The AI Wall's Own Builders Are Selling Through It

The State Department's draft letter to 35 governments put the whole strategy in one sentence.

To be part of everything is to be part of nothing. Signature of the Pax Silica declaration is not merely a membership subscription but a commitment. — United States Department of State

Pick a side. That is the demand at the center of Pax Silica, the alliance Washington is assembling to wall American AI off from China and force every other country to choose which side of the wall it stands on. The demand failed before it was even sent. Kazakhstan signed on to Pax Silica and, in the same stretch, joined WAICO, China's rival AI framework.

It cannot be held alongside membership in duplicative initiatives whose expectations conflict with our own. — United States Department of State

A country can be part of everything, it turns out, and the letter has no mechanism to stop it. But the diplomatic layer is the least of the leaks. The more consequential ones are inside the wall, where the fortress's own architects are the ones selling through it. Start with infrastructure. Microsoft is a core Pax Silica member. It is also the largest single bridge between American AI and the Chinese firms the alliance exists to isolate. Through Azure, Microsoft sells OpenAI's models to Chinese companies, with ByteDance — TikTok's parent — alone worth more than a billion dollars a year ^[1]. OpenAI privately raised concerns that Chinese firms were distilling its models through that access; the revenue kept flowing ^[1]. Microsoft's former commercial chief, Judson Althoff, named the arrangement in his own words.

The one company bringing those two places together is Microsoft. — Judson Althoff

Then training data. The chip ban is meant to starve Chinese labs of the hardware to train frontier models. But there is no parallel restriction on the data those models learn from, and American startups have built a business on the gap — an estimated $500 million a year in training datasets sold to Tencent, ByteDance, Alibaba, and Ant Group, some of it from vendors that also hold contracts with the US Army and Air Force ^[2]. Then software. Roughly 80% of American AI startups now build on Chinese open-source base models, and the US-China Economic and Security Review Commission has warned about what that does to American leadership.

Open model proliferation creates alternative pathways to AI leadership. — U.S.-China Economic and Security Review Commission

The commission's own finding is blunter.

US export controls primarily target the digital loop, restricting access to advanced chips used for frontier model training — but are not well suited to addressing the physical loop of deployment-driven data creation and accumulation across China’s manufacturing base. — U.S.-China Economic and Security Review Commission

The government has considered a blanket ban on Chinese models and found it may not even be legal — open-weight models can be downloaded and run on private servers no matter what a statute says. Then diplomacy. While the State Department demands that 35 countries pick a side, the president was in Beijing discussing AI guardrails with Xi Jinping.

We talked about possibly working together for guardrails — Donald Trump

The same administration runs the binary-choice letter and the bilateral handshake at once. None of this means the controls are doing nothing. They forced real change: China's chip self-sufficiency rose from 10% in 2021 to 41% this year ^[3], and Huawei's rotating chairman admitted the pressure forced the buildout.

If the US hadn't forced our country, our companies, and our industry, we wouldn't have done something like this. — Xu Zhijun

Governments have barred DeepSeek from official systems. But that is the pressure producing the rival, not the wall holding. The fortress is funded by the dependencies it claims to eliminate. No diplomat's letter can override a billion-dollar revenue stream. The money moves on its own logic, and the architecture follows the money.