Pentagon Blacklist Lingers as Irritant in Trump-Xi Talks on AI

(Bloomberg) -- The US government's increased reliance on a Pentagon blacklist to target China's biggest companies threatens to cast a pall over President Donald Trump's summit this week with his Chinese counterpart, Xi Jinping.

The once-obscure roster of companies accused by the Defense Department of helping China's military has morphed into one of the Trump administration's most favored tools to pressure Beijing, ensnaring the crown jewels of China's corporate world and emerging as a major irritant for Xi's government.

Mandated by Congress and known in Washington as 1260H, the list has rapidly expanded to feature nearly 200 companies, including some of China's biggest brand names. The most recent version of the list added Chinese artificial intelligence champions Alibaba Group Holding Ltd. and Baidu Inc., as well as BYD Co., the world's biggest producer of electric vehicles.

Following the latest update in June, Chinese officials issued a sharp rebuke and retaliated with export and procurement restrictions targeting US businesses. Some of the highest-profile Chinese designees, such as Alibaba, have also sued the Pentagon seeking their removal from the list, which is increasingly being used to restrict companies including by limiting their ability to contract with the government and discouraging lobbyists from representing them.

For now, the Trump administration hasn't signaled any willingness to back down, with the 1260H list providing crucial leverage in the deepening competition between the world's two largest economies over AI and other advanced technologies. Talks between Trump and Xi this week are set to include AI, with China expected to air its complaints that the US has sought to maintain its lead in the technology by targeting Chinese companies.

Increased use of the Pentagon's 1260H list has coincided with accusations by White House officials and national security agencies that China's top AI developers including Alibaba have improperly extracted data from Silicon Valley firms including Anthropic PBC and OpenAI to build rival chatbots. China's Foreign Ministry has rejected the US claims, and warned of reprisal if the Trump administration seeks to impose any sanctions.