USA

In early August, a Pentagon official stood in front of reporters and conceded something the department almost never says out loud: the world’s best-funded military cannot out-produce a country under invasion. Travis Metz, deputy director of the Defense Innovation Unit, put a number on it. Ukraine will manufacture six to seven million small first-person-view attack drones this year — roughly 500,000 a month, built in garages, repurposed furniture factories and basements within range of Russian glide bombs. The Pentagon’s own flagship drone program, a $1.1 billion initiative branded Drone Dominance, will have ordered fewer than 200,000 drones, cumulatively, by February 2027. Metz’s response was not defensive. It was aspirational: “I see no reason why we shouldn’t… be the world champions of this as well.” The gap he was describing is not a technology gap. It is a speed gap, and speed is the one metric wartime industry cannot fake.

The instinct is to read this as a story about Ukrainian ingenuity, and it is one. But it is also the epilogue to a specific American failure. In 2023 the Pentagon launched Replicator, a program to field “multiple thousands” of autonomous systems within 24 months to counter China. By its August 2025 deadline it had delivered “hundreds,” not thousands, after burning through roughly $1 billion — undone by drones that were unfinished at selection, software that could not command large numbers of different systems at once, and a Switchblade loitering munition priced above $100,000 a unit. Washington’s answer was not to slow down and fix the model; it was to bring in the Department of Government Efficiency to override procurement rules and reclassify small drones as disposable supplies rather than regulated weapons systems. Meanwhile, Russia’s own Shahed and decoy drone output is reportedly climbing toward several hundred, and by some Ukrainian estimates up to a thousand, units a day. The war that forced Ukraine to mass-produce cheap drones is the same war exposing how slowly America still moves.

Why the gap isn’t about money

Start with unit economics, because they explain most of the gap. A Ukrainian FPV drone can be built for as little as $300 to $500 — an airframe, a camera, a battery and a warhead, assembled by hand and flown once. The Pentagon’s comparable systems have historically cost orders of magnitude more, not because the components are better but because they were designed inside an acquisition culture built for exquisite, low-volume platforms like fighter jets, where every part is sourced, tested and certified over years. Layer onto that a July 2026 rule requiring a “wholly domestic” supply chain — no Chinese-made motors, no Chinese battery packs — and the honest tension becomes visible: the policy meant to make American drone production more secure is, in the near term, also what makes it slower and more expensive to scale. Metz’s own explanation was blunt: it is “much harder to get from zero to 200,000” than to expand an existing line. Ukraine skipped that problem by never centralizing production in the first place — thousands of small, dispersed workshops that are individually replaceable and collectively enormous.

The deeper obstacle is not money but structure. Replicator had no dedicated budget line, was bounced between the Defense Innovation Unit and a newly created Defense Autonomous Warfare Group under Special Operations Command, and repeatedly selected systems that existed as concepts rather than finished products, in a rush to hit an artificial 24-month deadline. Congress, by its own research service’s account, has struggled to get basic cost and capability data out of the program. This is what forced DOGE’s intervention: not a shortage of appropriated dollars, but a procurement system engineered for careful, low-volume exquisiteness trying to behave like a wartime factory floor, and failing at both.

The strongest objection to treating this as a straightforward American failure is that the comparison is not apples to apples. Ukraine’s FPVs are disposable, short-range and built for a static front line; American planners are chasing autonomy, jamming resistance and long-range swarm coordination for a Pacific theatre defined by vast distances rather than trench lines, and that ambition costs more and takes longer to get right. That is a fair distinction — but it does not rescue the record. Years and a billion dollars into that more ambitious bet, the Pentagon still lacks software able to command mixed fleets of different drones, while Ukrainian manufacturers are already fielding AI-assisted terminal guidance on sub-$500 airframes, refined through thousands of real combat sorties a month. The ambition gap did not produce a capability lead. It produced the same failure as the cost gap: exquisite requirements colliding with a timeline the requirements were never built to meet.

Which is why the Pentagon’s actual fix looks nothing like a bigger budget. Six Ukrainian manufacturers, including F-Drones and General Cherry, are now required to form joint ventures with American companies — near Toledo, Ohio, and in New Hampshire — as a condition of future Pentagon orders. Washington is not just buying drones. It is importing the production model, and with it the tacit admission that the expertise now runs the other way.

Three ways this goes

What happens next depends on whether the joint-venture model actually transplants Ukraine’s manufacturing tempo onto US soil, or just its branding.

Base case (roughly 50 percent probability). The Ohio and New Hampshire joint ventures scale gradually. By 2027–28, US-based output climbs into the low hundreds of thousands annually — a real improvement, but still an order of magnitude below Ukraine’s current pace, held back by the domestic-sourcing rule’s cost premium. The program becomes a credible proof of concept for a future Indo-Pacific contingency rather than a fix for any current shortfall, and “Drone Dominance” quietly redefines success downward to match what it can actually deliver.

Downside case. The DOGE-driven bypass of standard testing repeats Replicator’s failure mode at greater scale: units purchased without adequate vetting turn out unreliable in the field, a GAO or inspector-general report documents it, and Congress reimposes the very procurement safeguards that were just stripped away. Combined with a Chinese-component ban that keeps unit costs well above Ukrainian levels, US output stalls again, and the gap that Metz conceded in August widens rather than closes by the time it next matters.

Upside case. The joint-venture model works as intended — not just as a purchasing arrangement but as a transplant of Ukrainian manufacturing culture, its dispersed micro-factories, rapid iteration and tolerance for combat-tested imperfection, into the American industrial base. That model, proven on drones, becomes the template for how Washington arms the next partner already fighting a war, whether Taiwan or a Baltic state: not a slow pipeline of finished stockpiles shipped from the continental United States, but manufacturing capability transplanted onto the partner’s own soil, and now, in this instance, onto America’s.

The takeaway

So: what does the mismatch reveal? Not that Ukraine builds better drones — the Pentagon never disputed that its own designs, on paper, are more capable. It reveals that capability on paper is not the same as capability in time, and that the American defense-industrial base, even backed by an executive order, a billion-dollar program and a DOGE override of its own rules, still cannot mobilize at wartime tempo on its own. The fix Washington has actually reached for is not more money. It is outsourcing the missing ingredient — speed — to the one partner that has been forced to master it under fire. That is the real admission, and it may be the more durable one: the next time the United States arms a country fighting a live war, it may look less like supplying an ally and more like apprenticing to one.

Watch for: whether the Ohio and New Hampshire joint-venture lines are shipping US-assembled drones at anything close to Ukrainian unit costs by the next Gauntlet test cycle at Fort Carson. If the “wholly domestic” sourcing rule keeps American-made units several multiples more expensive than their Ukrainian counterparts, the joint ventures will have transferred the branding of Ukraine’s drone war without transferring its speed.

Chinese media and intelligence are closely following the exodus of the American Central Intelligence Agency CIA personnel, particularly the months-long wait for new retirees to receive their financial entitlements. The agency is facing what it describes as an unprecedented number of retirements as the Trump administration seeks to reduce its workforce. Chinese media and intelligence perspectives on this unprecedented exodus of CIA officers align with their own. The delayed payments are a key focus, with both China and the US focusing on exploiting these developments to highlight institutional weaknesses within the American administration and the declining effectiveness of espionage against Beijing. Beijing is using the CIA exodus and delayed retirement payments to cast doubt on the efficiency of American institutions, targeting disaffected and dismissed intelligence operatives to gather information. This is achieved by promoting the idea of ​​the US administration’s collapse and attracting these affected security professionals to bolster Chinese counterintelligence capabilities.  Here, Beijing is exploiting the widespread layoffs and dismissals within the CIA and other US federal agencies, turning the affected employees into valuable assets to bolster Chinese counterintelligence capabilities. The Chinese strategy focuses on transforming these dismissed experts from defenders of US national security into offensive tools that expose Washington’s vulnerabilities.

The most prominent trends in official and semi-official Chinese commentary and analysis regarding the dismissal of CIA personnel can be summarized as follows: (Chinese mockery of the China-defeat strategy and the backfiring on the strategist). This is the same point made by Chinese media reports, such as the official Xinhua News Agency, which indicated that the Trump administration had previously announced that its restructuring and hiring freeze aimed to focus on China-defeating and the trade war. However, the actual result was the dismissal of skilled and experienced personnel within the CIA. This exposes the structural failures of the US, and Chinese media highlighted the crisis as evidence of administrative chaos within the United States. The pressure to downsize the federal government has paralyzed the Office of Personnel Management (OPM). This has left Washington unable to even pay the pensions of its retired spies on time.  Here, Chinese intelligence, military, political, strategic, and media circles seized upon this crisis to promote the idea of ​​eroding American national security and the golden opportunity it presented for counterintelligence. Chinese think tanks and intelligence agencies seized upon internal American warnings that leaving thousands of former intelligence officers without income for months made them easy targets for infiltration. Beijing interpreted this as a tacit admission of the fragility of institutional loyalty within the American system in the face of financial pressures. Beijing viewed it as evidence of American administrative disarray and a prime example of the brain drain of accumulated expertise. Chinese analyses, assessments, and evaluations focused on the fact that the deferred resignation and contract buyouts programs have prompted senior analysts and field officers within the CIA (those with extensive networks and deep knowledge of Asian affairs) to abruptly leave the service, creating an intelligence gap that will be difficult to fill in the near future.  From the Chinese perspective, this exposes the American narrative of transparency and efficiency and reinforces the idea of ​​the political manipulation of intelligence. Therefore, China is exploiting this unprecedented crisis within the CIA to bolster its ongoing narrative that US intelligence agencies have become tools in partisan political conflicts within Washington. Beijing views the mass exodus as a reflection of the professional officers’ lack of confidence in the administration’s political direction. Beijing is using this as part of a counter-propaganda strategy, with Chinese media outlets employing these facts to send messages to the international community, developing countries, and the Global South, suggesting that the United States, which seeks to impose its global security hegemony, is suffering from severe internal divisions that prevent it from managing its fundamental sovereign affairs efficiently and professionally.

Regarding the Chinese political and media exploitation of the CIA staff exodus crisis, the Chinese media machine promotes these crises as evidence of the collapse and disarray of the US federal administration model. It exploits the inability of US institutions to meet their financial obligations (to portray Washington as incapable of protecting even its most sensitive agencies). Therefore, Chinese intelligence, analytical, and strategic circles employ propaganda to highlight the fragility of job security and social stability within US decision-making circles. Furthermore, China strategically and intelligence-wise exploits this internal US crisis. Chinese intelligence agencies monitor these vulnerabilities to target former employees or those facing termination. Beijing offers inducements or clandestine channels of communication through consulting and research fronts to ensnare individuals who are psychologically and financially distressed. China also exploits the frustration resulting from delayed pensions or forced layoffs to facilitate infiltration, counter-recruitment, and the acquisition of sensitive secrets.

Chinese intelligence, such as the Ministry of State Security (MSS), operates through specific and deliberate mechanisms. The MSS, which oversees Chinese intelligence operations, exploits vulnerabilities such as fractured loyalty, financial weakness, and psychological and material incentives. Beijing focuses on federal officers and probationary personnel who have been laid off from the CIA and harbor resentment, bitterness, and a desire for revenge against their former superiors. Chinese intelligence, analytical, and strategic circles then work to support these individuals to fill the financial gap. The sudden loss of a job for a security officer with high financial obligations creates fertile ground for recruitment, as China offers substantial and enticing financial incentives to secure their loyalty. Chinese intelligence circles are also actively employing digital recruitment through front companies. These are sham consulting firms. Beijing is establishing networks of consulting companies, think tanks, and fake recruitment agencies that appear Western and 100% legitimate to target talent on LinkedIn. Through these platforms, Chinese intelligence officers target former CIA employees who are seeking employment on well-known job search platforms like LinkedIn. They use disguised accounts, sometimes employing artificial intelligence, to apply for jobs. Then begins the process of gradually extracting information. The relationship starts with requests for ordinary, non-classified (publicly available) research in exchange for lucrative financial rewards to build trust. The employee is then gradually drawn into providing sensitive information and moving to encrypted communication platforms.

