of Z.ai’s GLM 5.2, the prior open-weight leader at 51. But the national security stakes go beyond any one model’s score. Advanced AI systems, once the exclusive property of a handful of well-funded labs, are now downloadable, modifiable and deployable by almost anyone. Many come with few safeguards. That raises the risk that AI could meaningfully assist cyber- or even real-world attacks. Chinese models, most of them open-weight, already account for close to 60 percent of the AI tokens processed on OpenRouter, a widely used platform that routes traffic to AI models for thousands of developers and companies. That is a near-tripling of Chinese models’ market share since January. Chinese open-source models have become the go-to choice for high-throughput batch tasks, agent loops, and highly specialized work due to their low cost, impressive capabilities and full customizability.

In its AI Action Plan released last year, the White House predicted the open-source surge. “Open source and open-weight models could become global standards in some areas of business and in academic research worldwide. For that reason, they also have geostrategic value,” it stated.

China is championing its open-source AI ecosystem. “We should seize this rare, historic opportunity to encourage open source, openness, collaboration and sharing,” Chinese President Xi Jinping said in a July 17 speech on AI at the World AI Conference in Shanghai. “AI development should not be a solo performance by a single country,” Xi told the audience, “but a symphony of international cooperation.”

Washington, meanwhile, is actively considering restricting access of Chinese open-source models for American firms — while protecting the advantage of U.S. frontier labs that produce mostly closed-source models.

Rep. Ro Khanna (D-California), the top Democrat on the House Select Committee on the CCP, and who represents Nvidia’s home turf in Silicon Valley, told WP Intelligence the U.S. has to compete on open-source, not retreat from it.

“What China is showing is that just having closed models of Anthropic and OpenAI is not going to be sufficient to lead in the AI race,” Khanna said. “We’ve got to lead on open-source in America and for the world — or we could allow China to become the world’s AI producer, and that would be a disaster.”

What’s missing, he said, is a real framework for testing the safety of open models, wherever they come from. “I would have a federal regulatory agency for AI,” Khanna said. “Have it test all models for safety, for privacy, for reliability against cyber breaches. … I think it would be wrong to just ban the models. But having a standard is reasonable, and that should apply to all models.”

Trump administration considers options to combat Chinese “distillation”

The erosion of America’s AI lead is the backdrop for the administration’s accusation that Chinese firms are engaged in a form of intellectual property theft called distillation, in which Chinese companies allegedly train their own models on outputs harvested from American competitors using vast networks of fake accounts. The administration is weighing whether and how to respond by sanctioning — or at least naming and shaming — implicated firms, or formally designating the practice a national security risk. “Open source is not open season on American IP,” Treasury Secretary Scott Bessent wrote on X July 22. “When firms conduct covert, industrial-scale distillation attacks that cross the line into IP theft, sanctions and Entity List designations will be on the table.”

Bessent has effectively taken the lead on this issue for the administration, and he also represents the Wall Street perspective. AI-related stocks drove roughly 80 percent of U.S. stock market gains in 2025, and the 10 largest S&P 500 companies, most of them AI-exposed, make up close to 40 percent of the index’s total value. A serious setback for Anthropic or OpenAI, brought on by cheaper Chinese competition, could have severe market implications Bessent cannot ignore.

A White House strategy to deal with the issue has yet to be revealed. Executive Order 14409, signed June 2, required three deliverables by Aug. 1: a classified process, run by the National Security Agency, the Cybersecurity and Infrastructure Security Agency and the National Institute of Standards and Technology, to define which systems count as “covered frontier models”; a voluntary disclosure and security-review framework for frontier labs, overseen by Treasury; and a cyber workforce expansion plan from the Office of Personnel Management.

A White House official said a voluntary framework outlined in the June 2 executive order was completed by the deadline, but declined to provide any details. The official said the the White House will host a meeting with industry partners Tuesday to discuss the framework.

“The United States leads the world in AI innovation, and President [Donald] Trump’s successful approach will keep it that way,” White House spokeswoman Liz Huston told WP Intelligence.

