Analysis

Companies face a matrix of US government restrictions when it comes to selling to China. While US companies are adapting to these restrictions, many are not planning for the likelihood that China may refuse to buy from US companies. This is in fact CCP policy, stated explicitly in the famous Document 79 from 2022. Echoing restrictions against US internet companies starting almost two decades ago, the CCP has clear political reasons for preferring to buy only domestic products and services. First, it gives Chinese companies–and the CCP members that they rely on for political support–a competitive boost. Tech giants like Alibaba, Tencent, and Lenovo, for example, all depend on state funding for capital-intensive R&D; in return, these companies innovate products that replicate or even surpass offerings from foreign competitors, boosting China’s economy. 

Second, restricting foreign access insulates the CCP from potential pressure points that the US or other countries could use as leverage against China. US sanctions, for example, are significantly less effective if China does not trade as much with foreign partners and does not use the US Dollar for transactions. Restricting Chinese companies’ engagement with US suppliers is therefore as much about national security as it is about supporting Chinese business. Moreover, party members receive kickbacks from domestic companies that they promote, and Chinese companies seek to outcompete foreign competitors overseas. However, the first two points are the most important and persistent drivers of the CCP’s increasing protection of China's domestic companies. 

In a system where the party’s interests override corporate logic, national security concerns will likely increase in saliency in China’s economy. The timing of this push is important: China’s political and corporate giants now have the capacity and know-how to exclude US suppliers without suffering major losses. For China’s political and business leaders, the logic is clear: why buy from the US when China can produce cheaper or superior products at home? 

As Chinese firms become both more capable of fully supplying China’s domestic economy and face heightened political pressure to exclude US suppliers, US companies will face growing difficulties operating in China’s market. This is not to say that Chinese firms will necessarily refuse to sell to US companies (or accept inbound investment), although that may incur additional scrutiny in the future. Rather Chinese firms will increasingly refuse to buy US products. 

US companies need to plan for how to respond to China’s increasing push to transform its trade relationship with the US into a one-way flow of Chinese suppliers entering the US while restricting US suppliers entering China. In much the same way as companies currently conduct diligence on suppliers, US companies must do similar analyses of buyers and what could happen if they vanish. While companies may, understandably, be more focused on US government restrictions or the threat of IP theft, this additional and perhaps more financially devastating risk of China’s refusal to buy at all looms on the horizon.

Analysis

How can the US government support the private sector in the face of Chinese state-backed competitors? Recent announcements suggest that the United States is realizing that the scale of China’s threat to US companies needs to be met with a similar, coordinated show of force. As the Trump Administration notes with regard to artificial intelligence, “...the challenges we face require a historic national effort, comparable in urgency and ambition to the Manhattan Project that was instrumental to our victory in World War II.” 

Adding to recently announced public-private coordination to secure the United States’ access to rare earths, the US government launched the Genesis Mission, “...a dedicated, coordinated national effort to unleash a new age of AI‑accelerated innovation and discovery.” Housed at the Department of Energy, and building on earlier initiatives regarding government and AI, Genesis aims to counter China’s “swarm approach” (see “Tech Futures” below) that purposefully encourages internal competition to promote innovation–and therefore global dominance–within China’s tech giants.  

While Genesis does not recreate China’s highly-matrixed state-commercial nexus, it potentially provides far greater public-private coordination in “science and technology challenges of national importance,” including advanced manufacturing, biotechnology, quantum technology, and semiconductors. While the executive order does not hold the same authority (or funding) as legislation passed by Congress, it nonetheless suggests that the US government is increasingly interested in the tech sector on national security grounds. 

The current push towards government-coordinated industry responses mostly involves the tech sector, but companies across other sectors need to be aware of how these responses are rolling out and how they might expand into other areas of critical infrastructure. In addition to rare earths and AI, for example, two members of the Senate Foreign Relations Committee recently introduced legislation to better coordinate US policy on protecting subsea infrastructure, including undersea fiber optic cables that are vital to the US economy and national security. Picking up on recommendations from recent government and think tank reports, this legislation attempts to solve two key problems for the subsea industry: overregulation; and a lack of coordination between government and corporations. 

