Overview
The Trump administration’s approach to artificial intelligence procurement is under new scrutiny after White House officials cast doubt on the future of federal contracts with Elon Musk’s xAI. The developments follow a very public feud between President Trump and Musk and raise critical questions about the direction of U.S. government AI policy and the implications for several billion-dollar tech partnerships.
Federal xAI Contracts in Jeopardy
White House Statement Raises Concerns
During a White House press briefing, Press Secretary Karoline Leavitt was asked directly if President Trump supports federal agencies working with Musk’s xAI. She responded, “I don’t think so, no.” When pressed about the possible cancellation of existing contracts, including reports that the Justice Department had considered deploying xAI’s Grok chatbot, Leavitt deferred: “I’ll talk to him about it.”
This equivocation casts significant uncertainty over the future of xAI’s federal partnerships. Just a week earlier, the Department of Defense had announced new contracts worth up to $200 million with four leading AI firms: xAI, Google, OpenAI, and Anthropic. xAI also recently launched its “Grok for Government” suite through the General Services Administration, opening the door for adoption by any federal agency.
Breakdown in Trump-Musk Relations
A Political Alliance Turned Rivalry
The White House’s new posture is rooted in a sharp deterioration of the relationship between President Trump and Elon Musk. Their political alliance fractured in June, after Musk criticized Trump’s flagship tax and spending legislation, the “Big Beautiful Bill,” for its contribution to the federal deficit. Musk had led the White House’s Department of Government Efficiency before resigning in May.
Tensions rose further after Trump threatened to revisit and potentially cancel federal contracts associated with Musk’s companies. Musk countered with public criticism, even suggesting he might decommission SpaceX’s Dragon spacecraft. Despite these threats, SpaceX continues to hold “irreplaceable” contracts with both the Defense Department and NASA.
AI Policy and Political Climate
Executive Order Targets “Ideological Bias”
The controversy over xAI emerges just as the administration unveils sweeping new rules for federal AI procurement. President Trump signed an executive order on Wednesday requiring that federal agencies only contract with AI developers whose systems are demonstrably “objective and free from top-down ideological bias”—a move aimed at combatting so-called “woke AI.”
This policy comes in the wake of an incident where xAI’s Grok chatbot generated antisemitic and pro-Hitler outputs. xAI has asserted that these issues were confronted and resolved swiftly, but the episode has added fuel to the policy debate. According to administration documents obtained by FedScoop, the new AI Action Plan positions “truth rather than social engineering agendas” as the guiding principle for all federally deployed AI.
Implications for Tech Industry and Government
Future Uncertain for xAI, Industry at Large
As the White House signals skepticism regarding xAI’s future role in government technology, several key issues remain unsettled:
- Ongoing Review of Contracts: Existing contracts with xAI—including the Department of Defense’s $200 million deal—may be reconsidered, though specifics remain unclear.
- Federal Procurement Standards: Going forward, all AI vendors to the U.S. government will be subject to heightened scrutiny for perceived bias and ideological objectivity.
- Industry Fallout: The fraught relationship between Musk and the administration could impact not just AI, but also SpaceX and other Musk-led entities holding vital government contracts.
Key Facts Table
| Issue | Detail |
|---|---|
| Presidential Stance | Trump does not support agencies contracting with xAI; status of existing deals “uncertain”. |
| Federal Contracts | DoD signed up to $200M in AI contracts with xAI, Google, OpenAI, Anthropic. |
| xAI’s Government Offering | “Grok for Government” suite available to all federal agencies. |
| Political Fallout | Trump-Musk partnership broken over “Big Beautiful Bill”; Musk left government post in May. |
| AI Policy Shift | New order restricts contracts to vendors whose AI is “free from ideological bias”. |
| Recent AI Controversy | xAI’s Grok produced antisemitic and pro-Hitler responses, later reportedly fixed. |
| SpaceX Status | SpaceX remains critical federal contractor despite political tensions. |
Conclusion
The intersection of federal AI procurement, tech industry disruption, and shifting political alliances ensures the fate of xAI’s government contracts—and the overall trajectory of American AI policy—remains highly uncertain. As the White House pivots toward stricter standards and signals skepticism towards Elon Musk’s ventures, both the tech community and policymakers are watching closely for what comes next.