China Strikes with Sanctions on Major American Drone Supplier for Ukraine

In a dramatic turn of international trade tensions, Skydio, the U.S.-based drone manufacturer and a significant supplier of drones to the Ukrainian military, is now grappling with a supply chain crisis following Chinese sanctions. The sanctions, which prevent Chinese companies from providing Skydio with crucial components, have left the American drone giant in a scramble to source alternative suppliers, according to those familiar with the situation.

The company’s response to these sudden sanctions has included a direct appeal to the Biden administration. Recently, Skydio’s CEO Adam Bry met with U.S. Deputy Secretary of State Kurt Campbell, as well as high-ranking White House officials, to address the crisis.

American officials are increasingly concerned about China's ability to disrupt the U.S. supply chain and hinder drone shipments essential for intelligence gathering in Ukraine. This situation underlines growing anxiety over American reliance on Chinese manufacturing for critical technology. As Bry outlined in a memo to clients obtained by the Financial Times, “This is a turning point for the drone industry. If there were any doubts, this action clearly shows that the Chinese government will use supply chains as a weapon to further its interests.”

He continued, adding that this maneuver by Beijing “aims to eliminate a leading American drone company and increase the world’s reliance on Chinese drone suppliers.”

Skydio’s plight highlights the larger risks faced by U.S. companies dependent on China. These sanctions come at a time when foreign businesses are increasingly concerned about China's recent tightening of security laws, which have led to the detainment of local employees and corporate raids.

Sanctions Fallout and U.S. Response

On October 11, China imposed sanctions on several U.S. companies, including Skydio, as retaliation for Washington’s recent approval of combat drone sales to Taiwan. Skydio itself recently signed a contract with Taiwan's firefighting department, which likely aggravated the situation.

Caught off guard, Skydio had not yet secured alternative suppliers when the sanctions took effect. One source revealed that Chinese authorities had visited Skydio’s suppliers, including Dongguan Poweramp, a subsidiary of Japan’s TDK that manufactures drone batteries, and ordered them to cease cooperation.

Following these developments, Skydio informed clients that the number of batteries supplied with its drones would be limited due to the sanctions, with alternative suppliers unlikely to be available before spring. In an effort to mitigate the impact, Skydio has been in talks with companies across Asia, especially in Taiwan, with American officials also reaching out to Asian allies to explore support options. Skydio has reportedly communicated with Taiwan’s Vice President, Hsiao Bi-khim, on this matter.

Based in San Mateo, California, Skydio services both corporate and government clients, including the U.S. military. Notably, it has supplied over 1,000 drones to Ukraine for intelligence gathering and documenting Russian war crimes. Skydio’s latest model, the X10, is the first American drone to pass Ukraine’s electronic warfare resilience tests, making it harder to jam—an asset Kyiv has requested in significant numbers.

The timing of China’s actions is noteworthy, as the U.S. Congress is currently considering a bill to ban Americans from using drones from DJI, a Chinese company that dominates the global commercial drone market. One U.S. official speculated that Beijing sees Skydio as a competitor to DJI. “If there’s a silver lining in this situation, it’s that we can use this case to accelerate drone supply chain diversification away from China,” the official stated.

The Bigger Picture

This disruption is just one instance of China using economic leverage to influence global business and security dynamics. With U.S.-China relations already strained over Taiwan and the ongoing Ukraine-Russia conflict, this incident illustrates the broader risks for companies caught in the middle of geopolitical tensions. It also emphasizes the urgent need for supply chain diversification in sectors critical to national security.

Amid these tensions, Ukraine’s dependence on drones is unlikely to lessen anytime soon. The country has ramped up its drone production and procurement, with the Ukrainian Ministry of Defense and the Ministry of Digital Transformation contracting 1.6 million drones in various categories over the past ten months, valued at over 114 billion UAH. However, the urgency for diversified sources is clear, especially with China’s tightening export controls on drones that may have military applications, a response to increasing criticism from the U.S. and its allies over China's support of Russia in the Ukraine conflict.