Here, Chinese intelligence agencies work to feed their counterintelligence efforts with tactical information. When China succeeds in recruiting a compromised American security operative, it doesn’t just seek international secrets but focuses on acquiring high-quality information that serves its counterintelligence apparatus. The most prominent of these is uncovering the methods of operation of the US Central Intelligence Agency (CIA). Understanding American recruitment mechanisms, how spies are planted, and methods of vetting and infiltration. Identifying profiles and characteristics (profiles) to understand the psychological and behavioral traits the CIA seeks in informants, which helps China detect potential spies within its own territory or within the People’s Liberation Army early on. This also involves uncovering technical and cyber vulnerabilities by identifying the encryption tools and systems used by US agencies, thus giving Chinese counterintelligence the ability to fortify its networks and penetrate counterespionage operations.  Exploiting the absence of exit briefings, Western and American intelligence reports have revealed that some federal employees who were hastily discharged did not undergo standard exit briefings. This procedural gap left employees without direct warnings or clear reporting mechanisms should they be approached by hostile entities. Beijing exploited this as a golden opportunity to operate with minimal oversight. In response to this risk, US security agencies, such as the FBI and the National Counterintelligence and Security Center NCSC), issued heightened security alerts and shut down and blocked dozens of fake websites belonging to Chinese recruitment networks targeting discharged CIA employees.

China opposes the US and Western escalation against Iran and insists on condemning the US and Israeli attacks on Iranian nuclear targets. China considers the US and Israeli military attacks on Iranian nuclear facilities a blatant violation of international law and the UN Charter. While Beijing officially adheres to nuclear non-proliferation, it will hold the US directly responsible and will oppose the imposition of new international sanctions against Iran in the UN Security Council. China will work to hold Washington accountable. Beijing believes that the US withdrawal from the nuclear agreement is the root cause of the current impasse in the Nuclear Non-Proliferation Treaty (NPT) negotiations. The Chinese Foreign Ministry asserts that the policy of maximum pressure and economic sanctions against Tehran will not resolve the crisis but will only exacerbate tensions. China views Tehran’s threat to withdraw from the NPT as an understandable reaction to the maximum pressure exerted upon it, but it consistently prefers diplomatic solutions and supports maintaining the international legal framework to prevent escalation.  The Chinese stance came after Iranian parliamentarians, including Ebrahim Rezaei, asserted that withdrawing from the Nuclear Non-Proliferation Treaty (NPT) is the best response to the Trump administration’s escalation of economic warfare.

The main dimensions of the Chinese position regarding the Iranian threat to withdraw from the NPT are embodied in China’s rejection of pressure and sanctions against Iran. China maintains that the escalating US sanctions and policies against Tehran will not resolve the nuclear crisis but rather exacerbate it. Chinese intelligence, military, political, and strategic circles have adopted a strategy of legal consideration versus feasibility. Experts and observers close to Chinese circles argue that Iran’s withdrawal from the NPT is a legitimate legal right for independent states, but Beijing implicitly suggests that such a move could trigger harsher international sanctions against Tehran. Therefore, Beijing is working to (obstruct UN sanctions against Iran). China, along with Russia, has expressed its readiness to block the activation of the snapback mechanism or any harsh international sanctions against Iran in the UN Security Council to protect its interests and regional stability, while adhering to a political settlement. Beijing is calling on all parties to return to the negotiating table and maintain regional and international stability, instead of taking radical and escalatory steps that violate international treaties.

In my analysis, China will insist on referring the Iranian issue to international forums, such as the Security Council, using its veto power to condemn and block any resolutions issued against Iran. Here, China is expected to cooperate with Russia to obstruct any Western or American Security Council resolutions aimed at condemning Iran or imposing new, harsh UN sanctions. China will maintain its commitment to dialogue by continuing to call for a return to the political negotiating table, while publicly acknowledging Tehran’s previous assurances that it is not seeking to produce nuclear weapons. Here, we must understand all the strategic parameters of China’s position regarding the escalation against Iran over its nuclear program through the lens of China’s opposition to nuclear armament. Despite China’s understanding of Iran’s motives and its right to peaceful energy, it categorically rejects Tehran’s move towards acquiring a nuclear military arsenal in order to preserve the stability of the international order and prevent a regional arms race. This is coupled with the desire of relevant circles in Beijing to safeguard their interests. Therefore, Beijing will strive to avoid sliding into a direct confrontation with the West and the United States while continuing to provide Iran with as much economic and diplomatic support as possible in order to alleviate Iran’s isolation.

China supports Tehran diplomatically, emphasizing dialogue and rejecting the unilateral sanctions imposed by Washington. Despite the ongoing pressure, the likelihood of direct war remains low, as a major war of attrition is avoided. China’s position is characterized by its call for diplomatic solutions and dialogue based on mutual respect, its rejection of unilateral US economic sanctions against Iran, and its insistence that all parties address the root causes of the tension and resume the nuclear agreement. This is especially relevant given the Iranian threat to withdraw from the agreement, voiced by several members of the Iranian parliament who believe that remaining in the nuclear non-proliferation treaty is pointless under continued US pressure.  Intelligence, military, political, and strategic circles in Beijing considered the Iranian parliamentary proposal a political response to the tightened US economic sanctions against Tehran. Chinese intelligence circles are well aware that an actual Iranian withdrawal from the Nuclear Non-Proliferation Treaty requires the approval of Iran’s Supreme National Security Council. Should this occur—a slim possibility according to Chinese strategic assessments—it would mean the potential outbreak of a full-scale war. Therefore, strategic assessments in Beijing suggest that the potential confrontation between Washington and Tehran will likely escalate into a protracted war of attrition rather than a full-scale military clash. According to Chinese analyses, both Washington and Tehran prefer economic pressure and the prospect of open negotiations to the option of open warfare. Hence, China seeks to curb any military escalation that could threaten energy security and regional stability.

Accordingly, China supports the continuation of the diplomatic and political track to resolve the Iranian nuclear crisis. It rejects pressures, escalatory policies, and economic sanctions against Tehran, while simultaneously calling for dialogue based on mutual respect and the preservation of regional stability, without supporting any sudden steps that could fuel the conflict. China’s general position stems from its rejection of sanctions. Beijing believes that the policy of maximum pressure and economic sanctions does not resolve the nuclear issue. Therefore, China consistently calls for adherence to dialogue to resolve differences through peaceful political and diplomatic means and to resume negotiations. China also provides strategic support to Iran. In this regard, China stands with Iran in the face of Western and American pressure. China is working alongside Russia to submit draft resolutions to the UN Security Council to support de-escalation, extend the agreement’s framework, address threats of withdrawal, and avoid mutual escalation. China urges all parties to avoid any unilateral steps or escalatory measures, such as triggering the snapback mechanism or mutual withdrawals from international agreements and treaties, which could lead to a loss of control.  Therefore, Beijing prefers to contain this crisis and the Iranian threats to withdraw from the Nuclear Non-Proliferation Treaty through negotiating frameworks that preserve the basic structure of the non-proliferation regime, while holding the United States and European countries partly responsible due to Washington’s previous withdrawal from the same nuclear agreement that Tehran is now threatening to withdraw from.

On July 23, Volodymyr Zelensky told Ukrainians that Raytheon wanted to help produce Patriot interceptors on Ukrainian-linked lines. Five days later, Lockheed Martin signed a second license, this one for the PAC-3 MSE — the hit-to-kill missile that has spent three years picking Russian ballistic warheads out of the sky over Kyiv. For a moment it looked like a watershed: the United States handing a country still absorbing nightly missile and drone barrages the blueprint to build its own air defense. Then, within days, the story came apart in public. US Ambassador Matthew Whitaker said Washington would not allow Ukraine to build PAC-3s at all. Donald Trump called the technology transfer “a hard thing to give away.” NATO’s own envoy said no agreement would close before winter. Something had clearly been decided. Nobody could agree on what.

The Patriot system is the closest thing the West has to a proven shield against ballistic missiles, and it is scarce almost everywhere it is needed. Roughly twenty countries now compete for a production line that turns out about 650 PAC-3 MSE interceptors a year worldwide — Lockheed Martin’s entire global output, shared among Ukraine, Israel, Taiwan, Gulf states and the US Army’s own depleted stocks. Russia, meanwhile, has been firing 55 to 60 Iskander ballistic missiles a month at Ukraine alone, before counting the nightly Shahed drone waves that push crews to expend scarce interceptors on cheaper threats out of necessity. The Pentagon has spent much of the past two years quietly rationing Patriot allocations across allies, reportedly diverting orders meant for Taiwan and Ukraine to replenish American stockpiles. Against that backdrop, “Ukraine will build its own Patriots” is not primarily a sovereignty story. It is a story about whether the system that makes Patriots for everyone else can keep up at all.

What the deal actually requires

Start with what was actually signed, because the headlines overstate it. Raytheon’s license covers the PAC-2 GEM-T, an older blast-fragmentation interceptor effective against aircraft and cruise missiles. Lockheed Martin’s covers the PAC-3 MSE, the missile that actually stops Iskanders and Kinzhals. Neither license includes the radar, the fire-control system or the launchers; those still come from existing Patriot batteries. And neither company has committed to building these missiles on Ukrainian soil in the near term. Reporting from Reuters and Ukrainian officials both point to Germany, which already runs its own PAC-2 line, as the likely first production site, with capacity shifting to Ukraine only “after the war ends.” What was announced in July, in other words, is not a factory. It is paperwork that keeps a door open.

Even so, the paperwork matters, because of what it concedes. Every PAC-3 MSE round carries a 24-month production lead time for the missile itself and 30 months for its solid rocket motor. Boeing manufactures every active radar seeker that guides it from a single facility in Alabama, capped at 650 to 700 units a year — a bottleneck no amount of Ukrainian factory floor changes. Aerojet Rocketdyne is the sole source for the motor. These are not obstacles a co-production agreement dissolves; they are structural limits on how fast the United States can arm anyone, Ukraine included. A government does not open its most tightly export-controlled missile program to a country still under nightly bombardment unless it has concluded that the existing pipeline, working alone, cannot meet demand. That is the admission buried in the announcement: not that Ukraine’s industrial base is ready, but that Lockheed’s and Raytheon’s are strained, and Washington needs help from a country it would ordinarily be supplying, not licensing.

The contradictions among American officials sharpen the point rather than undermine it. Whitaker’s flat denial that Ukraine would ever build PAC-3s, arriving days after Zelensky announced the license, is not really about Ukraine’s trustworthiness. A Republican congressional official close to the process gave the more candid version: the manufacturers are less worried about Ukraine leaking American technology to Moscow than about Ukraine improving on it and producing it “at scale, faster and for much less money.” That fear has a track record behind it. Fire Point’s Flamingo cruise missile, built in Ukraine during the war, reportedly costs around $600,000 — roughly a sixth of a Tomahawk and a fraction of a $2 million PAC-3 ACE round — while Ukraine’s home-grown Freyja interceptor is priced at roughly a fifth of the Patriot missile it is meant to substitute for. A country that has spent three years learning to manufacture air defense under fire, at a fraction of Western unit costs, is not the industrial partner a legacy prime wants loose inside its own supply chain. The reluctance is commercial before it is strategic.

The strongest objection to this reading is that Kyiv already produces a large share of its own weapons, so extending that into Patriots is a natural next step rather than a crisis signal. Zelensky puts the domestically produced share of Ukraine’s frontline weapons at close to 60 percent, up from roughly 40 percent a year earlier — drones, the Bohdana howitzer, the Neptune and Flamingo missiles. That is true, and it matters. But those are systems Ukraine designed and built from scratch under wartime pressure, with no legacy export-control regime standing in the way. Patriot is different: it is Washington’s most sensitive interceptor program, run by companies that have spent decades keeping production onshore for precisely the security reasons Whitaker cited. Handing over any piece of it, even nominally, to a country under active bombardment breaks with everything the export-control system was built to prevent. That the United States is doing it anyway — however slowly, however contested internally — says less about confidence in Ukraine than about how thin the interceptor pipeline has become.

Three ways this goes

What happens next depends on which of the deal’s obstacles proves harder to move: engineering or politics.

Base case (our estimate: roughly 55 percent probability). The license survives, but production stays offshore. Germany’s existing PAC-2 line absorbs the first Ukrainian-linked output sometime in 2027; Lockheed and Raytheon leave the seeker and motor bottlenecks unresolved; and Zelensky’s own target of “production capability by the end of 2026” slips the way most Patriot-related deadlines have slipped since 2022. The deal functions mainly as a signal — to Moscow, to Congress, to the manufacturers themselves — that the West is willing to widen its supplier base, without actually widening it before the war’s most dangerous phase has passed.

Downside case. Export-control friction, not battlefield risk, kills momentum outright. Boeing declines to license seeker technology, Congress balks at formally notifying an ITAR transfer into an active conflict zone, and the agreement quietly becomes what several earlier Patriot-adjacent announcements already have: a signed memorandum with no factory behind it. Unable to close its ballistic-missile gap through licensed production, Ukraine leans harder into Flamingo and Freyja — cheap and available, but not full substitutes for hit-to-kill interception. Iskander and Kinzhal strikes on Ukrainian cities continue at close to current tempo through 2027.

