But the OS is not where Microsofts power lies. Its in exchange (almost everywhere cloud managed, including for many governments) and SharePoint, with a small amount of teams, where Microsoft is truly a scary prospect for sovereignty.
I can't log on to a windows computer if the cloud account don't exist? What if there's no internet?
Surely that is something only criminal would say.
There are some unofficial hacks to bypass the online account requirement, but MS have been actively stamping these out. Now the current situation isn't like it's impossible to bypass this, mind you (as far as I'm aware there's at least a couple of workarounds), but normal users won't know/care and will end up just creating an online account.
Via updates they can install and run anything they want ... aka 'kill switch'.
The short-term fear should be in enterprise cloud (See ICC judges). The long-term pain lies in blocking security updates (As happened to Russia). One might worry about malicious updates being pushed, but the legal grounds for that are flimsy to non-existent, and Microsoft has very strong business reasons to push back. So even the trump administration would be smart enough to instead target the cloud solutions. Since the legal precedent is very clear and well lubricated "providing services to sanctioned entities", and the business impact is equally crippling.