The next phase in the U.S.-China economic war is here
The Washington Post June 22, 2026 | Global Security
The Pentagon has expanded its blacklist to include some of China’s biggest consumer and technology brands. Beijing’s retaliation could trigger a wider round of corporate restrictions, sanctions and supply-chain disruption.
Key Takeaways
- This month, the Pentagon released its congressionally mandated list of Chinese companies it claims are linked to the People’s Liberation Army after several months of delay. For the first time, this year’s list includes major Chinese consumer brands across the fields of electric vehicles, artificial intelligence, robotics and biotech — including Alibaba, BYD and BGI.
- The Pentagon’s list bars listed Chinese firms from direct Defense Department contracts starting June 30 — and from indirect DoD supply chain participation starting June 2027. Beyond procurement, it functions as a pre-sanction signal that increases the risk of harder designations by the Commerce and Treasury departments and biotech regulators.
- Beijing is retaliating, unlike in previous years. On Sunday, China placed 10 U.S. companies on its export control list, and separately excluded 46 mostly defense-linked U.S. firms from Chinese government procurement.
- If Trump concludes that he must re-retaliate, he has several response options. Sanctions and blacklisting tools at the Commerce and Treasury departments have not been utilized to their full extent. But re-retaliation could carry larger business and economic consequences.
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 Technologies). 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.”
Analysis: “Military-civil fusion” means every Chinese company is linked to the PLA
The Section 1260H statute originally focused on firms directly connected to the PLA or China’s Central Military Commission. But it also captured a second, broader category: contributors to China’s military-civil fusion strategy, which encompasses most of China’s strategically significant private sector. The statute additionally allows the secretary of defense to bypass all specific criteria if the secretary determines it appropriate. The Trump administration is exercising that discretion broadly.
Many companies on the current list have no direct relationship with the PLA. The State-owned Assets Supervision and Administration Commission (SASAC), which oversees China’s state-owned enterprises, and the Ministry of Industry and Information Technology (MIIT), which governs China’s tech sector, are the two bodies whose affiliation triggers designation for many of the new additions — including Alibaba, China’s e-commerce giant; BYD, its largest electric vehicle maker; and Baidu, its leading search and AI company. Unitree, Hesai, JA Solar and EVE Energy were listed because they received Chinese government “Little Giant” or “Single Champion” industrial designations — routine state subsidies for companies in strategic sectors.
When Section 1260H was created in 2021, it was a naming-and-shaming mechanism with reputational but no legal consequences. Over the years, Congress added a direct contracting ban, a supply chain ban, a lobbying prohibition, a securities review requirement and outbound investment restrictions tied to the list. The Commerce Department now uses the list to inform military end-user export control designations.
The supply chain ban that kicks in next year includes an exception for commodity components — discrete parts such as gears or motherboards that a U.S. contractor incorporates into a finished product it then sells to the Defense Department. The carveout was written to prevent the ban from severing global supply chains for undifferentiated industrial parts. But the implementing regulations are still being drafted, and the exception might be narrower than what the U.S. companies are expecting.
“If you have a foot in the defense market, you should get the other foot out of the Chinese market,” said Emily Kilcrease, senior fellow at the Center for a New American Security. “We know that once there’s a target on a company’s back, it’s more likely that they’re going to end up on a different list — a list that is more impactful.”
The 1260H list turns biotech into a battlefield.
The addition of WuXi AppTec to the 1260H list is among the most consequential designations. WuXi is the world’s largest contract drug development and manufacturing organization. It generates more than 70 percent of its revenue from U.S. clients. It supported eight of the 30 small-molecule drugs approved by the FDA in 2025. Twenty-three U.S. biotech firms had flagged their reliance on WuXi production facilities in SEC filings in the preceding year, according to data from AlphaSense.
The consequences for WuXi are real because of the BIOSECURE Act provisions in the 2026 NDAA. The law restricts federal contract, grant, and loan funds from being used to procure biotechnology equipment or services from designated “Biotechnology Companies of Concern.” The White House Office of Management and Budget (OMB) determines BCC status through a three-factor test, two of which are automatically satisfied by a 1260H listing. OMB needs to only confirm WuXi is a biotechnology company — a determination that is not in doubt. If OMB makes that determination, as expected, federal funds cannot flow to WuXi services, and WuXi services cannot be used in the performance of any federally funded contract. WuXi’s U.S. subsidiaries could then face similar restrictions.