Upside case. Ukraine’s wartime manufacturing culture forces the restructuring the primes have been resisting. Facing a credible cheaper competitor, Lockheed and Raytheon accelerate second-sourcing of seekers and motors — the actual chokepoints — to defend market share rather than out of goodwill toward Kyiv. Patriot output rises for every operator, not only Ukraine, and Kyiv becomes the proving ground for a lower-cost interceptor variant that outlives the war. This is the scenario in which an admission of scarcity turns into a fix for it — plausible, but it requires the manufacturers to treat competition, not politics, as the threat that finally moves them.

The takeaway

So: is licensing Patriot production to a country under bombardment an admission? Yes — but not the one the announcements were built to convey. It does not say Ukraine’s industrial base has arrived. It says the American one has not kept pace with a war of attrition it did not plan for, and that Washington is now willing to test its most sensitive export controls against the same scarcity that has Israel, Taiwan and its own Army competing for the same missiles.

Watch for: whether groundbreaking on a German or Polish production line actually begins before the end of 2026 — Zelensky’s own deadline for “technical capability.” If it hasn’t started by then, treat every subsequent announcement as the political theatre this one increasingly resembles: a scarcity confession dressed up as an industrial handshake.

Japan has issued an unusually direct criticism of its U.S. ally after Washington imposed sanctions on International Criminal Court President Tomoko Akane and senior trial lawyer Abdoulaye Seye.

Japan’s foreign ministry described the sanctions as “very unfortunate” and reaffirmed Tokyo’s support for the ICC and its role in prosecuting serious international crimes. The statement marks a rare public disagreement between Tokyo and Washington over an issue of international law.

The dispute comes as the administration of U.S. President Donald Trump intensifies its campaign against the Hague based court. Washington has increasingly challenged the ICC over its investigations and arrest warrants involving Israeli Prime Minister Benjamin Netanyahu and former Israeli Defence Minister Yoav Gallant, as well as its earlier investigation into U.S. personnel in Afghanistan.

For Japan, however, the issue is particularly sensitive. Tokyo depends heavily on the United States for its national defence, yet it has consistently supported the ICC and the broader international legal framework surrounding it.

Why Did the U.S. Sanction ICC Officials?

U.S. Secretary of State Marco Rubio said the sanctions targeted individuals involved in ICC efforts to investigate, arrest, detain or prosecute officials from governments that have not consented to the court’s jurisdiction.

Among those sanctioned was Tomoko Akane, a Japanese judge who serves as ICC president. Abdoulaye Seye, a Senegalese senior trial lawyer, was also targeted. Seye was part of the prosecution team that sought an arrest warrant for Netanyahu and has been nominated for election as an ICC judge.

Washington argues that the ICC has exceeded its authority by pursuing officials from countries that have not accepted its jurisdiction.

The United States is not a member of the ICC and has repeatedly objected to the court’s actions involving American personnel and Israeli officials.

The latest sanctions therefore represent another escalation in Washington’s confrontation with the institution.

Why Is Japan Supporting the ICC?

Japan joined the ICC in 2007 and has consistently supported its role in prosecuting war crimes, genocide and crimes against humanity.

Tokyo’s foreign ministry said Japan remains committed to strengthening the rule of law internationally while maintaining communication with countries involved in the dispute.

Japan’s position reflects its broader commitment to international institutions and rules based governance.

For Tokyo, the ICC is not simply a legal institution. It is part of a wider international order in which disputes and allegations of serious crimes are addressed through established legal mechanisms.

That creates an obvious tension with Washington’s increasingly confrontational approach.

Why Is This Significant for U.S. Japan Relations?

Japan rarely criticises the United States publicly, particularly on issues involving national security.

The two countries maintain a close military alliance, with U.S. forces playing a central role in Japan’s defence and regional deterrence.

Japan’s decision to openly describe the sanctions as “very unfortunate” therefore carries diplomatic significance.

It does not indicate that Tokyo is abandoning Washington or challenging the broader alliance. Instead, it demonstrates that the two countries can maintain close security cooperation while disagreeing sharply over international law.

That distinction is becoming increasingly important as U.S. foreign policy under Trump diverges from the positions of several traditional allies.

The ICC Dispute Is Also Creating Friction in Europe

Japan is not the only U.S. ally to object to the latest sanctions.

The Netherlands, which hosts the ICC, has also criticised Washington’s action. Dutch Foreign Minister Tom Berendsen said the Netherlands opposed the sanctions and invited Akane to discuss continued support for the court.

The development places Washington increasingly at odds with European partners as well as Japan.

The disagreement therefore extends beyond the U.S. relationship with a single international institution. It raises broader questions about how far America’s allies are willing to follow Washington when its policies conflict with international institutions they continue to support.

What Do the Sanctions Actually Do?

The sanctions have significant practical consequences.

They freeze any U.S. assets held by the targeted individuals and largely cut them off from the American financial system. Because most internationally active banks maintain close connections with the U.S. financial system, the effects can extend beyond American jurisdiction.

The U.S. Treasury Department has also authorized a temporary wind down of transactions involving Akane and Seye through September 17.

The measures therefore do more than express political disagreement. They can directly affect the ability of sanctioned individuals to conduct international financial activities.

Washington’s Wider Campaign Against the ICC

The sanctions against Akane and Seye are part of a broader U.S. campaign against the court.

Washington previously imposed sanctions on several ICC prosecutors and judges after the court issued arrest warrants for Netanyahu and Gallant and pursued an earlier investigation involving U.S. troops in Afghanistan.

Rubio has also indicated that the administration intends to intensify efforts against the ICC through diplomatic pressure on other countries.

According to Reuters, Washington has sought to encourage countries to leave the institution, with at least five countries already responding to the call.

The strategy therefore goes beyond individual sanctions. It represents an attempt to challenge the ICC’s legitimacy and reduce its international reach.

Why Does Japan’s Position Matter?

Japan’s response is significant because Tokyo has generally been closely aligned with Washington on major strategic questions.

Japan faces a challenging regional security environment involving China, North Korea and wider tensions in the Indo Pacific. Maintaining a strong U.S. alliance remains central to Japanese security policy.

Yet Tokyo has also invested heavily in supporting international institutions and the rule of law.

The ICC dispute highlights the possibility that these two pillars of Japanese foreign policy can sometimes pull in different directions.

Japan may need American military power for its security while simultaneously disagreeing with Washington on how international law should operate.

That is not necessarily a crisis in the alliance, but it illustrates its increasingly complicated political foundations.

Could the Dispute Deepen Divisions Among U.S. Allies?

The ICC controversy could contribute to a wider pattern of disagreement between Washington and its traditional partners.

The United States is increasingly willing to use economic and diplomatic pressure against international institutions it considers hostile to American interests. Several European governments, by contrast, continue to view those institutions as essential components of the rules based international order.

Japan’s criticism adds an important Asian voice to that disagreement.

If more U.S. allies openly defend the ICC, Washington could face growing diplomatic isolation on the issue even while maintaining strong bilateral security relationships.

That could make the dispute increasingly difficult to contain as a narrow disagreement between the United States and an international court.

How Far Can Japan Disagree With Washington?

Japan’s criticism of the ICC sanctions should not be interpreted as a fundamental rupture in the U.S. Japan alliance.

Tokyo remains heavily dependent on Washington for defence and security, and there is little indication that the ICC dispute will fundamentally alter that relationship.

Its importance lies elsewhere.

Japan is signalling that alliance solidarity does not necessarily require complete alignment on international law.

For Tokyo, supporting the ICC is consistent with a broader foreign policy objective: maintaining an international system governed by rules and institutions rather than purely by the power of individual states.

Washington’s position is increasingly different. The Trump administration views the ICC as a potential threat to American sovereignty and to officials from the United States and allied governments who could face prosecution by the court.

This creates an unusual strategic contradiction.

The United States and Japan remain closely aligned against major security challenges in the Indo Pacific, yet they are increasingly capable of finding themselves on opposite sides of debates over the international legal order.

The consequences could extend beyond the ICC itself.

If Washington continues using sanctions and diplomatic pressure against international institutions while its allies continue defending them, the United States may find that its strategic partnerships remain strong militarily but become more divided politically.

For Japan, the challenge will be maintaining its essential alliance with Washington without abandoning its support for the international legal institutions it considers important.

The ICC dispute therefore reveals a broader tension within the U.S. alliance system: strategic partners may remain united on security while increasingly disagreeing over the rules and institutions that are supposed to govern international politics.

With information from Reuters.

Yes. The US South Korea relationship has not broken down under Donald Trump, but it has become more transactional, cost focused and strategically uncertain. The latest decision to scale back joint military exercises highlights a broader evolution in which Washington increasingly expects Seoul to shoulder more of the alliance burden while seeking greater flexibility for US forces across the region.

From deterrence to deal making

Trump’s approach to South Korea has been shaped heavily by his personal diplomacy with North Korean leader Kim Jong Un. His first term moved rapidly from threats of “fire and fury” to unprecedented summits with Kim, followed by the suspension or redesign of major US South Korean military exercises.

Although the Hanoi summit collapsed without a denuclearisation agreement, Trump has continued to emphasise his relationship with Kim. His latest instruction to reduce joint exercises therefore carries significance beyond cost savings. It signals that Washington may once again be willing to modify elements of its alliance posture in pursuit of diplomatic space with Pyongyang.

The strategic environment, however, is very different from 2018. North Korea has expanded its nuclear and missile capabilities and strengthened military cooperation with Russia. Reducing exercises therefore creates a more complicated calculation for Seoul: diplomatic engagement with Pyongyang may reduce tensions temporarily, but weaker military preparedness could also increase the risks associated with North Korea’s growing capabilities.

The alliance is becoming more transactional

The clearest transformation under Trump is arguably the growing emphasis on burden sharing.

Trump has repeatedly questioned the cost of maintaining roughly 28,500 US troops in South Korea and has pushed Seoul to contribute more to its own defence. The existing cost sharing agreement requires South Korea to contribute about 1.52 trillion won this year toward the upkeep of US forces.

For Washington, the argument is straightforward: South Korea is wealthy enough to assume a greater share of the financial and military burden. For Seoul, however, the US military presence remains central to deterring North Korea.

This creates a fundamental tension. The alliance is still strategically valuable to both sides, but Trump increasingly approaches it through a cost benefit framework rather than solely through traditional alliance commitments.

Defence cooperation is expanding even as exercises face pressure

The apparent contradiction is important. Trump is seeking to reduce certain military exercises while South Korea itself is increasing defence spending.

President Lee Jae Myung has pledged a larger security role and increased defence spending, while continuing to insist that Washington’s security commitment remains firm. Seoul has also sought greater strategic autonomy, including greater latitude over nuclear fuel technology and faster progress toward transferring wartime operational control.

This suggests that the alliance may be evolving rather than simply weakening.

South Korea appears to be preparing to assume greater responsibility for its own defence, while Washington wants the alliance to become more flexible and potentially address security challenges beyond the Korean Peninsula.

That latter objective is particularly sensitive for Seoul. The United States increasingly views its Asian alliances through the broader strategic competition with China, while South Korea remains primarily focused on the immediate threat from North Korea.

Trade has become inseparable from security

Under Trump, economic relations have also become an increasingly important component of the alliance.

Washington’s tariff pressure has pushed Seoul toward major investment commitments in the United States, including the $350 billion investment pledge associated with tariff relief. South Korean companies have already invested heavily in US semiconductors, batteries, electric vehicles and shipbuilding.

But disagreements over how the investment should be structured have exposed the limits of Trump’s transactional approach. Seoul has warned that demands for large upfront cash commitments could place pressure on its economy.

The detention of hundreds of South Korean workers during an immigration raid at a Hyundai LG battery project in Georgia further demonstrated how economic and political tensions can spill directly into the strategic relationship.

The result is an alliance in which security guarantees, trade concessions, investment and troop costs increasingly form one interconnected negotiation.

The deeper problem is strategic uncertainty

The central challenge for Seoul is not simply whether Trump wants fewer exercises. It is whether Washington’s definition of the alliance is changing.

For decades, the US South Korea alliance rested on a relatively clear bargain: Washington provided extended deterrence and military forces, while Seoul contributed financially and militarily to maintaining the security architecture.

Trump’s approach introduces more conditionality into that bargain.

If military exercises can be reduced because they are considered too expensive or diplomatically inconvenient, Seoul has to consider how predictable the US commitment remains. At the same time, Washington expects South Korea to spend more, invest more and potentially assume greater responsibility.

This could ultimately produce a stronger South Korean military, but it could also create greater uncertainty about the role of the United States.

