We are talking about a ban on Chinese AI on federal agencies. The concern isn't about the general citizen data, but private federal information and secrets, some of which could pertain to critical IT infrastructure. This is absolutely of interest to Chinese companies, but also, primarily, the CCP (or any potential enemy, really).

Restricting national secrets to only in-house software isn't guaranteed to provide better security (you still need to hire security specialists), but is guaranteed to spend resources in hiring sufficiently qualified personnel to maintain said software while ignoring the pool of potentially better qualified teams already hired by national companies. So, an alternative, is to use private contractors with different levels of secret sharing. This kind of choice isn't trivial to make.

You seem to forgetting the bonus side of "The traded goods can be poisoned at any time." If the exfiltrated data is more worth than the repercussions that are going to emerge out of it, then it's absolutely worth it. And this isn't specific to China. China holds a similar perspective to US in this regard, but with foreign services in general (arguably more strict, given it affects the entire populace). You just can't know when a third party will go rogue, do they take a more conservative approach of producing "locally", with private companies they can punish if they go against their interest. The current US government, ironically, is good evidence of this.