US designation of major Chinese companies as military-linked highlights negative outlook for reputational risk amid tech competition

Event:

The US Department of Defense has added several major Chinese technology companies to a list of companies designated as working with the Chinese People’s Liberation Army [LINK]. 

Assessment:

The listing has received considerable media attention for the inclusion of social media tech giant Tencent and major battery manufacturer CATL [LINK]. The inclusion of these companies in the annually updated list was not publicly foreshadowed and came as a surprise. 

The companies listed range from state-owned enterprises in the aerospace and defence sectors, through to telecoms, semiconductor and oil companies, and now large tech companies in the case of Tencent [LINK]. This is indicative of the growing range of economic activity that is coming under the lens of national security policy in the US. The US approach was previously characterised as a ‘small garden, high fence’ - where a small set of core companies and technologies are rigorously protected. As media commentary has noted, the designation of major tech companies such as Tencent suggests the desire to fence in an increasingly large ‘garden’ [LINK]. 

The blurring of the lines between national security, economic, tech, and science policy is introducing new political tensions and greater variation within areas of policy that were previously largely technocratic, for example around export control and international scientific collaboration.

Outlook:

Initial reaction from several of the designated companies, including Tencent and CATL, suggests that they may attempt legal challenges to the listing in US courts. 

Under the National Defense Authorization Act 2024, the Department of Defense cannot contract listed companies from June 2026. From June 2027 it cannot contract companies that use listed companies as suppliers. If maintained, this designation would therefore make it increasingly difficult over time for these companies to do business with the US defence industrial base and for tech companies hoping to move into this space. 

The intersection of national security, economics, and technology will remain at the forefront of US policymaking and media attention under the new administration of Donald Trump. Internal tensions within the administration and Trump’s political coalition are likely to drive increased uncertainty around the implementation of policy. Moreover, the scale of potential reputational risk for companies that come under political and social media scrutiny will be greater under a Trump administration.