What this means for China and the Indo Pacific

The evolution of the alliance also has implications far beyond the Korean Peninsula.

Washington wants greater flexibility for US forces stationed in South Korea to respond to regional contingencies, particularly those involving China. Seoul, however, has historically been reluctant to become directly involved in a confrontation over Taiwan.

That creates a structural divergence in strategic priorities.

For Washington, South Korea is increasingly part of a broader Indo Pacific security network. For Seoul, the primary purpose of the alliance remains deterrence against North Korea.

Trump’s transactional approach therefore forces South Korea to navigate between two competing imperatives: maintaining the American security umbrella while avoiding excessive strategic dependence on Washington’s wider confrontation with Beijing.

The alliance has changed, but it has not collapsed

Trump has not dismantled the US South Korea alliance. Instead, he is redefining its terms.

Military exercises are being reconsidered, defence burden sharing remains contentious, trade and investment have become bargaining instruments, and Washington increasingly expects Seoul to assume greater responsibility for regional security.

For South Korea, this creates both a risk and an opportunity. Greater defence spending and military autonomy could make Seoul less dependent on American forces. But if Washington simultaneously reduces visible commitments while demanding greater financial and strategic contributions, Seoul could find itself paying more for an alliance that feels less predictable.

The most important question, therefore, is not whether Trump is weakening the alliance. It is whether he is transforming it from a traditional security partnership into a transactional strategic bargain.

If that transformation continues, the US South Korea alliance could survive Trump, but it may emerge fundamentally different from the alliance Washington and Seoul built over the past seven decades.

With information from Reuters.

The government of German Chancellor Friedrich Merz approved a landmark bill to expand the powers of the Federal Intelligence Service (BND) and the Domestic Intelligence Service (BfV) by 2027. This expansion grants them offensive and operational tools, including cyber counter-sabotage and espionage, with funding of €1.51 billion. This move has sparked significant concern among Chinese and Russian intelligence agencies regarding the radical shift in German security doctrine, stemming from the geopolitical context and the fears of Germany’s adversaries, China and Russia, regarding the ongoing hybrid warfare. The German initiative was driven by the escalating pace of gray and hybrid warfare, the most recent example being the discovery of a booby-trapped drone at Leipzig’s strategic airport. Consequently, intelligence, strategic, and security circles in Beijing and Moscow are closely monitoring this historic intelligence revolution approved by Chancellor Merz’s government on August 12, 2026.  This draft law (exceeding 700 pages) represents the most significant shift in Germany’s security doctrine since the end of World War II in 1945. From the perspective of Chinese and Russian intelligence, this shift constitutes a security revolution that ends the strict constraints imposed on Germany since World War II, transforming German intelligence agencies from mere information-gathering tools into entities capable of launching offensive and counter-sabotage operations. For these reasons, this internal German intelligence transformation is being closely monitored and analyzed in depth within intelligence and military circles in Beijing and Moscow, given its strategic dimensions and its connection to Berlin’s attempt to break free from American dependence. This move, analyzed by Chinese and Russian intelligence and military circles, is seen as a targeting of Russia and China. Although Berlin attempts to frame counterintelligence as a general effort, German officials, such as Interior Minister Alexander Dobrindt, have explicitly stated that the goal is to deter Russian and Chinese sabotage operations and enable German intelligence to inflict pain on adversaries and operate on equal footing with allies like the US Central Intelligence Agency (CIA), rather than relying on them entirely. The German Federal Parliament (Bundestag) is expected to formally pass the bill after the summer recess, allowing these offensive powers to become fully operational in Germany by early 2027.

Military think tanks and research centers affiliated with the Chinese People’s Liberation Army and Russian circles alike are analyzing all the operational and political dimensions of this strategic decision in Germany, focusing on understanding the German desire to shift from a defensive doctrine to an offensive operational approach and to adopt a cyber sabotage strategy and a counter-terrorism measure called “Hack-Back.” For the first time, the German Federal Intelligence Service (BND) and the Federal Intelligence Service (BfV) are granted legal authority to penetrate the information systems of adversaries and attackers and modify or delete data to prevent large-scale cyberattacks and dismantle the infrastructure of hackers. This includes German approval for field sabotage operations in situations of German defense tension, whereby the BND is permitted to carry out active sabotage operations abroad, such as disabling servers and replacing military or vital technology components with damaged ones to prevent attacks, such as in drone factories and chemical laboratories of hostile states. This has been interpreted by Chinese and Russian circles as a German crushing of the principle of separation between German domestic and foreign intelligence agencies.   According to Chinese and Russian analyses, the new German law is also generating considerable legal controversy within Germany itself, as it narrows the historical distance between intelligence agencies (those concerned only with collecting information) and the police agencies (those concerned with implementation).

Here, the Chinese intelligence reading of the German reform can be understood as the end of historical restrictions imposed on Berlin, as Beijing views the move as a reversal of the strict restrictions imposed since the end of World War II and Berlin’s shift from purely information gathering to carrying out covert operations and penetrating adversaries’ networks.  In addition to what this represents for Beijing and Moscow in terms of reducing dependence on Washington, Chinese intelligence is monitoring Germany’s attempt to build independent self-reliance capabilities to reduce intelligence dependence on the United States and its allies amid mutual strategic suspicions. Intelligence, military, political, and strategic circles in Beijing also view with caution the (militarization of German digital space). Here, the Chinese analysis considers that allowing the disruption of infrastructure and the modification and deletion of data places German agencies in the ranks of major countries with active offensive doctrines, given the reliance of German domestic and foreign intelligence agencies on the pattern of practical and technical dimensions of reform and hybrid capabilities in reforming their security and intelligence agencies, through directly confronting drones, disrupting spy servers, or tampering with components of a weapon under production without resorting to human physical violence, with the expansion of the use of artificial intelligence technologies, through expanding the use of facial recognition technologies and reducing data protection restrictions to store and analyze information for longer periods. However, at the same time, German circles are facing parliamentary challenges, given that the draft law is undergoing legislative proceedings in both houses of the German parliament (the Bundestag and the Bundesrat) amidst local human rights objections warning of the erosion of personal freedoms and the principle of separating intelligence from the police.

Here, the Russian intelligence perspective (Moscow) on the German intelligence draft law comes to the fore. Russian intelligence agencies (SVR, GRU, and FSB) view this move as a direct response to their operations and interpret it within the context of an acknowledgment of hybrid warfare. Moscow believes that Germany is now officially treating Russia as an enemy in a state of undeclared war.  The increase in the budget of Germany’s foreign intelligence agency (BND) by 26%, reaching €1.51 billion, is seen as an indication of a long-term security buildup against Russia. Moscow also viewed this as a move to neutralize cognitive denial, especially given accusations from German domestic and foreign intelligence agencies that Russia is exploiting German bureaucratic sluggishness and strict data privacy measures to carry out cyberattacks and sabotage operations. Therefore, the Russian interpretation of this German decision can be seen as a direct response from Berlin to Moscow, aimed at closing this digital and security gap between the two sides. It can be interpreted as a German intelligence strategy of reciprocity, or, according to the Russian analysis, as an attempt by Germany to encircle disinformation networks by granting German intelligence the ability to take down Russian propaganda and disinformation servers, which pose a direct threat to Russia’s soft power tools aimed at destabilizing Germany.

On the other hand, Chinese intelligence circles, primarily the Ministry of State Security (MSS), which acts as the Chinese intelligence service, analyze German law from the perspective of technological and geopolitical conflict, targeting industrial and academic espionage by China. Here, the Chinese analysis focuses on the expansion of the powers of the German domestic intelligence agency (BfV) and the use of artificial intelligence. This analysis primarily aims to track Chinese soft networks that focus on stealing advanced German technology and conducting economic espionage in order to protect German infrastructure and communications. Beijing believes that the new German laws, which compel German telecommunications companies and digital platforms to hand over data to German intelligence, are primarily intended to isolate Chinese technology and impose complete German sovereign control over cyber data in the face of China. The most sensitive aspect of Russian and Chinese analyses lies in their dual interpretation of Germany’s desire to break free from the Five Eyes framework. They see it as either an intelligence network for exchanging signals intelligence, comprising the US, UK, Canada, Australia, and New Zealand, whose decisions are guided by Washington, or as a new dilemma facing Germany in building self-reliant capabilities and ending its dependence on the United States. This latter scenario serves the interests of China and Russia, promoting multipolarity and a multipolar international world and ending the one-way street of Washington.   The German Chancellery has publicly stated that reliance on allies (specifically the US) has been a one-way street, where Germany receives information without the ability to exchange it or protect itself independently. From a Chinese and Russian intelligence perspective, this represents a new German policy of hedging against Trump’s unpredictability. Moscow and Beijing believe that the primary motivation behind the conservative Merz government’s actions is strategic skepticism regarding the reliability of the United States, particularly with Donald Trump in the White House, and Berlin’s fear of the politicization or severing of US intelligence flows. This reinforces the Chinese-Russian view that this is a technologically impossible German attempt to break free from US control and dictates.

Accordingly, assessments in Beijing and Moscow agree that Germany—despite its ambition—will not be able to completely break free from intelligence dependence on America anytime soon. The United States controls the global cloud infrastructure, internet cables, and critical cyber technologies, making German intelligence independence a costly ambition that will take years to materialize technologically. However, it does give Berlin at least greater parity in dealing with partners, which China and Russia are trying to maximize.

Vietnam’s sovereign AI relies heavily on open-weight models developed in the United States. However, as Washington and Beijing are moving to restrict access to these technologies, Hanoi’s bamboo diplomacy offers little protection to its AI ambitions.

In mid-July, Vietnam approved its National Digital Transformation Strategy for 2026-2030 under Decision 1266/QD-TTg, and the National Data Strategy under Decision 1308/QD-TTg. Both strategies aim for national digital sovereignty, domestic self-reliance and state-level data governance on the assumption that artificial intelligence (AI) models would remain a public good. Within days, the United States (U.S.) and China signalled their readiness to restrict access to those models.

Made in America

Vietnam’s current AI systems are modified versions of foreign tech. On the ground, Viettel, the state military telecom giant spearheading Vietnam’s AI goals, announced its VT-Super-120B-A12B Vietnamese language model had matched the accuracy of major global models of similar size. It was built by adapting Nemotron, Nvidia’s freely downloadable model family, to Vietnamese data. Viettel’s earlier model was also built on Meta’s Llama 3, trained with Nvidia tooling, and run on a cluster of 22 DGX B200 supercomputers at its Hoa Lac centre.

Moreover, VNG’s GreenNode subsidiary introduced GreenMind-Medium-14B-R1, the first open-source Vietnamese reasoning model built to run on Nvidia’s software and a single Nvidia H100 graphics chip. Meanwhile, FPT Corporation committed $200 million to build its AI factory powered by Nvidia hardware.

At the state level, Vietnam’s Ministry of Science and Technology met with senior executives from Qualcomm in Hanoi on July 17. Deputy Minister of Science and Technology Hoang Minh and Qualcomm’s Executive Vice President Durga Malladi discussed expanding cooperation in AI semiconductors, research and development, and workforce training.

While Vietnam has made its bets on the U.S. for its AI ambitions, other Southeast Asian countries are leaning towards China. Indonesia’s Indosat Ooredoo Hutchison partnered with AIonOS on DeepSeek-powered services, and Malaysia’s Communications Ministry launched a sovereign full-stack AI ecosystem running on Huawei hardware.

Outside Two Blocs

AI governance is dividing into two blocs. One bloc is the U.S.-led Pax Silica initiative, which coordinates trusted supply chains for semiconductors, critical minerals and AI infrastructure with 24 signatories. Singapore, the Philippines, India, Japan and South Korea are among them. The Philippines converted membership into commitments by agreeing in April 2026 to a 4,000-acre economic security zone in the Luzon economic corridor designated as the initiative’s first AI-native industrial hub.

The other is the Chinese-backed World Artificial Intelligence Cooperation Organization, signed into existence in Shanghai on July 16 by 29 governments. The membership also includes Russia, Belarus, Cuba, Venezuela and most of Central Asia, alongside Vietnam’s neighbours Laos, Cambodia and Myanmar.

Membership in either bloc could offer access to supply chains, technical assistance and software distribution during a diplomatic crisis.

However, Vietnam belongs to neither group because of its long-standing bamboo diplomacy, a policy of balancing relations between Washington and Beijing without taking sides. This leaves Hanoi in an awkward position. Vietnam depends heavily on American technology, but enjoys none of the guarantees or protections of one.