WuXi AppTec called the placement “incorrect,” and said the company will “take immediate actions to challenge and correct this erroneous designation.
The listing of Chinese biotech giant BGI Group and six of its U.S. subsidiaries — including Complete Genomics — will also have cascading effects. The Pentagon also designated BGI’s sequencing equipment arm, MGI Tech, and Chinese biotech firms Novogene and Origincell. U.S. academic medical centers and pharmaceutical companies that use their equipment for federally funded research face the same risk calculus as WuXi clients. They do not have to distance themselves right now, but the trajectory of government action is heading in that direction.
BGI did not respond to a request for comment.
On June 2, House Select Committee on the Chinese Communist Party Chairman John Moolenaar (R-Michigan) and Rep. Debbie Dingell (D-Michigan) introduced legislation to apply outbound investment screening to biotechnology transactions — covering U.S. pharmaceutical licensing deals, joint ventures, and equity investments with Chinese companies involved in pharmaceutical development, biologics manufacturing and clinical research. The bill follows a May 21 letter Moolenaar sent to Treasury Secretary Scott Bessent urging him to include biotechnology as a covered technology in the existing outbound investment screening program. “These Chinese companies are working with the Chinese military against our national interests,” Moolenaar said in his statement accompanying the June 8 list.
The total value of China’s out-licensing deals for innovative drugs hit nearly $136 billion in 2025, according to China’s National Medical Products Administration. In the first quarter of 2026, such out-licensing transactions surpassed $60 billion — nearly half of the total deal value for all of 2025. That capital flow — and the U.S. pharma partnerships that underpin it — is now directly in the legislative crosshairs.
WuXi has retained outside counsel, and is preparing both an administrative challenge to DoD and a separate engagement with OMB to contest its designation as a biotech company of concern. For the U.S. biotechs that depend on WuXi’s manufacturing capacity or partnerships with BGI, that legal uncertainty is not likely to go away anytime soon.
Nvidia’s decision to partner with Unitree is also now potentially impacted by the latter’s 1260H designation. On June 1, Nvidia announced that Unitree’s H2 Plus humanoid robot would be deployed on its Isaac GR00T robotics platform, with four U.S. research institutions — including the University of California, San Diego, Stanford and Massachusetts Institute of Technology (MIT) — planning to use the robot for academic research. Then, on June 8, DoD designated Unitree a Chinese military company. Nvidia declined to comment for this report. Michael Yip, director of UC San Diego’s Advanced Robotics and Controls Laboratory, one of the four institutions, said the designation caught his team off-guard. “We work on health care applications, and it would be disappointing to learn that our efforts and pairing with Nvidia toward improving health care robotics research might be hindered because of military-related classifications,” he said.
What can Chinese companies actually do about this?
The Chinese companies that responded publicly to the June 8 designations did so in language calibrated to preserve legal options. Alibaba: “There’s no basis to conclude that Alibaba should be placed on the Section 1260H list. Alibaba is not a Chinese military company nor part of any military-civil fusion strategy. We will take all available legal action against attempts to misrepresent our company.” Baidu: “The suggestion that Baidu is a military company is entirely baseless. We will not hesitate to use all options available to us to have the company removed from the list.” NIO vowed to engage DoD “proactively,” while noting that procurement restrictions would not affect its current operations. BYD said there is “no justification” for its inclusion.
All five responses dispute the factual predicate for designation and signal intent to pursue administrative and legal remedies.
Chinese tech giant Xiaomi successfully won removal from a predecessor executive order list in 2021, with the court faulting DoD for failing to provide substantial evidence. That case involved a different legal authority, and the 1260H statute’s explicit discretion clause significantly narrows the substantial-evidence argument. Hesai, the LiDAR maker, filed suit after an earlier 1260H designation, secured delisting, but was relisted in the June 8 update. That cycle illustrates both that removal is achievable but that it offers no permanent protection.