These themes extend beyond the subsea industry. Solving them will require an immense amount of political will, but the threat of being outcompeted by China appears, at least for now, to contribute to a sense that the effort is worth it. Companies, particularly in the tech industry, need to be aware of how these changes could shape their engagements with China.

Analysis

In the weeks since the most recent trade negotiations between Washington and Beijing, both sides have made demonstrable efforts to make good on their promises to one another, providing markets a much-needed bout of stability as we enter the end of the year. While this is certainly good news, political headwinds–this time in the form of worries about China’s Belt-Road Initiative and the flashpoint that is Taiwan–could spell disaster in the New Year. 

The US has extended tariff exclusions on certain Chinese industrial products while China has made significant US soybean purchases, although economists and farmers are skeptical that China can actually meet its purchase pledge. The long-awaited issuing of Chinese rare earth export licenses has also commenced, although the situation has not reverted to pre-trade war levels. Beijing is now issuing “general licenses” that permit year-long shipments of rare earths to approved buyers without requiring per-shipment approvals; at present, however, these licenses have only been granted to China’s three largest rare earth producers. These licenses serve as a supplement to the existing export control regime, not a replacement, and are intended to return the market to pre-October 2022 conditions, when China rolled out its first suite of additional rare-earth controls. These general licenses explicitly limit approved uses of their rare earths to civilian products–with the automotive industry likely getting the biggest break–and remaining restrictions may still lead to shortfalls for US security or defense related products. With this in mind, the US continues to pursue rare-earth resilience beyond Chinese suppliers at the same time that Chinese suppliers are creatively remaking their products to include different proportions of rare earths that circumvent Chinese export limits.

Although Washington and Beijing seem to be working in (mostly) good faith to deescalate trade tensions, new challenges are coming. One obstacle to deescalation comes from the ongoing AI race, and each country’s efforts to establish global industry standards. Nvidia CEO Jensen Huang has expressed concerns over the US’s refusal to allow access to the Chinese market–the long-running H20, H100, and H200 chip debacle continues–and fears that a revamped version of China’s Belt-Road Initiative may push Chinese AI technology across the globe and undercut US competitiveness. While Huang’s market-forward perspective is to be expected, and he is right to be concerned about the possibility of Chinese dominance of the global AI market, Chinese chips cannot–for now–compete with US- (and Taiwan-)produced chips despite their capital advantage. Given Huang’s courting of both Beijing and Washington, the resolution to this issue, or the potential lack thereof, could easily upend the new market stability.

The other problem on the horizon is Taiwan, but this time it is not about TSMC. In the Chinese read out from the Trump-Xi call on November 24, President Xi’s remarks suggest a conditional logic regarding the new trade agreement: the rare earths will flow but only so long as the US does not intervene in China’s ambitions to annex the island of Taiwan. However, the subject of Taiwan did not appear in the White House’s summary of the events. Moreover, President Trump has signed a bill requiring regular reviews of US engagement with Taiwan, with an aim toward easing current self-set limits. At the same time, and in response to pressure from the US government, the Taiwan government has committed $40B to buy US military equipment and build its own missile defense dome. Lastly, Japan’s new Prime Minister Sanae Takaichi has laid the rhetorical groundwork for Japan’s intervention in Taiwan should China invade. While President Trump has asked Prime Minister Takaichi to walk back her position, Beijing is not satisfied. In short, Taiwan is a powder keg with a short fuse, and it threatens not only the US-China trade agreement, but stability in the western Pacific and the overall Sino-American relationship.

Analysis

China’s emerging “swarm approach” to strategic technology development is rapidly becoming the core operating model behind Beijing’s push for global tech dominance. Rather than concentrating national bets on a single champion—as the U.S. effectively does with Nvidia for AI hardware or TSMC for chip manufacturing—China is deliberately distributing high-stakes innovation across multiple domestic giants. In response to pressure from the West, Xi Jinping's new five-year plan explicitly adopts a mobilization mindset. This strategy signals a call for "extraordinary measures" to fast-track advancements in three key areas: semiconductors, high-end equipment, and advanced materials. This approach is meant to prevent national failure if one firm faces sanctions or supply chain disruption, while the competition and overlap among firms like Huawei, Tencent, Alibaba (Qwen), Baidu, and DeepSeek builds domestic resilience into the system. This decentralized geopolitical risk mitigation strategy uses intense domestic tech competition to create internal supply chain redundancy.