Weaponising Access

Export controls on chips work because processors are physical goods, subject to customs enforcement. On May 31, the Bureau of Industry and Security extended licensing requirements to any China-parented buyer worldwide, closing loopholes in Singapore and Malaysia.

AI models do not behave the same way. Access to a closed system can be revoked instantly by flipping an application programming interface (API) key. For example, on June 12, Anthropic suspended access to its Fable and Mythos models to comply with U.S. Commerce Department export controls, restoring access only on July 1 after those controls were lifted. Such events largely explain why governments prefer AI models they can host locally.

In contrast, an open-weight model, once downloaded, cannot be recalled by any foreign regulator. Instead, global superpowers exert control by forcing major tech companies and code-sharing platforms to block downloads from specific regions or countries. They can also pressure developers to restrict future model updates to dodge penalties from Washington or Beijing.

This fight over AI access is now an open battle. On July 16, Chinese startup Moonshot AI unveiled Kimi K3, a 2.8-trillion-parameter model that independent evaluators say matches top American models at a fraction of their operating cost. On July 21, Treasury Secretary Scott Bessent signalled that Washington could sanction Chinese tech firms, citing American-model watermarks found inside Chinese ones. Days later, China’s Ministry of Commerce called the investigations groundless, threatened countermeasures, and began consulting Alibaba, ByteDance and Z.ai on export controls covering model weights, training data and chip designs.

Why It Matters

For years, nations have built digital capacity cheaply and quickly by customising open-weight AI models. Kimi K3 seemed to promise that era would continue. Instead, the geopolitical fallout exposed the fragility of relying on superpower goodwill.

For Vietnam, the real threat is getting left behind. Washington or Beijing cannot delete the AI models already sitting on Vietnamese servers. What they can block is future releases. If both superpowers restrict open-weight models, Vietnam’s AI ecosystem gets stuck using today’s tools while the rest of the world moves forward. A national tech stack built on frozen updates decays one generation at a time. States that have not localised model weights face an even harsher reality. Their access relies on live connections and downloads that can vanish overnight with a new policy.

At its core, this is a problem of time. Vietnam’s bamboo diplomacy relies on having time to adapt. Trade deals and defence agreements move slowly, giving Hanoi room to bend without breaking. AI access, however, moves instantly as access disappears with a revoked key or a blocked download link.

Diplomatically, Vietnam tries to stay neutral at all costs. However, its technology does not try to do so. All of its major AI models are built on American weights, run on American chips, and improve when American companies release new ones. Vietnam acts as if it can delay picking a side, but with every new AI update or blocked release, the cost of delay becomes more expensive. In the past, diplomatic pressure moved slowly through international summits. Today, that pressure speeds up with every new model release.

Shipping traffic through the Strait of Hormuz fell to its lowest level in a week on Tuesday as vessel operators continued to avoid the strategically vital waterway amid ongoing hostilities in the Middle East.

Kpler data showed that only eight vessels were tracked in the strait on Tuesday, below the 10-day average of around 12 and the lowest daily total since August 5. Of those vessels, only one, a coal carrier, had exited the strait, while the remaining ships were still making their way through.Seven vessels entered the waterway, all using the Iranian route, highlighting the limited movement through the strait as uncertainty over its security continues to weigh on shipping activity.

Separate data from LSEG recorded 11 vessel transits on Tuesday, down from 14 the previous day, also pointing to a slowdown in traffic through the crucial maritime passage.

The decline comes as the United States and Yemen’s Iran-aligned Houthis reported separate attacks, while prospects for an end to the Iran war appeared to weaken. Tehran has said the Strait of Hormuz will remain closed unless Washington accepts its conditions.

Hormuz Traffic Plummets

The scale of the disruption is stark compared with normal shipping activity. Around 130 to 140 vessels typically passed through the Strait of Hormuz before Iran closed the waterway following the start of U.S.-Israeli attacks on February 28.

The sharp reduction in traffic underscores the growing risks facing international shipping and energy markets as vessels avoid one of the world’s most important maritime chokepoints.

The strait is particularly important for global energy supplies, meaning prolonged restrictions could increase pressure on oil markets and raise transportation and insurance costs for vessels operating in the region.

Red Sea Traffic Holds Up

Shipping activity through the Bab al-Mandab Strait at the southern end of the Red Sea showed a different trend.

Kpler data recorded 30 vessels crossing the waterway on Tuesday, above its 10-day average of 25.

The contrasting figures suggest that while some shipping activity continues through alternative routes, the Strait of Hormuz remains heavily affected by the ongoing hostilities and uncertainty surrounding its reopening.

With information from Reuters.

Political Pressure Puts Fed Independence Back in Focus

Federal Reserve Chair Kevin Warsh’s efforts to keep the central bank insulated from political pressure have become more difficult after President Donald Trump renewed his push to remove Fed Governor Lisa Cook.

Trump’s move, based on allegations of mortgage fraud that Cook’s attorney has called baseless, has brought the issue of Federal Reserve independence back to the centre of markets’ attention. It also suggests that the White House remains concerned that the Fed could raise interest rates as early as next month, despite Trump’s longstanding demand for lower borrowing costs.

The timing is particularly important. Futures markets put the probability of a quarter-point rate increase before the November midterm elections at about 75%, while the outcome of the Fed’s September 15-16 meeting is viewed as almost evenly balanced.

The pressure on Cook could ultimately backfire. If Trump fails to remove her, she could become more inclined to support tighter monetary policy. At the same time, the administration could be calculating that publicly challenging Cook gives Trump a political target if the Fed raises rates before the midterms.

Trump could then argue that a rate increase was politically motivated and intended to undermine his administration.

Trump Challenges Cook Ahead of Critical Fed Meeting

The White House last week sent Cook a letter saying Trump was “considering” removing her and demanded a response within three weeks to the allegations against her.

The deadline falls only weeks before the Fed’s next policy meeting, when the balance of votes could prove crucial.

The move also comes after a June Supreme Court ruling that recognised the Federal Reserve’s special statutory protections while leaving unresolved whether the allegations against Cook would provide sufficient grounds for her removal.

The dispute highlights the continuing uncertainty over how far presidential authority extends over the central bank.

“The issue of Fed independence has not yet been resolved,” said Tim Duy, chief U.S. economist at SGH Macro Advisors.

For Warsh, the confrontation creates an uncomfortable situation. He has only recently taken over as Fed chair and would likely prefer the opportunity to establish his own policy approach rather than become involved in Trump’s campaign for lower rates.

Yet maintaining that distance could be difficult. Trump has reportedly called Warsh repeatedly since he became chair in May.

Trump has also publicly praised Warsh while criticising other Fed officials for keeping interest rates too high, saying Warsh would like to see lower rates but faces a board that wants to maintain higher borrowing costs.

Inflation Keeps Pressure on the Fed

The political confrontation is taking place against a difficult economic backdrop.

Inflation has remained above the Fed’s 2% long-term target, while core price pressures remain elevated. The Iran-related energy shock of the past six months has added another source of inflationary pressure.

Those conditions complicate the case for immediate rate cuts.

At the same time, the Fed’s policy committee is becoming increasingly divided. Three members voted for a rate increase at the previous meeting, while Governors Chris Waller and Lisa Cook voted to keep rates unchanged, although both have indicated that further tightening could eventually be necessary to bring inflation back under control.

If Waller and Cook both support a rate increase at the September meeting, the previous 9-3 balance in favour of holding rates could become 7-5.

Former Fed Chair Jerome Powell could then become decisive if he switched his previous position and supported a rate increase.

That makes the political pressure on Cook particularly significant.

Bond Markets Face an Inflation Risk

The implications extend beyond the Fed itself and into financial markets.

Long-term Treasury yields have periodically risen and the dollar has weakened during previous episodes of political pressure on the central bank. Investors remain divided over whether the latest confrontation represents a temporary political storm or a deeper threat to the credibility of U.S. monetary policy.

The bigger concern for bond markets is the possibility that political pressure could lead to a Fed leadership and governing board more willing to cut rates despite persistent inflation.

That could increase the inflation risk premium demanded by investors holding longer-term government debt.

Barclays strategists warned that if confidence in the Fed’s willingness to defend its inflation target has begun to deteriorate, long-term bond markets may be underestimating the risks.

The combination of political pressure and uncertainty over Warsh’s approach to inflation could therefore become particularly important for longer-dated Treasury yields and inflation expectations.

Analysis: Why the Fed Battle Matters

The central issue is no longer simply whether the Fed cuts or raises rates at its next meeting. It is whether investors continue to believe that the central bank can make those decisions independently of the White House.

If markets begin to believe that political considerations can influence the composition of the Fed’s governing board, expectations for future inflation could become less firmly anchored. Investors may demand higher yields to compensate for the possibility that inflation remains elevated for longer.

That would make government borrowing more expensive and could create wider financial-market volatility.

Warsh therefore faces a critical test. He must balance his desire to reform the Fed with the need to demonstrate that monetary policy remains driven by inflation and economic conditions rather than presidential demands.

His decision at the next meeting could become an important signal to markets.

If Warsh supports tighter policy despite Trump’s pressure, he could strengthen perceptions of Fed independence. If he instead supports a more dovish position while political pressure intensifies, doubts about the central bank’s commitment to price stability could deepen.

For bond investors, the consequences could be significant. The immediate question may be whether rates rise in September, but the larger question is whether markets still trust the Fed to control inflation independently of the White House.

With information from Reuters.

Justice Department Watchdogs Face Sharp Decline

The U.S. Department of Justice (DOJ) is facing growing scrutiny after internal watchdog offices responsible for investigating attorney misconduct and departmental wrongdoing experienced significant staffing losses during President Donald Trump’s second term, even as complaints against the department reached record levels.

According to a Reuters review of government records and interviews with former Justice Department officials, the Office of Professional Responsibility (OPR) and the Office of Inspector General (OIG) have seen substantial reductions in personnel, raising concerns about their ability to independently oversee the country’s top law enforcement agency.

Federal judges have increasingly criticized DOJ attorneys for alleged misconduct, including accusations of making false statements, ignoring court orders and using legal processes against political opponents.

Misconduct Complaints Rise as Investigations Fall

The Office of Professional Responsibility, which investigates misconduct by Justice Department lawyers, has seen its workforce fall from 29 employees to just 16 since Trump returned to office.

At the same time, misconduct complaints have climbed to their highest level in two decades.

Despite receiving 1,666 complaints during the 2025 fiscal year, the office opened only seven formal investigations, the lowest number recorded in the past twenty years. Over the previous decade, the office averaged more than 18 new investigations annually.

Former Justice Department officials told Reuters that staff departures, combined with concerns about political retaliation, have significantly slowed oversight activities.

Justice Department spokesperson Kiersten Pels rejected those concerns, saying OPR remains committed to investigating attorney misconduct and ensuring accountability.

Inspector General Office Also Loses Staff

The Department’s Office of Inspector General, responsible for investigating fraud, waste and abuse across the DOJ, has also experienced notable staff reductions.

Government employment records show the office lost 99 employees since the end of former President Joe Biden’s administration, reducing its workforce to 477.

Former officials interviewed by Reuters said the office has become increasingly reluctant to pursue politically sensitive investigations, although Inspector General spokesperson John Lavinsky denied that claim, insisting the office continues to conduct independent oversight regardless of political sensitivity.

Jack Smith Investigation Remains Unresolved

Among the most prominent internal cases is the ethics investigation involving former Special Counsel Jack Smith, who led federal prosecutions related to Trump’s handling of classified documents and efforts to overturn the 2020 election.

The investigation examined allegations by Republican lawmakers that Smith’s team improperly influenced the 2024 election and pressured witnesses.

Reuters reported that Smith had already been interviewed by investigators and the inquiry was expected to conclude last year. However, the investigation remains unresolved after reportedly being paused by political appointees.

Separately, the Justice Department has since launched a criminal investigation into Smith, who has denied wrongdoing.

Federal Judges Increase Criticism of DOJ Conduct

The weakening of internal oversight coincides with an increasing number of judicial rebukes directed at the Justice Department.

Federal judges have criticized government attorneys in several high profile cases involving evidence handling, courtroom conduct and legal strategy.

Among the most notable rulings was a decision by U.S. District Judge Kathleen Williams, who accused senior Justice Department officials, including Acting Attorney General Todd Blanche, of failing to properly defend the government in litigation involving former President Trump and instead negotiating what she described as an inappropriate settlement.

DOJ officials have disputed those judicial findings, arguing that several courts have demonstrated political hostility toward the administration.

Concerns Over External Oversight

The Trump administration has also moved to limit outside scrutiny of Justice Department attorneys by challenging state level ethics investigations and seeking expanded authority to restrict oversight by legal licensing bodies.