For companies such as WuXi, the legal process offers no injunctive protection against the BIOSECURE compliance deadline. If OMB designates WuXi as a BCC while the 1260H litigation is pending, its U.S. clients must begin transitioning manufacturing away from WuXi, regardless of how the lawsuit eventually resolves. For Alibaba and Baidu, the more immediate legal exposure is the securities review triggered by the COINS Act — a proceeding that could restrict U.S. investor access to their NYSE-listed shares before any court rules on the merits of their 1260H challenges.
China’s retaliation is disproportionate by design.
The Pentagon’s 1260H list is a procurement blacklist; China’s response to a procurement blacklist was to impose export controls. Those are not equivalent instruments. Beijing chose a structurally more aggressive tool in response to a less aggressive one. That escalation in instrument type is a signal that Beijing may be willing to blow up Trump’s trade truce.
The Geneva trade truce struck in May 2025 included a commitment from Beijing to pause the export license regime it had imposed on rare earth elements. That pause was meant to restore U.S. access to Chinese rare earth supplies. In practice, U.S. manufacturers reported ongoing shortages and production disruptions throughout the truce period, as China administered the licensing process slowly.
For the 56 U.S. companies affected, the practical exposure divides along a two-track structure. The 46 U.S. firms on the Chinese Finance Ministry’s procurement exclusion list lose access to Chinese government contract opportunities that most were not competing for anyway. The 10 on the Commerce Ministry’s export control list face a harder problem: They cannot receive Chinese-origin dual-use goods, meaning they must source those materials entirely from non-Chinese suppliers. For some, that restructuring is not achievable in the near term. China accounts for roughly 91 percent of global rare earth separation and refining and 94 percent of permanent magnet manufacturing. Alternative supply chains do not yet exist at the scale or cost that these companies require.
Lookahead
If Trump concludes Beijing has violated the Geneva truce — for which there is a plausible argument — he has several response options. Commerce could publish its backlog of more than 100 approved-but-withheld Entity List designations, imposing direct licensing prohibitions on a broad swath of China’s semiconductor, AI and drone ecosystem. The Commerce Department could also reimpose the Affiliates Rule, which extends Entity List restrictions automatically to a listed company’s subsidiaries.
Treasury could accelerate designations against 1260H-listed companies that are publicly traded in the United States, moving to restrict U.S. investor access to their securities. Any one of these steps would represent a material escalation. The September summit gives both sides a reason to pull back. The ball is in Washington’s court.
Recommendations
1. Audit your supply chain for 1260H exposure before June 30. The Defense Department’s direct contracting ban takes effect next week. Any defense contractor must confirm that neither prime contractors nor tier-one suppliers are among the 188 listed entities. The supply chain ban effective June 2027 requires a deeper audit across all vendor tiers. Begin it now, because finding alternative suppliers takes time and the deadlines will not move. Do not depend on the exception for components: The implementing regulations have not yet been finalized, and the exception could be narrower than it appears.
2. Screen your lobbying relationships immediately. Effective June 30, the Defense Department cannot contract with any firm employing a registered lobbyist working on behalf of a 1260H-listed entity — regardless of whether that lobbying relates to the contractor’s own work. Any U.S. company holding or pursuing Pentagon contracts should audit its outside government relations engagements now — and require written representations from lobbyists confirming they carry no listed-entity registrations. The penalty for missing this is loss of Defense Department contract eligibility.
3. For biotech and pharma businesses: Begin transition planning now, regardless of litigation outcomes. The BIOSECURE Act’s OMB designation process operates on a timeline independent of WuXi’s legal challenge. U.S. biotechs relying on WuXi or BGI for federally funded research should begin finding alternative contract manufacturers now. Contract development and manufacturing organization (CDMO) transitions typically run 18 to 36 months, so waiting for legal clarity means facing a compliance deadline without a working alternative in place.
4. Treat the 1260H list as a leading indicator, not the final word. The record shows that the Pentagon’s 1260H designation has often led to Commerce Department, Treasury Department and FCC actions for designated companies. With more than 100 Chinese companies already approved but withheld from the Commerce Department’s Entity List, the gap between current 1260H exposure and harder legal restrictions may be just a matter of political timing. Companies doing business with any listed entity should be conducting due diligence and exit planning before the next designation wave forces their hand.🖵
