Dragoman Digest

Washington pulls its most powerful AI offline

Reducing reliance on US models carries risks of its own

On 12 June, the Trump administration imposed export controls on the newest AI system from leading US developer Anthropic, citing national security concerns. The firm had released the system in two forms. The first, Mythos 5, was its most advanced model. In recent weeks a select group of governments and companies had been given access and used it to find and fix flaws in software. The director of the National Security Agency had told a senator that Mythos broke into almost every classified US system within hours. The second, Fable 5, reached the public in early June with built-in safety limits, or guardrails, that prevent it being used for serious harm. A limited jailbreak – a way of getting around those guardrails – prompted the order. To comply, Anthropic pulled both models for every user, its own staff included.

The US’s edge in raw capability is not in question. Independent testing still puts its best models eight to ten months ahead of China’s. But even the best model is worth little to a buyer if access can be cut off overnight, as Anthropic’s customers just were. Conversely, China’s leading models, among them DeepSeek and GLM, can be downloaded and run on a user’s own computers. Once a copy is in hand, no government can take it away, and for most developers it costs far less to run. On OpenRouter, a site offering hundreds of AI models, four of the five most popular in early June were Chinese.

For foreign allies, the implications are serious. Five Eyes partners had spent months securing Mythos access for their agencies and banks, yet were caught out by US export controls all the same. Talk of sovereign AI has predictably followed, but the chips to train a frontier model are also subject to Washington’s approval – notwithstanding myriad other difficulties. The Chinese alternative carries its own costs. It gives Beijing a hand in setting the technical standards others adopt, and its openness is a strategy – China shares its models freely now but could close off future ones, controlling access just as Washington has. No choice comes without risk: depend on American labs and face mercurial export controls, chase sovereignty and likely never reach the frontier, or link oneself to the Chinese ecosystem.

The West looks to Brazil for alternative rare earths supplies

Brazil is determined to leverage the opportunity for its own industrial objectives

Western investors are increasingly looking to Brazil as a key node in the ‘ex-China’ rare earths supply chain. Despite holding 23 percent of global rare earth reserves, the country currently has less than 0.1 percent of global mined output. Following China’s initial application of rare earth export restrictions in 2025, several Western miners moved to rapidly acquire stakes in-country. Most recently, USA Rare Earth announced a US$2.8 billion deal to acquire Brazil’s Serra Verde Group, which owns the only producing rare earth mine in the country. Since 2023, companies have applied for more than 3,000 research permits for rare earths with Brazil’s National Mining Agency, over six times the volume of the preceding 45 years.

Politicians in Brasília are seeking to use the surge of investor interest to bolster Brazil’s industrial ambitions. Brazilian President Luiz Inácio Lula da Silva has made clear that foreign investors should target higher value-add domestic processing in addition to raw material exports. Brazil continues to court Chinese investment, with the Mines and Energy Minister Alexandre Silveira stating that “Brazil is open to investments from whichever country respects our sovereignty”. The US has conspicuously failed to finalise a deal with Brazil on critical minerals, despite a significant diplomatic push across the first half of the year.

Brazil’s processing ambitions play into a broader strategic debate across Western capitals about the optimal level of supply chain reshoring. Washington has favoured a build-out of in-country processing capacity, with MP Materials and USA Rare Earth both pursuing mine-to-magnet supply chains in the US. In contrast, Australia’s Lynas has built its model around mining in-country and outsourcing most processing operations to Malaysia, which has a much lower cost base. The optimum pathway for Brazil may hinge on gradually developing domestic processing capabilities and positioning itself as a trusted processing hub for ex-China supply chains.

Drone funding cuts cloud Taiwan’s strategic pivot to asymmetric defence

Funding cuts will delay Taiwan’s efforts to scale its promising but embryonic drone industry

Last month, Taiwan’s opposition-controlled legislature weakened efforts to foster a domestic drone industry by voting to axe the drone-production component of President Lai Ching-te’s proposed US$40 billion special defence budget. The budget had earmarked around US$1.6 billion for the procurement of 50,000 drones, alongside over US$10 billion for 1,600 unmanned boats. The spending was intended to provide a fillip for Taiwan’s drone industry and make tangible progress on Taiwan’s long-stated pledge to eschew purchases of big-ticket military items in favour of a more asymmetric defence posture. While stopping short of directly opposing drone procurement, the opposition Kuomintang (KMT) argue that funding should be included in the regular budget to ensure adequate scrutiny.

Although relatively modest, government funding is critical to domestic companies seeking to scale production. There are already fears that without guaranteed local volumes, Taiwanese firms will be unable to fulfil potential export orders to US customers. Taiwan has attempted to position itself as a key hub in an emerging “non-red” drone supply chain, tapping into demand in Japan, Europe, and the US for drones produced without major Chinese components. Taiwan has already achieved some progress in this regard, exporting over 135,000 drones to Europe in Q1 this year – though reducing reliance on Chinese components remains a work in progress. Taiwan’s drone industry fears that rerouting funding through the annual budget will delay procurement until mid-2027. Meanwhile, China continues to dominate most parts of the drone supply chain and is seeking to translate its world-leading civilian drone industry into military capability.

Foreign capital in Thailand’s protected sectors spurs crackdown on local proxies

The offshore parents running these firms will likely stay beyond the reach of the law

Thailand prohibits businesses with at least 50 percent foreign ownership from acquiring land and participating in the agricultural sector. Evasion is longstanding but has spread. The Commerce Ministry is now investigating 15 firms for breaches, all of them Chinese-linked. Under the typical model used to circumvent Thai laws, Thai nominees appear on the register as owners while the controlling stake stays with the Chinese parent. In April, officials tightened company registration rules such that anyone forming a business must certify they are not fronting for foreign owners. Name-lending carries up to three years’ imprisonment and fines reaching one million baht (US$30,600). The crackdown comes as approved direct investment from China reached a record 198.1 billion baht (US$6.1 billion) last year, up 14 percent. Work permits issued to Chinese nationals more than doubled over five years to 56,202 by November 2025.

The coconut trade illustrates how this foreign control harms Thai growers. Brokers with mainland sales channels arrived around 2024 and used that leverage to drive prices down the chain – a coconut now fetches three baht (US$0.09), under a third of its earlier value. Similar dynamics surface in tourism and services, pairing hidden ownership with underreported profits and unpaid tax. These practices cost the state revenue now and, more lastingly, they obscure who ultimately owns the sectors ostensibly reserved for Thai nationals.

The new rules in April are intended to give Thai officials much more visibility. However, the rule changes contain potential loopholes. Only a declaration is needed under the new documentation requirement, and the 50 percent cap counts only capital share. Both measure ownership on paper, which a nominee supplies, leaving criminal liability with the Thai registrant rather than the foreign principal. Elsewhere, Vietnam now requires firms to disclose who exercises de facto control, and Cambodia has tightened checks on company directors. Thailand, meanwhile, wants the capital and keeps drawing it in, even as more of the economy slips into foreign hands.