Administration officials argue that many state investigations are politically motivated and designed to discourage government lawyers from implementing the president’s policies.

Legal ethics experts, however, warn that diminishing both internal and external oversight risks undermining public confidence in the department’s accountability mechanisms.

Analysis

The reported weakening of the Justice Department’s internal watchdog offices comes at a time when judicial scrutiny of government conduct has intensified, placing institutional accountability under renewed focus. While the administration argues that oversight mechanisms remain fully operational and that many judicial criticisms are politically motivated, the decline in staffing and investigations raises broader questions about the effectiveness and perceived independence of internal accountability structures. As politically sensitive cases continue to move through U.S. courts, the credibility of the DOJ’s oversight institutions is likely to remain central to debates over the balance between executive authority, legal ethics and public trust in federal law enforcement.

With information from Reuters.

US Japan Currency Intervention Signals Shift Away From G7 Coordination

Last week’s joint intervention by the United States and Japan to support the Japanese yen has raised fresh questions about the future of international currency coordination, as the operation proceeded without broader participation from other Group of Seven (G7) economies.

Although the intervention temporarily strengthened the yen, analysts argue that the absence of coordinated action from Europe and other major economies reflects a broader decline in multilateral economic cooperation and a growing preference for bilateral deals under the Trump administration.

The intervention was jointly carried out by Washington and Tokyo after the yen weakened to multi decade lows against the U.S. dollar. U.S. Treasury Secretary Scott Bessent and Japanese Finance Minister Satsuki Katayama later confirmed the operation and defended its objectives.

The yen has largely maintained its gains since the intervention, although investors remain uncertain whether further support will follow or whether the Bank of Japan will reinforce the move through additional interest rate increases.

Treasury Market Concerns Shaped Washington’s Decision

One key factor behind U.S. involvement appears to have been concerns over the U.S. Treasury market.

Japan remains the largest foreign holder of U.S. government bonds. A large unilateral intervention by Tokyo would likely have required selling significant amounts of U.S. Treasuries to obtain dollars for prolonged currency operations, potentially disrupting already volatile bond markets.

By participating directly, the United States reportedly helped provide dollar liquidity while selling euros rather than dollars, reducing pressure on Treasury markets and limiting broader financial instability.

G7’s Absence Raises Questions

Despite the shared interest among G7 economies in preventing excessive currency volatility, other members of the group did not participate.

Historically, major currency interventions have often involved coordinated action across the G7. Following Japan’s 2011 earthquake and tsunami, G7 nations jointly intervened to weaken an excessively strong yen. Earlier coordinated efforts also included interventions supporting the euro in 2000 and global liquidity operations after the September 11 attacks.

In contrast, the latest operation remained strictly bilateral, even though the United States reportedly sold euros during the intervention without direct European participation.

The European Central Bank declined to comment publicly, while the International Monetary Fund has also remained largely silent.

Shift From Multilateralism to Bilateral Deals

The intervention reflects a broader shift in U.S. foreign economic policy under President Donald Trump, whose administration has increasingly favored bilateral negotiations over multilateral coordination.

Rather than pursuing comprehensive international agreements similar to the Plaza Accord or Louvre Accord, Washington has increasingly relied on country specific arrangements.

Japan has also deepened bilateral economic cooperation with the United States, including major investment commitments linked to previous tariff negotiations, reinforcing this new framework.

Regional Currency Pressures

U.S. officials also pointed to wider regional concerns.

Treasury Secretary Bessent argued that continued yen weakness risked placing downward pressure on other Asian currencies, particularly South Korea’s won, as exporters sought to remain competitive with Japanese manufacturers.

China’s yuan remains another major regional factor, although Beijing falls outside the G7 framework. Broader discussions involving China are expected only at future G20 meetings.

Historical Role of the G7

For decades, the G7 served as the primary forum for coordinated responses to major currency instability.

From stabilizing the euro during its early years to responding collectively after major financial crises, coordinated interventions carried significant market credibility because they demonstrated unified political and monetary commitment.

The latest U.S. Japan intervention marks a departure from that tradition, suggesting that future currency management may increasingly rely on bilateral arrangements rather than collective action.

Analysis

The U.S. Japan intervention highlights more than an attempt to stabilize the yen. It reflects a structural shift in global economic governance. The declining role of coordinated G7 action suggests that multilateral mechanisms are gradually giving way to transactional bilateral partnerships, particularly under the Trump administration.

While bilateral interventions may offer quicker and more flexible responses, they lack the collective market impact that historically made G7 operations highly effective. The absence of Europe and other major economies also raises questions about the future cohesion of the G7 as a forum for managing global financial stability.

For investors, this evolving landscape increases uncertainty. Without unified international coordination, currency markets may become more volatile as governments pursue national interests independently rather than through collective action. Whether future administrations restore broader multilateral cooperation or continue this bilateral approach will shape the next phase of global foreign exchange policy.

With information from Reuters.

Iran on Monday denied that any negotiations were taking place with the United States, directly contradicting U.S. President Donald Trump’s claim that talks were scheduled later in the day and exposing fresh uncertainty over Washington’s strategy after months of military confrontation.

The conflicting statements came after Trump once again backed away from threatened military action against Iran, saying he preferred diplomacy over escalation. Tehran, however, insisted that no negotiations were planned and that no meetings with American officials had been arranged.

Iran Rejects Trump’s Claims

Speaking aboard Air Force One on Sunday, Trump said the United States would begin negotiations with Iran on Monday afternoon, describing diplomacy as preferable to launching another round of attacks.

Iran swiftly dismissed the claim.

Foreign Ministry spokesman Esmail Baghaei said there were no negotiations under way with Washington and no plans to host American officials or dispatch Iranian negotiators abroad. He added that, apart from Foreign Minister Abbas Araqchi, who is currently on a religious pilgrimage in Iraq, all Iranian negotiators remain inside the country.

A senior Iranian source also told Reuters that no talks had been scheduled and that Araqchi would remain unavailable until at least the end of the week.

According to Tehran, the only ongoing discussions involve Oman and focus exclusively on managing shipping through the Strait of Hormuz.

A Familiar Cycle of Escalation and Retreat

The latest episode mirrors a pattern that has defined the five month conflict between Washington and Tehran.

Since launching Operation Epic Fury alongside Israel, Trump has repeatedly threatened major military action before stepping back at the last moment, often citing diplomatic efforts as justification.

Iran has consistently rejected direct negotiations since the collapse of a U.S. backed memorandum of understanding in early July, arguing that Washington has failed to uphold previous commitments while continuing military pressure.

The repeated cycle of escalation followed by de escalation has left uncertainty hanging over regional security and global energy markets.

Hormuz Remains the Central Dispute

At the heart of the dispute remains the Strait of Hormuz, the world’s most strategically important oil shipping route.

Washington argues that the failed June agreement required Iran to reopen the waterway to unrestricted international shipping. Tehran maintains that the document explicitly preserved its authority over traffic through the strait, allowing it to retain significant leverage.

The inability of the United States to secure unrestricted access has become one of the most significant unresolved issues of the conflict.

For the Trump administration, failure to reduce Iran’s influence over Hormuz would represent a strategic setback after months of military operations aimed at weakening Tehran’s regional position.

Strategic Goals Remain Unfulfilled

Five months into the conflict, many of Washington’s stated objectives remain largely unmet.

The United States has sought to dismantle Iran’s nuclear programme, reduce its capacity to strike regional rivals, protect commercial shipping, and increase pressure on Iran’s leadership.

Instead, Iran has continued to demonstrate its ability to disrupt regional energy infrastructure and maritime trade while maintaining leverage over one of the world’s most critical energy chokepoints.

Each round of military escalation has been followed by Iranian retaliatory actions targeting shipping, Gulf energy infrastructure, or U.S. interests in the region, complicating Washington’s efforts to establish deterrence.

Despite the diplomatic confusion, financial markets welcomed Trump’s decision not to proceed with further attacks.

Brent crude prices fell more than 4 percent to around 84 dollars per barrel as traders anticipated a reduced immediate risk of supply disruptions in the Gulf.

Nevertheless, tensions remain elevated.

The British maritime security organisation UKMTO reported that a commercial vessel in the Strait of Hormuz detected an explosion in nearby waters overnight, although no injuries or damage were reported.

Diplomatic Uncertainty Persists

The contradictory messages from Washington and Tehran highlight the absence of a clear diplomatic pathway toward ending the crisis.

While Trump continues to present negotiations as an alternative to military action, Iran’s categorical denial suggests that no formal channel currently exists between the two governments.

With the Strait of Hormuz still contested and military incidents continuing across the Gulf, the conflict remains caught between diplomacy and confrontation, leaving regional stability and global energy markets vulnerable to further shocks.

With information from Reuters.

AI Training Technique Sparks New Tech Rivalry

Model distillation, a widely used artificial intelligence training technique, has emerged as a new point of tension in the growing technology competition between the United States and China. While the method has long been accepted within AI research, concerns have intensified over whether proprietary AI capabilities can be replicated without the consent of their developers.

Leading U.S. AI companies and policymakers argue that some Chinese firms are using distillation to extract valuable capabilities from closed-source AI models, raising questions about intellectual property, technological leadership and AI security.

What Is Model Distillation?

Model distillation is a process that transfers selected capabilities from a large, powerful AI model—known as the “teacher”—to a smaller “student” model.

Instead of copying the original model’s architecture or internal parameters, the student learns by analyzing the teacher’s outputs, such as answers, computer code or generated text. The result is a lighter, more efficient model capable of performing many of the same tasks while requiring significantly fewer computing resources.

Why Is Distillation Important?

Training frontier AI models demands enormous investments in advanced chips, computing power and massive datasets.

Distillation makes AI more affordable by enabling smaller models to deliver strong performance on less expensive hardware. These compact systems can be deployed across smartphones, factories, vehicles, enterprise software and private networks, expanding AI adoption without the infrastructure costs associated with frontier models.

The technique has therefore become an important tool for both commercial AI development and national technology strategies.

Why Are Reasoning Traces Valuable?

Recent advances in AI have increased the importance of “reasoning traces”—the intermediate steps an AI model follows before producing a final answer.

Rather than simply learning correct outputs, smaller models can learn how complex problems are solved, improving their reasoning abilities.

Researchers compare this to studying detailed worked solutions instead of only reading the final answers to mathematical problems. As reasoning traces become more sophisticated, they are increasingly viewed as valuable intellectual property because they reveal how advanced AI systems approach difficult tasks.

Who Uses Model Distillation?

Distillation is widely used across the global AI industry and is not inherently controversial.

American researchers and technology companies have employed the technique in projects such as Stanford University’s Alpaca model and Microsoft’s Orca research. Chinese researchers have likewise used outputs from advanced AI systems to develop Chinese-language instruction models.

The key distinction lies between open-weight models, whose underlying parameters are publicly accessible, and closed-source models, such as OpenAI’s ChatGPT and Anthropic’s Claude, which are only accessible through proprietary platforms and APIs.

Why Has It Become a US-China Flashpoint?

The dispute centres not on distillation itself but on whether proprietary AI outputs are being systematically harvested without authorization.

U.S. AI companies argue there is a clear difference between legitimate academic research and large-scale extraction of outputs designed to replicate commercially valuable capabilities from closed-source systems.

Anthropic has accused several Chinese AI companies, including DeepSeek, Moonshot and MiniMax, of attempting to extract capabilities from its Claude models, particularly in software engineering and advanced reasoning. OpenAI has also reported detecting attempts by Chinese actors to use its systems for distillation-related purposes.

Chinese companies have not publicly accused U.S. firms of conducting similar activities involving closed-source models.

Why It Matters

The debate over model distillation reflects a broader shift in global AI competition from hardware and semiconductors to the protection of advanced algorithms and proprietary knowledge.

As AI becomes central to economic growth, military capabilities and technological leadership, governments and companies are increasingly treating model outputs, reasoning methods and training techniques as strategic assets. The controversy over distillation is therefore likely to play an increasingly important role in shaping future AI regulation, international competition and the evolving U.S.-China technology rivalry.

Analysis: AI Distillation Signals the Next Phase of the US China Technology War

The controversy surrounding model distillation marks a turning point in the global artificial intelligence race. The competition between the United States and China is no longer driven solely by access to advanced semiconductors or computing power. Instead, it is increasingly centered on protecting the knowledge embedded within frontier AI models. As reasoning capabilities become the most valuable component of modern AI, companies and governments are beginning to treat model outputs as strategic assets rather than simply products or services.