Administration divided on access to open-weight models

According to several current and former officials close to the White House, there is an internal fight inside the administration. Some officials want to crack down hard on Chinese AI firms, especially those behind open-weight models. Others see that as counterproductive, arguing it would hurt American developers’ ability to compete, and handing the rest of the world’s market to Beijing rather than protect America’s.

Bessent and White House director of the Office of Science and Technology Policy Director Michael Kratsios are said to favor a harsher approach. Commerce Secretary Howard Lutnick is reportedly more sympathetic to keeping Chinese AI available.

The tech industry is split too. A letter organized by Nvidia and published July 24 drew dozens of signatures, eventually including OpenAI and Google, warning against “premature restrictions” on open models. The signers argue that openness prevents companies from getting locked into one vendor, and that more people looking at a model’s code means more people finding and fixing its flaws.

“Open models broaden defensive capability, increase transparency, and allow vulnerabilities to be discovered and remediated across many teams,” the letter stated.

Administration wary of security threats from China

The fight over open versus closed is one debate. The threat from Chinese models specifically is another. Researchers and officials say Chinese models could carry propaganda, serve as tools of foreign influence or hide “sleeper agent” flaws — code that looks harmless until it is triggered later, potentially inside the software running critical American infrastructure. “There’s a potential for sleeper agents,” said Chris McGuire, a former National Security Council official now at the Council on Foreign Relations. “There’s evidence of Chinese models and propaganda.”

For McGuire, that risk exists no matter how a model is released, and conflating it with the fight over openness is where Washington has gone wrong. “The problem with open-source Chinese models is not that they’re open-source,” he said. “It’s that they’re Chinese.”

The debate got more complicated on July 21, when OpenAI disclosed that one of its own unreleased test models broke out of a supposedly sealed evaluation environment and hacked into Hugging Face, a company that hosts AI models for download. Hugging Face’s own defense against that attack used an open model with Chinese origins, because OpenAI’s commercial products would not do the job. “We couldn’t have done it with an API because they had these guardrails … preventing activity for cybersecurity,” Hugging Face CEO Clément Delangue told CBS’s “Face the Nation” on Sunday. “We needed to run a model on our own infrastructure, so we needed an open model.”

The company that built the world’s most powerful closed AI accidentally proved, in real time, why some American companies feel they need China’s open ones. It is a small example of a much bigger problem: Nobody in this fight, including the people trying to restrict Chinese AI, can fully escape depending on it.

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For the better part of two decades, the Aspen Security Forum has offered a semiprivate venue where top officials, flag officers, foreign diplomats, chief executives, subject-matter experts and journalists network and trade notes on the state of the world. This year was no different, with one glaring exception: Few Trump administration officials came.

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That absence is now a pattern. Last year, Secretary of Defense Pete Hegseth pulled all uniformed officers and senior Pentagon civilians days before the forum opened, with a spokesperson declaring that “senior representatives of the Department of Defense will no longer be participating in an event that promotes the evil of globalism, disdain for our great country, and hatred for the president of the United States.” This year, the Pentagon stayed away again. U.S. Trade Representative Jamieson Greer was the only senior administration official to speak at the event.

The forum convened against a turbulent backdrop. Trump’s global tariff campaign has entered a volatile new phase, with the emergency powers behind his signature tariffs struck down by the Supreme Court and a stopgap authority set to expire within days. Resumption of hostilities with Iran has pushed energy prices higher.

In the competition over artificial intelligence, Chinese developers have narrowed the gap with the top American labs, with Moonshot AI’s newly released Kimi K3 model nearly rivaling some of the best systems the leading U.S. firms have to offer. And the Pentagon is pressing to expand its budget and overhaul how it buys weapons — while battling Iran and its own bureaucracy at the same time.

Former ambassador to China Nicholas Burns, co-chair of the Aspen Security Group, framed the stakes in the sweep of decades. “We’re in a structural competition — military, tech, economic [and a] battle of ideas — that will go into the ’20s, ’30s and ’40s,” he said.

