In the past year President Trump has demanded Intel hand over 10% of its equity, that Nvidia share its China chip revenue with Treasury, and Amazon scrap plans to show tariffs to some customers. In all cases, the companies quietly complied.
But when his Defense Department demanded unrestricted access to Anthropic’s artificial intelligence, the company loudly said no. For businesses in the Trump era, it was an unprecedented act of defiance, and it drew an unprecedented response: The administration designated the company a supply-chain risk.
The two are now going to court, and the outcome matters to every American business. A win for the government would effectively empower the president to cripple any company over political differences.
The designation bars Anthropic’s models being used in military contracts—and, depending on how broadly it is interpreted, the designation could threaten the company’s growth or even its survival. Anthropic is at the bleeding edge of AI and its diminishment would set back American leadership in an industry critical to economic and strategic dominance.
That Trump is prepared to take that risk sets this apart from other forays into state capitalism where the goal has usually been economic (invest in the U.S.) or financial (hand over the money). Now, the goal is political obedience. It is the sort of treatment companies expect in Russia or China, not the U.S.
The case reverberates well beyond this one company. Every business that sells to the federal government must weigh the risk of being sanctioned should it break with the White House. Some may elect not to do work with the Pentagon at all, depriving the American military of the best technology Silicon Valley has to offer.
The case also threatens a competitive advantage for U.S. tech abroad: political neutrality. American companies can tell clients that, unlike their Chinese competitors, they don’t follow orders from the ruling party. “We are pushing foreigners to this world where they cannot trust American AI products for the same reason they can’t trust Chinese stuff,” Dean Ball, a former AI adviser to Trump, said.
The dispute began over philosophical differences. Co-founder Dario Amodei has made safety and social responsibility central to Anthropic’s approach to AI. Usage restrictions governing its contract with the Pentagon stipulate that its AI cannot be used for domestic mass surveillance or fully autonomous weapons. The Pentagon, which objects to outside limits on what its troops can do, wants unrestricted access for all lawful purposes.
Both positions are legitimate, and perhaps irreconcilable. Which is OK: One of capitalism’s many virtues is that you can choose with whom to do business based not just on product or price, but values. Bud Light too woke? Drink Miller Lite. Fox News too conservative? Watch MS NOW. If Anthropic was too inflexible, the Pentagon could have simply terminated the contract. But Defense Secretary Pete Hegseth went further, declaring on X that “no contractor, supplier, or partner that does business with the United States military may conduct any commercial activity with Anthropic.”
That would easily prove fatal. Ball, who helped develop Trump’s AI strategy last year, called it “corporate murder” in a Substack post: the “message sent to every investor and corporation in America: do business on our terms, or we will end your business.”
The formal designation the department sent Anthropic last week was narrower than Hegseth’s post, barring contractors from using Anthropic on defense contracts but not, it appears, other business.
“From the very beginning, this has been about one fundamental principle: the military being able to use technology for all lawful purposes,” a senior Defense Department official said in a statement. “The military will not allow a vendor to insert itself into the chain of command by restricting the lawful use of a critical capability and put our warfighters at risk.”
Still, there are reasons to suspect the Pentagon is singling out Anthropic. It promptly reached a contract with OpenAI which claims it, too, restricts the use of its models for domestic mass surveillance and autonomous weapons. Trump labeled Anthropic “Leftwing nut jobs,” a reference to Amodei’s past criticism of Trump and links to Democrats.
The designation is based on a provision in a 2010 law aimed at foreign adversaries seeking to “sabotage, maliciously introduce unwanted function, or otherwise subvert” American military systems. The provision has never been used on a domestic company. Its use against Anthropic is ironic, since it has been harsher toward China than many in Silicon Valley, barring access to its chatbot, Claude, from anyone in China. The Pentagon also invoked a related 2018 law that was used last year against a small, Swiss-based company.
“The idea of these statutes was always that if you have a Huawei router in the Pentagon supply chain, China can use that for espionage,” said Peter Harrell, who advised President Joe Biden on supply-chain security.
Trump and Hegseth are using the laws to pressure a company into doing what they want, Harrell said. In their version of the free market, “you have to sell on the terms and conditions the government wants, or it will put you out of business.”
Writing for the Lawfare blog, Michael Endrias and Alan Rozenshtein predict Hegseth will lose in court because he exceeded the law, didn’t meet the required findings, and doomed his case with his public statements.
But by dragging the case out, the Trump administration could still inflict lasting damage.
While Anthropic is still signing up customers, it said in its court filing that the supply-chain risk designation could “follow Anthropic into every future procurement relationship” with federal, state and local governments and contractors, imposing “significant financial and reputational costs.” The company is burning cash and the designation could affect its plans for an initial public offering this year.
To date, big companies have avoided taking on Trump even when their economic interests are at stake.
Significantly, Microsoft has asked the courts to temporarily block the Anthropic designation, which, it said, saddles suppliers with “vague and ill-defined directions” and the fear of being designated a supply-chain risk “in response to contract disputes.” Three tech trade groups in a letter asked Trump to reconsider.
As for all the companies that have remained silent: They are in this fight as well, whether they realize it or not.
Write to Greg Ip at greg.ip@wsj.com