For years, Washington’s strategy focused on restricting China’s access to advanced chips and manufacturing equipment, hoping to slow Beijing’s AI progress by limiting computational resources. Model distillation challenges that strategy because it enables developers to build highly capable systems without replicating the enormous costs of training frontier models from scratch. If smaller models can absorb sophisticated reasoning from larger ones, technological leadership becomes harder to preserve through hardware controls alone.

This development is also forcing a rethinking of AI intellectual property. Unlike traditional software, where source code defines ownership, modern AI derives much of its value from learned behavior and reasoning patterns. The legal and ethical boundaries surrounding whether outputs generated by proprietary models can be used to train competing systems remain largely undefined. As governments struggle to regulate these practices, AI firms are likely to tighten access to their models, limit reasoning transparency and strengthen technical safeguards against unauthorized capability extraction.

The geopolitical implications are equally significant. AI has become a core element of economic competitiveness, military modernization and national security. Any method that accelerates another country’s ability to close the technological gap will inevitably attract government attention. The United States increasingly views the protection of advanced AI capabilities as part of its broader strategy to maintain technological leadership, while China sees affordable AI development as essential to reducing dependence on foreign technology and overcoming export restrictions.

Ultimately, the debate over model distillation illustrates that the next phase of the AI race will not be determined solely by who builds the most powerful model, but by who can best control, protect and commercialize advanced intelligence. As AI becomes a strategic national asset, disputes over knowledge transfer, model security and intellectual property are likely to become as consequential as the earlier battles over semiconductor supply chains.

With information from Reuters.

On July 10, almost exactly a year after the Pentagon announced it was becoming the largest shareholder in MP Materials, the International Energy Agency put a number on what that deal was designed to prevent: $6.5 trillion in global downstream production now sits exposed to China’s rare-earth export curbs — restrictions currently suspended under an October 2025 truce that lapses again around October 2026. In the year between those two dates, Washington did not simply subsidize its way out of dependency on Chinese processing. It bought in: $400 million for 15 percent of MP Materials, a decade-long price floor for neodymium-praseodymium set nearly double the market rate, and a ten-year promise to buy everything a new Texas magnet plant produces. The Pentagon is now, functionally, a mining shareholder. The interesting question is not whether that has worked — MP’s private financing round attracted $1 billion from J.P. Morgan and Goldman Sachs within weeks — but what it costs to win a state-capitalist contest by becoming a state capitalist.

The stakes are structural, not cyclical. China controls roughly 70 percent of the world’s rare-earth and critical-mineral refining capacity, a chokepoint built over three decades while Western producers treated minerals as ordinary commodities rather than strategic assets. Beijing’s October 2025 tariff-war truce with Washington postponed, rather than cancelled, an expanded licensing regime that already cut U.S. yttrium imports from 333 tonnes to 17 tonnes in eight months — a squeeze aerospace manufacturers say could force production pauses. Washington’s answer has three parts: Project Vault, a $12 billion public-private stockpile signed by executive order on February 2, 2026, covering all 60 minerals on the USGS critical list; a fast-growing portfolio of direct government equity stakes in miners and processors; and a parallel push to sign allied-supply agreements with eight partners, including Australia, Japan, the UK and the UAE. Europe, meanwhile, is running a different playbook: a €3 billion RESourceEU plan, a joint-purchasing platform, and a stockpiling pilot — procurement and coordination, not ownership.

The MP Materials deal is the template, and its mechanics matter more than its headline. The Department of Defense’s July 2025 investment made it MP’s largest shareholder, attached a $150 million loan for expanding the Mountain Pass mine, and guaranteed a $110-per-kilogram floor price for NdPr oxide — a level industry analysts put at nearly double the prevailing market price — alongside a ten-year offtake covering the full output of a planned magnet facility in Fort Worth. Private capital followed the government’s signal almost immediately, which is precisely the point: Washington concluded that a guarantee was worth more to investors than a grant. That logic has since scaled. The administration has taken a $670 million stake in magnet producer Vulcan Elements, a 10 percent, $35.6 million position in Trilogy Metals, converted a renegotiated Energy Department loan into equity in Lithium Americas, and expanded the official critical-minerals list to include copper and metallurgical coal. Total direct equity commitments now exceed $1 billion, on top of Project Vault’s $12 billion stockpile.

The backlash has been immediate and specific, and it is worth taking seriously rather than waving off as sour grapes. Rival producers argue the price floor lets MP “undercut commercial bids, using federal subsidies to shield its margins,” while former White House and Pentagon officials warn the arrangement could “distort global NdPr pricing, crowd out innovation, and deter private investment in alternative supply chains” — in effect, recreating the very state-directed monopoly the policy exists to counter. That is the strongest objection, and it does not fully land: a government willing to take equity risk, rather than hand out grants, at least has an incentive to see the investment succeed and can in principle profit from the upside, which is the argument the Treasury and National Energy Dominance Council make for why this is smarter policy than Cold War-style stockpiling alone. But the objection identifies a real cost even if it doesn’t defeat the policy: an above-market, government-guaranteed price for one company makes every unsubsidized competitor in the same commodity harder to finance, which narrows rather than widens the eventual supplier base — the opposite of the diversification the strategy claims to deliver.

There is a second problem the price-floor logic obscures: capital committed is not the same as metal produced. The Center for Strategic and International Studies frames this as the difference between “distance” — how much progress has been announced — and “displacement” — how far supply chains have actually moved from their starting point. Japan’s experience with Lynas Rare Earths is the sobering comparison: fifteen years and $250 million of patient, low-drama investment before Lynas achieved the first commercial dysprosium production outside China, in 2025. Washington’s approach substitutes speed and scale for that patience, which may be the correct trade given the urgency, but it means the MP deal’s real test has not yet arrived — it arrives when the Fort Worth facility is supposed to reach full commercial output, not when Wall Street decides to match the Pentagon’s bet.

None of this is happening in a China-versus-America vacuum, either. The Democratic Republic of Congo has extended its cobalt export suspension specifically to tighten leverage over Chinese refiners, and Indonesia has repeatedly resisted pressure to loosen nickel export quotas, forcing processing onshore on its own terms. Producer states, not only the two superpowers, are now treating minerals as instruments of strategic leverage rather than commodities to be sold at whatever price clears the market. That reframes the whole contest: this is not simply Washington racing to catch Beijing, but a broader shift in which every government that sits on a mineral deposit is deciding whether to sell it or wield it.

Which is where Europe’s exposure becomes concrete. RESourceEU gives Brussels coordination and buying power, but no board seats and no offtake priority — and Chatham House’s own assessment is blunt that the UK and EU “cannot match the scale of what the US is attempting” and risk being “left behind” without equity of their own. That matters because Washington’s price floors do not stay domestic: a guaranteed $110/kg for MP’s output resets the benchmark every other buyer, including European manufacturers, has to price against, while offtake agreements tied to U.S. defense production can put European buyers behind the queue when supply tightens. The diversification Europe wants — away from dependence on Beijing — is real, but the replacement supply chain now runs increasingly through companies Washington part-owns and whose output is pre-committed to American industry first. Substituting one chokepoint for another is not the same as building a market.

What Happens Next

Base case (our estimate: roughly 55 percent probability). Washington’s equity-and-price-floor model extends to more minerals — copper and metallurgical coal are already on the list — and more companies, Project Vault’s stockpile builds through 2026–27, and the October 2025 China truce holds past its lapse date. Europe continues a purchasing-only strategy, remaining a price-taker on a benchmark increasingly set in Washington rather than Shanghai. This depends on Congress and private markets continuing to treat government equity as a credible signal rather than a fiscal liability, and on China preferring managed leverage over an open rupture.

Downside case. China allows the truce to lapse on schedule around October 2026 and resumes full licensing enforcement — already quietly restarting, according to recent customs-audit reports — before Vault-funded and MP-style projects reach meaningful output. Aerospace and defense manufacturers, already forced to ration yttrium and dysprosium at a fraction of pre-2025 volumes, face renewed production pauses in the exact window (2026–2028) when domestic capacity is still years from scale, exposing the gap between announced investment and actual tonnage.

Upside case. Government stakes prove to be a bridge rather than a permanent structure: MP, Vulcan Elements and Lithium Americas hit production targets on schedule, price floors become unnecessary as Japan’s Lynas eventually showed is possible after fifteen years of patient investment, and the eight-nation allied-supply framework matures into a genuinely plural, competitively priced market that Europe can buy into on equal terms rather than through Washington’s balance sheet.

The Pentagon’s bet on MP Materials shows that the fastest way to out-compete a state-directed rival was to become one — and by the only metric available so far, capital raised, that gamble is working. But capital raised is not resilience, and every mineral now being withheld or weaponized elsewhere, from Congolese cobalt to Indonesian nickel, shows the world’s supply chains are being redrawn along political lines everywhere, not simply rerouted away from Beijing.

Watch whether China lets its rare-earth export truce lapse on schedule around October 2026, and whether MP Materials’ Fort Worth magnet plant is producing at commercial scale when it does. If the truce holds and the plant delivers, Washington’s ownership model will keep expanding. If either fails, the U.S. will have discovered it bought a shareholding in a company, not a supply chain immune to the country it was built to out-manoeuvre.

In celebration of the 99th anniversary of the founding of the Chinese People’s Liberation Army (PLA), established in August 1927, the PLA commemorates its founding on August 1st each year (remembering the Nanchang Uprising of 1927). This anniversary is marked amidst ongoing efforts to modernize its defense capabilities, alongside diplomatic and military endeavors to strengthen dialogue, partnerships, and the exchange of experiences with European, Asian, and international militaries. The PLA is considered the cornerstone of China’s national defense, and Chinese military leaders at all embassies and consulates worldwide organize numerous official events to mark its founding on August 1st each year. Chinese embassies and military attachés around the world, such as the Chinese Embassy in Belgium and other European countries, host official receptions to highlight the PLA’s role in maintaining global peace and stability, as well as its development capabilities and readiness. The PLA is focused on transforming into a modern, integrated military force encompassing land, sea, and air.

China’s military relations with European militaries reflect the logic of military diplomacy, as China seeks to deepen military ties with its European allies and partners within its strategy of mutual military engagement, cooperation, and learning opportunities. Here, Chinese military channels with European countries serve as avenues for dialogue and the exchange of views on regional and international security to achieve balance and stability. Beijing, through its diplomatic activities, emphasizes the importance of balanced partnerships with the European Union and its member states to provide stability and certainty to the world. In this context, Beijing’s relationship with European militaries takes on a dual character of strategic competition and mutual caution, especially given Washington’s efforts to utilize NATO to contain Chinese power. Consequently, tension has arisen between the Chinese military and NATO due to China’s rejection of NATO’s Asian expansion into its regional sphere. Beijing views NATO’s attempts to broaden its security engagement with Asia-Pacific countries as a threat to stability and incompatible with the multipolar world order, while China rejects the logic of military hegemony. The Chinese military, in its strategic literature, emphasizes its opposition to American power and hegemonic policies implemented through the NATO military alliance. China and the People’s Liberation Army also strongly reject NATO’s involvement in Asia-Pacific affairs, viewing it as interference that threatens regional and global stability and leads to confrontations between military blocs.

Herein lies the official Chinese military stance on the NATO military alliance, describing it as a relic of the Cold War that extends beyond its original geographical scope. China explicitly accuses NATO of instigating tensions and provoking confrontations in Asia. Furthermore, China warns against the militarization of the region through NATO partnerships with countries such as Japan and Australia. The Chinese People’s Liberation Army (PLA) maintains that China’s defense policy aims to protect national sovereignty and regional security, viewing Western actions as attempts to contain Chinese influence and impose American hegemony. Therefore, Chinese intelligence, military, defense, and security circles reject the logic of linking Euro-Atlantic security to issues in the Indo-Pacific region.

The most significant dynamics of the Chinese military relationship with European armies are characterized by the maintenance of strategic autonomy. Some European capitals seek to avoid full involvement in the US-China conflict, preferring to preserve commercial interests and pursue self-sufficiency. This is further complicated by technological and industrial competition between European armies and the Chinese People’s Liberation Army. NATO closely monitors the development of the Chinese military’s cyber capabilities and artificial intelligence, viewing them as strategic challenges impacting global supply chains. Meanwhile, China perceives NATO’s policies as subservient to US interests at the expense of European national security. NATO’s ongoing monitoring of Chinese cyber capabilities and the escalating technological competition between China, Europe, and the United States for leadership in the digital and economic future are noteworthy. These tensions manifest in mutual concerns regarding cybersecurity and global supply chains, which raise serious concerns for NATO due to the numerous strategic challenges and cyber threats they pose. Here, NATO monitors digital operations and hybrid attacks linked to Beijing-affiliated actors targeting critical infrastructure and technological security, according to NATO’s military perspective. NATO’s military strategies focus on protecting technological superiority in artificial intelligence and semiconductors to prevent any potential disruption to global supply chains.