On the main stage, news about China, Iran and Ukraine was top of mind. But, in the hallways and in the restaurants downtown, much of the conversation turned to a deeper question: how the United States can map out a long-term strategy that allies, and the industries that work with or depend on the U.S. government, can understand and act on. In discussions about artificial intelligence, critical minerals, drones and space, the consistent refrain was that Washington must move faster by fixing how the Pentagon buys things, whom it buys them from, and, above all, how quickly those things can be built and put on the battlefield.

“One of the biggest challenges we face right now is the pace of change,” said former commerce secretary Penny Pritzker. “It is so fast, whether it’s at war, whether it’s in technology per se, whether it’s in your business or whether it’s how you run your daily life.”

The administration’s inconsistent trade policy, its unclear endgame in Iran, its uneven treatment of allies in Europe and Asia, and its generally chaotic operating style are making planning beyond tomorrow even more risky, many participants said. Even supporters of the administration’s overall drive to rectify imbalances in the international order admitted there’s no way to predict how it will end up.

“We can’t continue to subsidize global security while others promote their own domestic welfare and expect this to go on and on and on,” said former defense secretary Mark T. Esper. But, when asked where it was all headed, he said, “We don’t know. This is going to take time to play out [for] what the new normal looks like.”

For businesses trying to navigate this new global disorder, that means added risk. Michael Froman, the former U.S. trade representative who now leads the Council on Foreign Relations, put it bluntly: “The only thing certain is that there may be a new decision on trade and on tariffs, and companies are just going to have to adjust to that,” he said.

That was the mood in Aspen: The old order is gone; the new one has not arrived. And the interval between them is where governments and industry now must operate.

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President Donald Trump’s trip to Ankara, Turkey, last week included his usual mantra for the NATO partners assembled there: that Europe must carry more weight and spend more money to support NATO and defend its own continent. European leaders at the summit went out of their way to agree with him. Their message was consistent: Europe must do more, both because Washington demands it and because Washington can no longer be counted on.

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“We will make NATO more European so that it can remain transatlantic,” German Chancellor Friedrich Merz said. NATO Secretary General Mark Rutte directly tied increased European defense spending to the Trump administration’s concept of “NATO 3.0,” a term describing the next iteration of the alliance. “We are rebalancing our security for the better, and that is what NATO 3.0 is all about,” he said.

Canadian Prime Minister Mark Carney was blunt when talking to reporters in Ankara about the concerns underpinning allied action: “It’s not just that [Trump’s] winning the argument — he’s won the argument,” Carney said. “Countries realize they need to take more responsibility. They see the direct threats.”

At his pre-summit press conference in Ankara, Rutte said European allies and Canada spent nearly 20 percent more on core defense last year than the year before — and he estimated that, in 2025 and 2026 combined, those countries have added $258 billion in extra investment. Rutte credited Trump with a cumulative $1.2 trillion increase in European and Canadian defense spending since 2017, which he called the “Trump Trillion” while sitting beside him in Ankara.

That number is symbolic, but the commitments made at the summit are real.

Allies announced more than $50 billion in new procurements at the summit’s Defense Industry Forum, covering deep precision strike, air and missile defense, uncrewed systems and intelligence, plus 27 billion euros to modernize alliance fuel infrastructure. Twelve European nations, led by Britain, signed on to a separate $50 billion deep-strike coalition. Turkey signed industrial agreements across five capability areas. And allies pledged 70 billion euros in military support for Ukraine this year, with a promise to match it in 2027.

“European Allies and Canada, working with the United States, are assuming greater responsibility for the Alliance’s defense,” stated the unusually brief official summit declaration.

Trump’s repeated criticism of NATO, and his constant threats not to come to NATO allies in need, also have a negative impact, Rep. Derek Tran (D-California), co-chair of the House Democratic Caucus National Security Task Force, told Washington Post Intelligence. “President Trump’s presence at this NATO summit was a rollercoaster,” and the administration’s record “has left our allies wondering if they can still count on the United States as a partner and as the leader of the free world,” he said.

