The Pentagon wants to eliminate Chinese military companies from the defense industry’s supply chains, so it’s preparing to alert contractors next year of any possible ties before a Congress-mandated ban takes effect, a defense policy official said Wednesday.
The Defense Department keeps a public list of banned “Chinese-military companies,” which it updates periodically. But avoiding companies with indirect ties can be more challenging than avoiding companies on that list, particularly since some prime contractors don’t know the affiliations of their subcontractors.
“There’s a lot of firms that are doing business, either knowingly or unknowingly, with firms that are connected to [banned] firms,” Michael Cadenazzi, the Pentagon’s head of industrial base policy, said during an Atlantic Council event on Wednesday. “We need to illuminate those challenges and those connections. We need to connect with the programs and the firms that are likely affected by this. And we need to [make] a direct effort to go ahead and remove them.”
Congress prohibited the government from doing business with certain China-based companies directly, as part of section 1260H of the 2021 National Defense Authorization Act, and indirectly, as part of section 805 of the 2024 NDAA. Enforcement for the latter is expected to take full effect by June 30, 2027, according to the bill text.
“People need to get ahead of it, because if you’re starting to ask for a waiver starting in [2027], I think that’s going to be a painful process for everyone,” Cadenazzi said.
That banned list is the basis for enforcement, and starting next year it will be consequential, according to a formal defense official.
“Being on the 1260H list is a flag and it may make a contracting officer look twice as to whether this is a relationship in which they want to engage,” the former official said.
Starting in June 2026, the Pentagon will be banned from directly entering into any new or renewed contracts with companies on that list. And in June 2027, the Defense Department won’t be able to contract—even indirectly— with end-products or services developed by entities on the 1260H banned list.
That indirect ban has a nuance in that it doesn’t apply to components, but it’s not clear yet how the Pentagon will address that.
“In DOD procurement, there’s a difference between a component and an end item that’s ready to be used immediately,” the official said. “The components of that car—the spark plugs and the gas cap and the engine, perhaps. Those components are not affected by this indirect procurement ban. So, it’ll be very interesting to see how DOD interprets that to give this indirect ban teeth in a way that matters, while at the same time not requiring DOD to go under the hood of the car…which is not usually feasible.”
The plan dovetails with the Pentagon’s inaugural defense industrial strategy and implementation plan published in 2024, which called for assessing supply chain vulnerabilities and onshoring critical production capacity over the next several years.
“Diversifying supply chains through domestic investment will bolster resilience in the most critical supply chains, which currently rely partially on sources outside of the United States,” the implementation plan states. “Securely producing the defense products, services, and technologies needed now and in the future at sufficient speed, scale, and cost requires a host of measures to mitigate or eliminate critical supply chain vulnerabilities, including single or sole sourcing and supply chains linked to adversarial actions. The most urgent of these measures address supply chain visibility, on-shoring and ‘friend-shoring,’ sole sourcing, cyber security, and bulwarks against sourcing materials and capital from adversaries.”
Next year, the Pentagon plans to help companies track their subcontractors’ affiliations using “available supply chain illumination data” to identify risks, notify partners, and then find “a mechanism by which we can track it over time,” Cadenazzi said.
The move will likely push companies to look for alternative suppliers, which could, in turn, create domestic supply chains and potentially rely on those of allies and partners.
“We think it’s going to be a great opportunity [for] us to shift investment into domestic firms and increase the amount of demand,” Cadenazzi said. “And that’s a key part of the acquisition transformation strategy itself…increasing the demand signal for firms. So, anything we can do to increase demand is a great thing. We think this will be a key enabler of that.”
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