China imposes tariffs on San Diego-based Shield AI as part of ongoing trade tensions.

A San Diego-based artificial intelligence firm, Shield AI, was recently designated as one of six companies on China’s Unreliable Entities List, highlighting the escalating tensions between the United States and China regarding trade policies. This action, announced by China’s commerce ministry, restricts these companies from sourcing components, investing, or conducting business operations in China. The listing is part of broader retaliatory measures that China has taken against American firms amid a continuing trade conflict.

Shield AI is recognized as one of the most valuable venture-backed firms in San Diego. It develops advanced software solutions utilizing artificial intelligence for military applications, including operational support for military aircraft and drones. As of March, the company’s valuation stood at .3 billion, supported by a workforce of approximately 950 employees, primarily based in its San Diego headquarters and a manufacturing facility in Dallas.

This trade dispute has seen a series of punitive actions from both sides. Recently, Chinese authorities targeted additional San Diego-based firms operating in the aerospace and defense sectors, echoing previous sanctions imposed on these companies. Remarkably, the implications of being blacklisted may render limited immediate impact on Shield AI and other similarly positioned firms, given their predominant focus on U.S. national security and their minimal direct engagement in the Chinese market.

Experts suggest that while these sanctions can disrupt supply chains, especially as many firms rely on components sourced from abroad, the strategic selection of companies for the Unreliable Entities List serves a broader purpose. Scholars indicate that naming defense-related firms may be a tactical choice by Chinese officials, aiming to elicit a response from the U.S. administration, which could potentially prompt diplomatic discussions.

In parallel, President Donald Trump has intensified trade measures, having recently enacted tariffs on nearly 100 countries to bolster U.S. manufacturing and address trade imbalances. Although he called for a 90-day pause on tariffs for countries negotiating terms, China was notably excluded from this list. This increasing tariff rate—recently elevated to 125% on Chinese goods—compounds the challenges being faced by companies reliant on international supply chains.

Technology trade associations in San Diego have reported considerable strain on local businesses, even those not targeted by China’s sanctions. Many firms involved in various sectors, including microelectronics and manufacturing, are grappling with inflated prices for parts and uncertainty regarding future trade policies. The fluctuations in global trade dynamics have led to discrepancies in pricing that complicate procurement processes.

As geopolitical tensions escalate, San Diego-based firms—including notable members of the technology sector—are advocating for a reevaluation of tariffications. They argue that current policies obstruct research and development investment, ultimately threatening economic growth. Amidst these turbulent trade relations, companies like Shield AI and their counterparts continue to navigate the complexities of the evolving global market landscape while emphasizing their detachment from reliance on Chinese operations.