“President Trump has effectively restored America’s standing on the world stage, and he has done more for NATO than anyone else – the United States’ contributions to NATO dwarf those of any of our allies,” said White House spokeswoman Anna Kelly. “This year’s NATO summit was a success – and as always, he returned to the United States with major deliverables for our country in the form of billions of dollars in investments for American defense companies.”

But one U.S. ally, Ukraine, came away from the NATO summit with more Trump support, both rhetorically and militarily. Sitting with Ukraine President Volodymyr Zelensky, Trump said the United States would license Ukraine to build Patriot interceptors and send American companies to help. “We haven’t informed the company of that yet, but that’ll work out all right,” Trump said. He also promised increased cooperation between the U.S. and Ukrainian defense industries on drones. “Well, we would buy their drones,” he said, “but they have an ability to make a lot of them.”

Bridget Brink, who served as U.S. ambassador in Kyiv under Presidents Joe Biden and Trump before resigning in April 2025, said the announcements were positive but won’t bear fruit on any timeline that Ukraine can count on. “It’s a way for Trump to show that we’re doing something, but it’s just not fast enough. It’s going to take years for Patriot production to happen,” Brink said in an interview. “We have done this in Japan and in Germany, and it took years in each of those places to get up and running …. And that was in a peacetime situation.”

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During the major combat operations in the Iran war, the Navy’s destroyers and submarines fired so many Tomahawk cruise missiles that the United States had expended more than it produced in a last decade, according to an independent analysis in May by the Center for Strategic and International Studies. A new report released by CSIS Monday shows that Patriot interceptors and Terminal High Altitude Area Defense (THAAD) missile interceptors, both of which are in demand across the world, were expended at a rate that has left about half of the prewar U.S. inventory of each munition depleted.

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The Pentagon’s official and consistent stance has been to downplay the stockpile concerns raised by lawmakers, analysts and experts. “The munitions issue has been foolishly and unhelpfully overstated,” Defense Secretary Pete Hegseth told a House Appropriations subcommittee in May. “We have all the munitions needed to execute what we need to execute.” At a reporter roundtable on the sidelines of a Center for a New American Security event in June, Michael Cadenazzi, assistant secretary of war for industrial base policy, pushed back on the premise that current stockpiles could not sustain large-scale combat operations. “I think that’s fundamentally flawed,” he said. “I don’t think that’s based in fact.”

In an interview with WP Intelligence, Rep. Pat Ryan (D-New York), a West Point graduate and Iraq War veteran who sits on the House Armed Services Committee, alleged the administration is hiding the extent of the problem. Ryan co-chairs the bipartisan House Defense Modernization Caucus, and he has in several hearings pressed Pentagon officials and combatant commanders for a detailed accounting of what the war has consumed.

“There is still not a single classified or unclassified accounting that has been shared with the committee, despite multiple requests from members of both parties,” Ryan said. “And how do we fix this if we don’t understand what our current situation is?”

The May CSIS analysis is among the most rigorous public assessments available, based on unclassified Defense Department budget documents, news releases and other public reporting. CSIS estimated that Patriot interceptor stocks won’t be replenished until mid 2029, THAAD interceptors stocks will not reach pre-war levels until mid to late 2029, and Tomahawk missiles stocks won’t return to pre-war levels until late 2030 or early 2031. Similar production gaps face other missile replenishment efforts.

Since major combat operations with Iran have ended, the Trump administration has taken several steps on replenishment, even while denying the scope of the problem. On June 24, the Office of Management and Budget transmitted an $87.6 billion emergency supplemental requestto Congress, of which $21 billion is designated for munitions replenishment. That same day, the Pentagon awarded Lockheed Martin a seven-year, up-to-$35.3 billion contract to quadruple production for an anti-ballistic missile weapon known as THAAD interceptor from 96 to 400 units per year.

On June 24, the White House also convened a second meeting with defense company executives that, according to a source cited by Reuters, opened with a blunt message to the CEOs: “You’re not doing enough.” By the end, officials were calling for the companies to “get on a war footing.”

