The California Claude deal struck between Anthropic and Governor Gavin Newsom’s administration offers the state government access to Claude at half the standard price, even as Washington has taken the unusual step of designating the AI company a national security liability.
California’s Chief Information Officer and Department of Technology director Chris Given told POLITICO that the Pentagon’s supply-chain risk designation against Anthropic ‘just didn’t come up’ during contract negotiations. Which is quite a line, given what that designation actually means.
What the California Claude Deal Actually Sidesteps
The federal hostility towards Anthropic is, by any measure, extraordinary. The BBC reports that the Pentagon’s supply-chain risk label applied to Anthropic is the first time any US company has ever received such a designation. Not a foreign firm. Not a state-linked actor. An American AI startup that asked for ethical guardrails in a government contract.
According to CNBC, the label requires any company or agency doing work with the Pentagon to certify it does not use Anthropic’s models. That is a significant operational constraint. Microsoft said on 5 March 2026 that it would continue embedding Anthropic technology in products for its clients, with a single carve-out: the US Department of Defense.
What triggered this? Anthropic refused to accept a contract clause permitting ‘any lawful use’ of its Claude models. The company specifically sought to prohibit domestic mass surveillance and the deployment of autonomous weapons without human oversight. Defence Secretary Pete Hegseth rejected those terms. The Pentagon signed with OpenAI instead.
The awkward coda: The Hill reports that OpenAI’s deal includes the same two prohibitions Anthropic had requested. OpenAI CEO Sam Altman stated: ‘The DoW agrees with these principles, reflects them in law and policy, and we put them into our agreement.’ Some OpenAI employees were reportedly worried the ‘all lawful purposes’ phrasing could still lead to exactly the kind of uses the restrictions were meant to prevent, according to TechCrunch. So the stated policy positions ended up closer than the outcome suggests.
The Revenue Anthropic Walked Away From
None of this happened in a vacuum. In a statement on Anthropic’s official newsroom, CEO Dario Amodei disclosed that the company chose to forgo ‘several hundred million dollars in revenue’ by cutting off access to Claude for firms linked to the Chinese Communist Party, some of which had been designated as Chinese Military Companies. The argument was principled. The cost was real.
The BBC also notes, citing a person familiar with internal sentiment, that the feeling inside Anthropic is that it is disliked by parts of the Trump administration because Amodei has not donated large sums to Trump or publicly praised him, unlike a number of his peers in the industry. Whether that is the reason or a side effect is hard to establish from the outside, but it is the context in which the Cloud Security Alliance characterised the designation as having been ‘prompted not by any security failure but by Anthropic’s refusal to accept a contract clause.’
California’s willingness to proceed with the California Claude deal, half-price and all, is therefore less a routine procurement story and more a statement of priorities. The state is explicitly choosing a vendor the federal government has declared off-limits to its contractors.
Given’s breezy comment that the supply-chain risk designation simply ‘didn’t come up’ is either diplomatic understatement or a genuine reflection of how little weight Sacramento places on Washington’s position here. Probably both.
The more interesting question is whether other states, municipalities, or large enterprises follow California’s lead. The Pentagon’s designation was meant to limit Anthropic’s reach across government procurement. If sub-federal and commercial clients treat it as irrelevant, the designation’s practical power is considerably narrower than its symbolic weight suggests.
Anthropic now has a choice between two very different relationships with the public sector: a hostile one with the federal government, and a discounted one with the most populous state in the country. Whether that trade-off improves or worsens as the political weather changes is the thing worth watching.