The strategy’s appeal derives from its mixing low cost, high capability, products with an expanding global reach. Multiple Chinese firms are aggressively releasing highly capable, low-cost large language models (LLMs) under permissive open-source licenses, creating a cost-performance advantage that Western rivals struggle to match. Alibaba’s Qwen system, for example, has already become a standard foundation for developers in Japan, Southeast Asia, and the Middle East, driven by superior pricing and easy derivative use. DeepSeek offers model use at a fraction of OpenAI’s rates, which matters in startup markets where keeping costs low is critical. This distributed strategy acts as a policy hedge: if one Chinese LLM provider is restricted by sanctions or controls, another can immediately fill the gap. This is a domestic supply chain with built-in failover that also accelerates the global adoption of Chinese software infrastructure.

Regulators are highlighting security concerns: China's new five-year plan unifies national technical standards and strengthens security review mechanisms, ensuring that while companies compete, their architecture and data flows remain centrally aligned. Taiwan's National Security Bureau reported that Chinese LLMs capture intrusive device data, transmit logs to China, and produce politically aligned content. A recent CrowdStrike report adds a new dimension: China’s flagship DeepSeek-R1 model can generate significantly weaker and more vulnerable code when prompts include politically sensitive terms, increasing severe security flaws by nearly 50%.This shows how political bias embedded during training can quietly degrade code safety in enterprise environments. Western analysts view this as China's strategic shift from vulnerable hardware chokepoints (semiconductors) to dominating the software layer, making Chinese models the default global infrastructure.

For companies and policymakers, this pattern is not yet overwhelming, but it is not fringe either. A meaningful slice of the global AI market  now relies on models and software stacks that operate inside China’s legal jurisdiction, making AI model choice a geopolitical decision rather than a purely technical one. The practical takeaway is governance: firms should assume that models developed in China could be subject to the National Intelligence Law; keep regulated, sensitive, or strategic data off Chinese LLMs; and build systems in a way that preserves swap-out capability if regulators in the United States, Europe, or allied nations tighten provenance rules. The “swarm approach,” in short, is not just a commercial strategy—it is Beijing’s long-term insurance policy against sanctions and a method for exporting Chinese technological standards one software dependency at a time.

Analysis

The UK faces a reckoning in its "neither golden age nor ice age" relationship with China. Further delaying ongoing decisions about Beijing’s proposed “mega embassy” in London (much to China’s chagrin), the British government is demonstrating how its insecurity about China-UK relations is undermining both trade and security. Prime Minister Keir Starmer’s announced visit to Beijing to try to improve bilateral relations adds further confusion to the ruling Labour Party’s position. The UK government cannot decide whether China constitutes an unparalleled espionage and national security threat, as British intelligence correctly argues, or a key economic partner, as the UK Treasury contends. It cannot be both. That, in short, is the dilemma that not just the UK, but the whole world faces, and Beijing quite skillfully takes full advantage. For China, trade is a zero-sum, neo-mercantilist, existentialist competition, not a positive-sum gain for all. 

The UK is trying to find a balance of closer business ties with China while acknowledging and attempting to manage national security threats. Moreover, trying to balance both is proving increasingly difficult not only for the Labour Party, but also for the UK’s relationship with the United States. As we previously argued, in prioritizing trade over security, the UK may find itself achieving neither goal, and will also find that it will have neither China nor the US as long-term partners. 

A recent proposal by a Hong Kong corporation to buy Thames Water, a major privatized utility facing nationalization, has brought this issue into relief. Washington noted that the UK’s keenness to sell critical infrastructure to Chinese buyers threatens NATO’s security. 

The challenge is that the United States is also seeking to strike the same balance as the UK. The recently released National Security Strategy, for example, points to the United States maintaining a “mutually advantageous economic relationship with China.” While the report adds nuance to this position, it overall suggests a softening of hawkish language that prioritizes improving trade over excluding China completely. Compared to Washington’s demands of the UK, it appears that the US government is therefore asking allies to do as DC says, not as it does. 

This balancing act severely undermines the US government’s ability to persuade allies to align with its priorities. From London’s perspective, If the US government is willing to prioritize trade over security, why shouldn’t the UK? The challenge for both countries is that in racing to engage China, they will likely irreversibly undermine their national security.