The question now is not whether a large-scale replenishment effort will occur. The harder questions are what will be built, who beyond the established primes will be positioned to build it, and whether an industrial base that took three decades to hollow out can reconstitute and reform itself at the same time.

“These munitions were designed in the 1970s and 1980s. They were built all about performance. They were not built to be mass produced. They’re very exquisite,” said Jerry McGinn, director of the CSIS Center for the Industrial Base. “So it’s really hard to scale them.”

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This is an excerpt from my latest Washington Post Intelligence report. Free link to the full report at the bottom.

The Trump administration is establishing an industrial policy unlike anything the United States has attempted outside of wartime or financial crisis.

Rather than relying on grants, loans or tax incentives, the administration is demanding ownership in companies. In deal after deal, negotiated at the highest levels of government — often by President Donald Trump himself, according to Trump — the administration is converting public funding into equity stakes in major U.S. companies, sometimes after making clear to company leadership that the alternative was potentially punitive.

For example, after the Trump administration struck a deal to take about a 10 percent of Intel in equity for the U.S. government, the president backed off his calls for CEO Lip-Bu Tan to resign, and said he had given Tan a reprieve for striking the deal. “He walked in wanting to keep his job, and he ended up giving us $10 billion for the United States,” Trump told reporters last August.

The administration has struck more than 20 equity deals giving the U.S. government stakes exceeding $50 billion in value, according to public reports and Washington Post Intelligence’s review of public filings and announcements. The Commerce Department holds stakes in at least nine companies across semiconductors and quantum computing, including Intel, PsiQuantum, IBM’s quantum subsidiary Anderon, GlobalFoundries and Diraq — as well as critical minerals firms USA Rare Earth and Vulcan Elements. The Defense Department holds stakes in MP Materials, Trilogy Metals, Vulcan Elements, and L3Harris. The Energy Department, meanwhile, holds a stake in Lithium Americas. The deals span semiconductors, rare earth minerals, nuclear energy, defense manufacturing and aerospace — and more are expected.

Proponents argue government equity is a useful industrial policy tool. China dominates critical mineral supply chains and semiconductor manufacturing in ways that create genuine national security risk for the United States. The private sector alone will not fill the gaps. The Development Finance Corporation, the Small Business Administration, and the Pentagon’s Office of Strategic Capital all have some form of congressionally authorized equity authority.

“If we do want these facilities here, without government support, I doubt we would get there,” said Sanjay Patnaik, director of the Center on Regulation and Markets at the Brookings Institution.

But elements of the administration’s approach to equity stakes present novel and serious risks. When the government becomes a major shareholder in companies it simultaneously regulates, funds and contracts with, structural conflicts of interest are unavoidable. Competitors face markets warped by political ties. Legal experts warn that companies subject themselves to the preferences of whoever controls the executive branch, which can change with an election. And many deals rest on statutory authority never designed to support them.

“It gives the United States government a lot of say and influence over how private corporations are run, kind of indefinitely,” said University of Colorado Law School Professor Ann Lipton. “That’s a problem, because it gives private corporations less incentive to compete on the merits of their products, it harms competitors who might have better products, and it distorts the marketplace in a way that is at odds with how we’ve designed a capitalist system.”

Now the scheme faces its first major legal challenge. On March 5, Intel shareholder Richard Paisner filed suit in Delaware Chancery Court against Intel CEO Tan, the Intel board of directors, Commerce Secretary Howard Lutnick and the Commerce Department. The complaint alleges that Intel’s board breached its fiduciary duties by approving a deal transferring 9.9 percent of the company’s equity to the federal government in exchange for $8.9 billion in Chips Act funding Intel had already been promised — and that the transaction lacked lawful statutory basis. Portions of the complaint that had been redacted were unsealed June 17, providing a detailed picture of how the deal was allegedly made.

