Separate developments on Thursday underscore rising risks to the US-China relationship, through two channels:
- Politics/Diplomacy: President Trump’s speech alleging Chinese efforts to influence US elections in 2020 and 2018;
- AI/Tech Competition: The release of a powerful new AI model (Kimi K3) by China’s Moonshot AI, followed by a high-profile address by Xi Jinping at the World AI Conference in Shanghai.
Both issues are faultlines for the US-China truce on tech and critical minerals that has been in place since late 2025 and looks increasingly fragile.
Trump’s Election Meddling Claims Are a Problem for Xi’s Visit
The president made a series of accusations in his speech, including that the Chinese authorities:
- Illegally accessed US voter registration data as part of “sinister election meddling”
- “Engaged in other election-related activities to undermine [Trump’s] first administration and our 2020 campaign”
- Sought to influence US corporations and buy off US journalists to hurt Trump
- May have attempted to manufacture illegal ballots on behalf of Joe Biden
These are bombshell accusations to make, especially in a primetime televised address to the nation. It is all the more notable given that Chinese leader Xi Jinping will be visiting the US this fall (tentatively late September) at Trump’s invitation. Trump has gone out of his way to herald a positive relationship with Xi and extend a tariff/supply chain truce initially agreed by the two leaders in Busan last fall and reaffirmed during Trump’s visit to China in May.
What happens to Xi’s visit, and the truce, after this speech? We are not going to comment on the validity of Trump’s claims but would observe that Trump did not imply plans to take action against China for its alleged interference. Rather, Trump cited these and other alleged election integrity risks to pitch the SAVE America Act and presumably other actions to come. In other words, Trump may very well intend to play the China card for domestic purposes but not to disrupt the bilateral relationship.
Whether he can do both at once remains to be seen. It would be a big deal for Xi to cancel the visit to Washington outright, and diplomatic outreach between the two sides in coming days will be important to watch. Both sides have been keen to maintain their truce, which comes up for extension in November (just after US midterm elections).
But there is no question that Trump’s accusations will rankle Beijing and make Xi’s team exceedingly nervous about what he might be walking into with a trip to the United States. For a regime that is highly risk-averse when it comes to Xi’s diplomatic treatment and the potential for embarrassment, the risks surrounding this visit just went up considerably. At the very least, this will weigh on trip planning (already off to a slow start), potential deliverables (which were already likely to be thin), and the level of ambition.
More broadly, the fact that Trump leaned so aggressively into castigating China – especially given what seem to be more credible accusations of interference by Russia – will further Beijing’s perpetual concern that Trump may switch to a more hostile stance on China if he finds it politically expedient, either before or after US midterms. Thus, Beijing will continue to devote efforts to strengthening its various tools of deterrence – such as controls over critical minerals – and its tech/supply chain resilience to guard against potential US actions down the road. Indeed, these efforts will occupy much more attention in Beijing than potential concessions to curry Trump’s favor.
China’s Open-Weight Challenge to US AI Leadership Intensifies
Our US-China coverage has focused heavily on technology competition, as we see this as the most persistent source of tensions in the relationship. In our recent series on China’s role in global data center supply chains (link HERE), we ended with a warning that technology and supply chain tensions are likely to become more prominent in 2027, after US midterms. However, the risks are just under the surface and could surface sooner.
One of the key vectors of risk is the potential for the US to take action against Chinese AI companies, out of concern about the impact on US AI leadership and/or cybersecurity vulnerabilities. Lower-cost Chinese open-weight models such as GLM 5.2 (from Z.ai) have continued to make inroads in the US at a time of growing anxiety in the corporate sector about token budgets and the costs of US frontier models. On Thursday, Moonshot AI announced its latest model, Kimi K3, the largest open-weight model to date. The company claims that Kimi performs at the frontier (competitive with Claude Fable 5 and ChatGPT 5.6 Sol) across a range of tasks, and at least some early evaluations agree (see here for Arena.ai’s take, and here for a more measured assessment from Artificial Analysis).
The release will increase anxiety in Washington that the US lead in frontier AI is eroding, particularly when it comes to cost-effectiveness and thus real-world applications. At the same time, Kimi K3 would seem to undermine the claim that Chinese AI model companies are keeping pace by distilling US models, given how quickly the model was released after Fable and ChatGPT 5.6. The increasingly intense and durable competition from Chinese open-weight models is going to raise questions for US policymakers, including:
- Whether to take executive actions that restrict the use of Chinese open-weight models in the US, and on what grounds.
- How to adjust the evolving US regulatory approach to AI models in light of competition from China – i.e., does it make sense to hold back frontier models for government evaluation when Chinese models are just as sophisticated?
- Whether to throw more support behind the development of open-weight models by US firms.
- How to use a new AI dialogue with China, agreed between the two leaders during Trump’s visit, to manage tensions and avoid a race to the bottom on AI risks such as cybersecurity vulnerabilities.
The geopolitical temperature rose further as Xi Jinping used a rare speech at the World AI Conference in Shanghai to make a bid for China’s global leadership in AI:
- Xi cast China’s embrace of open-weight models as a global public good, implicitly in contrast to the US pursuit of proprietary, closed models with controlled access.
- Xi’s highly public embrace implies that Beijing will provide policy and financial support to Chinese open-weight AI models, which in turn will be a source of persistent pressure on margins for US frontier AI labs.
- US-China diplomatic competition in AI is increasingly taking on aspects of their bitter Covid-era rivalry in vaccine diplomacy, but with higher economic and geopolitical stakes in the long run.
Implications for tech and supply chain tensions:
- The AI rivalry will increase the inclination of US policymakers to impose further technology restrictions on Chinese tech companies, whether those are AI labs or the long-standing target of semiconductor companies. We have argued that it is politically unsustainable for the Trump administration to maintain its current freeze on actions against Chinese tech firms, with pressure growing from Congress and the national security establishment. Indeed, Bloomberg reported this week on growing frustration within Trump’s team over the terms of the critical minerals truce and Beijing’s compliance (link HERE). The risks of a breach of the tech/critical minerals truce rises after US midterms, but Trump’s speech and its potential fallout mean tensions could rise even earlier.
- Beijing will respond to US actions with its own retaliatory measures, likely including critical mineral restrictions. We do not expect a return to the severe supply chain escalation that the two sides threatened in mid-2025, and Beijing is much more likely to delay/tighten critical mineral exports rather than ban them outright. But even lower-intensity critical mineral restrictions pose risks or some key supply chains, including those for US data centers (see our report for more).
In short, investors should expect tensions and uncertainty in the US-China economic and geopolitical relationship to increase in coming quarters. We would expect rising tensions to weigh on Chinese equities and the CNY, with potential impact to US markets in more severe scenarios. The near-term watchpoint is Xi’s trip to the United States.