For this reason, China’s stance toward NATO is characterized by accusations of American political dominance. Beijing believes that NATO’s expanding policies and transatlantic orientation serve the US strategic agenda at its expense and in confrontation with China, which, from the Chinese perspective, affects European security itself. China considers NATO’s increasing involvement in Asia-Pacific issues and technological confrontation not to serve Europe’s own security interests but rather to threaten international stability as a whole. Thus, China’s position on NATO is based on the accusation that it serves American hegemony and threatens security and stability in Asia and Europe. Beijing views NATO as a tool for implementing America’s strategic plans, aiming to mobilize member states of the military alliance to pursue a policy of Asian expansion in the face of China. China and the People’s Liberation Army reject NATO’s involvement in Asia-Pacific issues, arguing that NATO’s policies harm Europe’s economic and technological security. From a Chinese perspective, the alliance’s technological confrontation poses a threat to international stability and European security, with China believing that NATO’s policies ultimately undermine Europe’s own security.

The summer sun has set on “Love Island USA” fan favorites Olandria and Nic Vansteenberghe‘s romance, a year after their time on the hit series.

People, citing an unnamed source, reported on Wednesday that the pair of reality TV stars — known among fans as “Nicolandria” — agreed to go their separate ways. The outlet reported that the amicable split comes as “the distance between them and their busy schedules made it challenging to maintain their connection.” The “Love Island USA” Season 7 stars remain friends and “will always support one another.”

Neither of the stars have publicly addressed their separation on social media.

Olandria and Vansteenberghe entered the “Love Island USA” villa in Fiji in June 2025 and officially coupled up weeks into the production. “Love Island USA,” the American version of the U.K. series, streams on Peacock and follows a cast of singles as they search for love and test their connections. Olandria and Vansteenberghe were among a handful of day-one contestants who advanced to the competition’s final episode.

The pair were runners-up to winners Amaya Espinal and Bryan Arenales.

Since leaving the villa together, “Nicolandria” have taken their relationship into the real world, to Glamour Magazine and to numerous brand deals. Olandria has become a staple at red carpet events including the VMAs, CFDA Fashion Awards and the Golden Globes.

Amid their post-”Love Island USA” fame, Olandria and Vansteenberghe spoke candidly to Glamour about handling the newfound deluge of popularity, demand and fan love — and how they support each other through it.

“It’s so draining. We always have check-ins, like, ‘How’s your mental? How are you today? I’m always here,’” Olandria recalled to the magazine. “I wish we didn’t have to do that as much as we had to. Thank God we’ve got each other, because I don’t know what we would do without each other, literally, when it comes to that.”

Vansteenberghe said elsewhere in the interview: “Everything that came from [“Love Island USA”] is so beautiful and amazing. I feel like that’s why we did well. We enjoyed ourselves and had fun with it.”

“Love Island USA” crowned its latest winning couple earlier this month. Fan favorites and day-one contestants Bryce and Trinity were declared winners and won the $100,000 grand prize, after a season rocked by racial-slur scandals and with local roots in a surf and coffee shop in Mar Vista.

The conflict between the United States and Iran intensified on Monday, with both sides launching fresh military strikes that raised fears of a broader regional crisis threatening global energy supplies, maritime security and critical civilian infrastructure. While oil prices briefly climbed above $90 a barrel amid renewed disruption in the Strait of Hormuz, attacks on desalination facilities also highlighted a dangerous expansion of the conflict beyond military targets.

Despite the escalating violence, both Washington and Tehran signalled they remain open to diplomacy, suggesting that negotiations have not been completely abandoned even as the war enters a more volatile phase.

US and Iran Exchange Fresh Strikes

Iran’s Revolutionary Guards (IRGC) said they had launched missile attacks against U.S. military assets across the Middle East after another night of American bombardment targeting several Iranian cities.

According to Iran, ballistic missiles targeted U.S. military facilities at Jordan’s Aqaba Airport, Kuwait’s Al Adiri Camp and Ali Al Salem Air Base, as well as American positions in Syria. Bahrain also activated air raid sirens, while Kuwait reported intercepting hostile drones during the attacks.

Meanwhile, U.S. Central Command confirmed it had carried out a ninth consecutive night of strikes against Iran, saying the operations were intended to degrade Tehran’s capability to threaten commercial shipping through the Strait of Hormuz.

Iranian media reported explosions in several cities, including Tabriz, Chabahar, Konarak, Bandar Mahshahr and Bandar Imam Khomeini, with at least one person killed and several others wounded.

President Donald Trump defended the latest strikes, describing them as retaliation for the deaths of U.S. service members in recent Iranian attacks.

Hormuz Shipping Faces Renewed Disruption

The Strait of Hormuz, through which roughly one fifth of global oil supplies normally pass, remains at the centre of the confrontation.

The IRGC claimed two oil tankers had exploded after attempting to navigate what it described as an unsafe route through the strategic waterway. Tehran did not provide details about the vessels or casualties, and the reports could not be independently verified.

Separately, the United Kingdom Maritime Trade Operations (UKMTO) agency reported that a commercial vessel off the coast of Oman had been struck by an unidentified projectile, leaving the ship adrift though its crew remained safe.

Shipping disruptions pushed Brent crude briefly above $90 per barrel as traders worried that prolonged instability in Hormuz could significantly reduce global oil exports.

The renewed uncertainty comes after vessel traffic through the strait had already fallen sharply in recent days, with many shipping companies delaying voyages or rerouting vessels due to security concerns.

Civilian Infrastructure Becomes a New Battlefield

Beyond energy markets, the conflict is increasingly threatening essential civilian infrastructure.

Kuwait confirmed that one of its desalination plants was attacked for a second consecutive day, causing a fire. Desalination facilities provide the majority of drinking water across Gulf countries, making them among the region’s most critical infrastructure assets.

Iran has accused the United States of previously striking one of its own desalination facilities and warned that any attacks on Iranian civilian infrastructure would trigger reciprocal action against similar installations across the Gulf.

The targeting of water infrastructure represents a significant escalation, raising humanitarian concerns alongside military and economic risks.

Diplomacy Remains on the Table

Despite intensifying military operations, officials from both countries suggested diplomacy has not been completely abandoned.

U.S. Secretary of State Marco Rubio said Washington would continue targeting Iranian capabilities as long as Tehran threatened international shipping but stressed that the United States remained open to a diplomatic solution.

Iran’s Foreign Ministry echoed that position, stating diplomacy remains one of the country’s instruments for pursuing national interests despite ongoing hostilities.

Tehran also confirmed that Iran’s interior minister would travel to Pakistan, which has served as an important intermediary between the two sides since the conflict began, although Iranian officials described the visit as focused primarily on bilateral relations.

Political Pressure Mounts in Washington

The conflict is also creating growing domestic challenges for the White House.

U.S. gasoline prices climbed above $4 per gallon on Monday, reversing declines seen after the temporary ceasefire reached earlier this year. Rising fuel costs have historically carried significant political consequences for American administrations and could become a major issue ahead of November’s congressional midterm elections.

Trump defended the military campaign by arguing that Iran had suffered severe damage and insisted the United States had effectively secured control over the Strait of Hormuz, despite continued Iranian attacks across the region.

Why It Matters

The latest escalation illustrates how the conflict is evolving beyond conventional military strikes into a broader campaign targeting global trade routes and critical infrastructure. While the Strait of Hormuz remains the world’s most important energy chokepoint, attacks on desalination plants introduce a new humanitarian dimension that could directly affect millions of civilians across the Gulf.

At the same time, continued disruptions to commercial shipping threaten global oil markets, supply chains and inflation at a time when many economies are already grappling with elevated energy costs.

What’s Next

The coming days will determine whether the conflict enters an even more dangerous phase. Iran appears determined to maintain pressure on U.S. forces and commercial shipping while signalling it could expand attacks against civilian infrastructure if American strikes continue.

Washington is likely to sustain military operations aimed at securing freedom of navigation through the Strait of Hormuz while attempting to deter further Iranian retaliation. However, any successful attack on major oil facilities, shipping lanes or water infrastructure could trigger a broader regional crisis involving additional Gulf states.

Although both sides continue to leave the door open for negotiations, the cycle of retaliation has significantly reduced the prospects for an immediate diplomatic breakthrough. Until meaningful talks resume, the Gulf is likely to remain one of the world’s most volatile flashpoints, with global energy markets and regional stability hanging in the balance.

With information from Reuters.

The Asia Pacific’s geopolitical balance is under change. While the U.S. remains the main architect of the plan, it is Australia that is becoming the executor of the strategy in the Oceania region. Through the signing of multiple defense agreements with the small island states, Canberra is transforming itself from a middle power to a regional security player in the South Pacific region. 

Australia, being the most trusted ally of the United States and a member of the two most important defense cooperations, i.e., AUKUS and QUAD, makes it suitable to provide security to its neighbors. By signing the bilateral agreements in the defense domain, Australia, particularly, and the United States, generally, want to counter China’s rising military presence in the Pacific region. The defense deals signed with Papua New Guinea, Vanuatu, and Fiji collectively demonstrate that work on a broader security plan is under process. Instead of deploying American military bases directly in these states, Washington is relying on Canberra to expand its security footprint in the South Pacific region.  

The recent signing of the Australia-Fiji agreement named “Ocean of Peace Alliance” on July 6, 2026, is the latest in the series. This agreement marks Fiji’s first mutual defense treaty and Australia’s fourth, following treaties with the United States, New Zealand, and Papua New Guinea.   Secondly, the announcement of the Pukpuk Treaty entering into force between Australia and Papua New Guinea by PM Anthony Albanese and PM Honourable James Marape MP on July 8, 2026, also showcases a mutual defense commitment. Thirdly, the signing of the Nakamal Agreement between Australia and Vanuatu in June 2026 prevented China from creating military bases in the country.

In addition to this, the new PM of the Solomon Islands, Matthew Wale, has also shown interest in reducing the country’s dependence on China. He stated that the Solomon Islands-China pact, signed in 2022, needs to be revised, which would allow China to deploy its military and police personnel. By signaling on revising the agreement, it clearly demarcates that the Solomon Islands do not want to allow their land to be used for Chinese military bases. This statement proved a silver lining for Australia’s hegemonic designs in the region, as it was fearful that the Solomon Islands would be a foothold for China in the Pacific.

The momentum and process of acquiring a broader Pacific security strategy are extending, as New Zealand PM Christopher Luxon has also shown interest in joining the recently signed Ocean of Peace Alliance. This also marks Australia’s victory in that these Pacific states are gradually turning away from China and moving towards Western allies. This also shows defense cooperation, military exercises, information sharing, and maritime cooperation. In such a case, when there is an attack on any ally in these domains, then others will come to aid and rescue.

Also, the opening of the US Embassy in the Solomon Islands back in 2023 and the agreement between another QUAD member, i.e., Japan, and the Solomon Islands also strengthen Australia’s position in the Pacific region.

Now, the bigger question here is why this change in geopolitical balance is happening and why the regional players are taking the lead despite having the hegemon, i.e., the United States. Rising interference of China by expanding its naval capabilities has drawn concerns of the states in the Oceania region. The recent firing of a long-range ballistic missile in the South Pacific region on the same day that Australia and Fiji signed the treaty sends a clear message that China will not remain quiet on these expanding relations. Although Chinese state media have stated that this firing was just a mere test using dummy warheads. But the concerns of the government officials of the Pacific countries and their rising apprehensions have clearly shown that concerns for Australia and its allies are increasing against China. This fear has enabled them to move towards a securitization strategy and maximize their security capabilities.

Along with benefits, there are various risks for Australia and partnering nations as well by entering into these defense deals. The original plan of keeping the Indo-Pacific free and open for trade for all is gradually turning into a hub of militarization. Therefore, strategic competition between China and Australia will increase more than ever before, compelling Canberra to engage in more economic and defense treaties in the broader Indo-Pacific region to maintain its central position. Additionally, small island states are also in turmoil as they are caught between China and the Western bloc.

Thus, it is clear that the US is expanding its network in the South Pacific region by making Australia a regional security player. This also sends a signal to China that its growing capabilities and tactics will not go unanswered. Moreover, Pacific Island countries are also diversifying their options by signing defense agreements and are not predominantly relying on China. These agreements also reduce the possibility of Beijing having a military presence in the Oceania region. Therefore, whether Australia’s expanding defense network succeeds or not depends on mutual trust. By not compromising the sovereignty of these states, Canberra can only become the regional security provider on its own terms.