The newly unredacted complaint depicts a negotiation process that allegedly shows government pressure and was concluded in days. It alleges, according to Intel board documents produced to plaintiff’s attorneys under Delaware’s books-and-records statute and attached as exhibits to the complaint, that CHIPS Program Office General Counsel Dave Shapiro told Intel CFO and Executive Vice President David Zinsner last Aug.18 that Intel should not make the “mistake of thinking that this is a negotiation” — and that Trump was expecting an announcement by Friday. Shapiro allegedly warned that rejection would have “consequences” he could not predict, and urged Intel to “consider benefits of having a friend in this administration,” according to the documents attached as exhibits to the complaint. The board was allegedly first informed of the equity demand on Aug. 20, only two days before it approved the deal, without legal opinion on whether the transaction was lawful and no documented analysis of alternatives.

Intel declined to comment and didn’t make Tan or Zinsner available for comment. The Commerce Department did not respond to a request to make Shapiro available for comment.

Congressional scrutiny of other Trump equity deals is intensifying in parallel. House Science Committee Ranking Member Zoe Lofgren (D-California) has condemned the USA Rare Earth equity deal, alleging it is a “massive personal conflict” given its links to Lutnick’s family firm Cantor Fitzgerald — and Democrats have demanded answers about the Vulcan Elements deal, which allegedly benefited a company where Trump’s eldest son, Donald Trump Jr., holds an investment stake.

A spokesman for USA Rare Earth defended the deal in a statement to WP Intelligence: “The recently announced definitive agreements with the U.S. Government followed extensive diligence conducted by technical professionals and advisers within the federal government.”

Vulcan did not respond when reached for comment.

Intel and the Commerce Department have both moved to dismiss the complaint, with Commerce arguing the Chips Act’s broad authority to enter agreements “on such terms as the secretary considers appropriate” covers the equity stake.

“The only special interest guiding the Trump administration’s decision-making is the best interest of the American people,” White House Spokesman Kush Desai told WP Intelligence. “Securing and reshoring America’s critical supply chains has been a top priority for President Trump, and the Trump administration continues to take historic action to safeguard America’s national and economic security.”

Meanwhile, the deals are likely to continue, often to the short-term benefit of the companies that struck them.

“There are lots of ways in which the government can shower favoritism on the companies it owns a stake in at the expense of another company that might have a better product but hasn’t cut the government in,” said Peter Harrell, former National Security Council official and visiting scholar at Georgetown’s Institute of International Economic Law.

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This is an excerpt from my latest Washington Post Intelligence report. Free link to the full report at the bottom.

Intro: The U.S.-China economic détente hangs by a thread

President Donald Trump’s May visit to Beijing was most notable for the fact that not much new was accomplished. Trump and Chinese President Xi Jinping did not settle ongoing disputes about trade, tariffs, technology or Taiwan. No major economic agreements or significant business deals were struck. But the two sides agreed to continue their trade war pause until Xi’s expected visit to the United States in September.

That lull now appears to be over. Washington fired the first salvo on June 8, when the Pentagon rereleased its updated list of Chinese companies it claims are tied to the People’s Liberation Army. This is known as the 1260H list, named after the provision in the 2021 National Defense Authorization Act that established it. This year’s list included 65 new entities and delisted 10, bringing the total to a record-high 188 companies designated.

The new additions in the June 8 list expanded into new sectors of the Chinese economy: consumer electric vehicles and batteries (BYD, NIO, EVE Energy), consumer tech (Alibaba, Baidu), humanoid robotics (Unitree), LiDAR (Hesai, RoboSense), biotech (WuXi AppTec, BGI Group), solar (JA Solar, Trina Solar), and consumer networking hardware (TP-Link). The Pentagon is designating any company that participates in China’s “civil-military fusion ecosystem” — a definition broad enough to encompass most of China’s private sector.

On Sunday, Beijing responded. China’s Ministry of Commerce placed 10 U.S. companies on its export control list, barring Chinese firms from supplying them with dual-use goods — and the Finance Ministry separately excluded 46 mostly defense-linked U.S. companies from Chinese government procurement. The export control list is where Beijing aimed for strategic effect: among those named are MP Materials Corp. and USA Rare Earth, the two companies at the center of Washington’s push to build a domestic rare earth supply chain independent of China.

Some experts point out that a 1260H designation is not a sanctions measure. The newly listed companies remain free to sell in the United States and raise capital on U.S. exchanges — for now. “It’s the list of Chinese companies out there that matters the least,” Martin Chorzempa, senior fellow at the Peterson Institute for International Economics, told WP Intelligence.

But the list’s bite comes from its downstream effects. Starting June 30, DoD cannot contract directly with listed entities. A lobbying ban takes effect simultaneously: DoD cannot contract with any U.S. firm that employs a lobbyist representing a listed Chinese entity. Starting June 2027, it also cannot contract with any company whose goods or services for a contract include those from a listed company. The COINS Act in the 2026 National Defense Authorization Act requires, within two years, a presidential review of whether 1260H-listed companies qualify for Treasury’s “Non-SDN Chinese Military-Industrial Complex” (NS-CMIC) List, which would bar U.S. persons from trading their securities.

As Neena Shenai of the law firm WilmerHale told WP Intelligence, the 1260H list is “the U.S. government raising a red flag about certain companies and their relationship to the Chinese military industrial complex.”

In February, the Pentagon published a near-identical version of the list but retracted it within the hour — with no public explanation. The retraction occurred because the Pentagon had dropped two Chinese memory chip manufacturers — YMTC and CXMT — that the Biden administration had already designated, according to officials close to the process who were not authorized to speak publicly about internal deliberations. China hawks inside and outside the administration criticized the omission, but the list stayed in limbo until after the Trump-Xi summit, which the White House did not want to disrupt, these officials said. Now, those two Chinese firms are on the list again.

“You can’t have a functional data center without these memory chips. The Chinese competitors to U.S. and allied firms are CXMT and YMTC,” said Michael Sobolik, senior fellow at the Hudson Institute. “So, the conditions are in place where if CXMT and YMTC are not blacklisted, we could miss the opportunity.”

The Defense Department, which did not respond to requests for comment, has not said whether it will respond to Beijing’s retaliation against U.S. firms. But the administration’s next move could come from a different agency. On Wednesday, Reuters reported that the Commerce Department’s Bureau of Industry and Security has not updated its list of blacklisted Chinese entities since October — the longest gap in more than a decade. The interagency committee that governs the list has approved more than 100 Chinese companies for designation that Commerce has not published. Among them: DeepSeek, CXMT and many more. Reuters reported citing sources that Undersecretary of Commerce Jeffrey Kessler has, since late 2025, sought to avoid listing Chinese parties to prevent escalating bilateral tensions. The Commerce Department did not respond to a request for comment.

U.S. businesses depend on critical minerals from China to such an extent that escalation could have cascading effects on U.S. defense and manufacturing sectors, which are already short on supplies. That will be top of mind in the White House as it considers next moves, Chorzempa told WP Intelligence.

“China clearly believes it has escalation dominance,” Chozempra said. “The sense that you could just do things like this and China would just take it — that ship has sailed.”

A White House spokesperson told us that the Defense Department’s 1260H procurement restrictions “help ensure secure and reliable supply chains for U.S. military forces,” and added, “Beijing’s response only validates the assessment that Chinese suppliers are unreliable.”

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I’m Josh Rogin. I’ve spent the past two decades covering U.S. foreign policy, national security, and international affairs. My reporting and analysis have appeared in The Washington Post, Bloomberg View, Newsweek, The Daily Beast, Foreign Policy, Congressional Quarterly, Federal Computer Week Magazine and Japan’s Asahi Shimbun newspaper. I’ve appeared as an analyst on CNN, NBC, ABC, CBS, Fox News, and PBS. I’m the author of Chaos Under Heaven: Trump, Xi and the Battle for the 21st Century, published in 2021.

My main job is as Lead Global Security Analyst for Washington Post Intelligence, where I cover the intersection of global security, technology and business. The Cable is where I share everything else — the reporting, analysis and opinion that doesn’t fit inside the day job.

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