U.S.-China New Front in the Tech War
The incoming Trump administration faces the challenge of balancing the need to protect U.S. technological dominance while fostering international collaboration to counter China’s growing influence in the artificial intelligence (AI) landscape.
The Biden administration has spent the last four years trying to restrict China’s access to advanced technologies. The Trump administration initially laid the groundwork by launching a trade war and imposing tariffs on Chinese goods.
The Biden administration built on these efforts by implementing stricter export controls, particularly in AI, which has transformed the landscape of scientific research, workforce allocation, and military operations.
U.S. officials are increasingly concerned about the potential for AI to enable the development of new weapons, facilitate surveillance of dissidents, and disrupt the global balance of power.
China’s growing economic influence
China has exerted a powerful gravitational pull on the global economy for decades, attracting countries and companies eager to capitalize on its vast size and rapid growth. However, this reliance on China has come at a cost.
Beijing has strategically utilized industrial policies, low-cost labor, intellectual property theft, and trade barriers to position Chinese firms at the heart of global value chains. The COVID-19 pandemic exposed the vulnerabilities of over-dependence on any single supplier. Additionally, China’s growing assertiveness, particularly its economic coercion tactics and potential military actions against Taiwan, have heightened anxieties about the risks associated with overreliance on Chinese supply chains.
In response, the U.S. has focused on bolstering its domestic semiconductor manufacturing capacity. The 2022 CHIPS and Science Act, signed into law by President Biden with bipartisan support, has allocated over $30 billion to 27 companies and incentivized more than $400 billion in private investments toward this goal. However, concerns remain about China’s relentless pursuit of dominance in the semiconductor supply chain, fueled by investments estimated to exceed $150 billion over the next 15 years.
Biden’s de-risking strategy
The Biden administration has adopted a multifaceted “de-risking” strategy to reduce China’s leverage and influence while enhancing the position of the United States and its allies. This strategy involves bolstering domestic semiconductor manufacturing, promoting supply chain diversification, and fostering international collaborations to secure critical minerals.
One of the cornerstones of the Biden administration’s de-risking strategy is export controls. These controls divide the world into three tiers: the United States and its 18 closest allies are exempted, countries subject to arms embargoes face stringent restrictions, and the remaining nations are subject to caps on importing AI chips.
Recognizing the need to balance denial and diffusion, the Biden administration introduced a Validated End-User program to ease the shipment of AI chips to certain countries, particularly those in the Middle East, which are critical to catalyzing economic growth and achieving development goals.
Hybrid approach: balancing denial and diffusion
The Biden administration’s hybrid approach focuses on consolidating fundamental AI research within advanced cloud hubs in the United States and allied nations while concurrently fostering the development of regional and local data centers in developing countries to address specialized tasks.
The strategy aims to train the most advanced AI models in secure data centers in trusted jurisdictions while denying China the computing power required to catch up.
However, achieving this balance necessitates addressing digital sovereignty concerns, as many nations in the global South are pushing to establish local AI data centers to safeguard privacy, comply with regulations, and reduce their reliance on foreign infrastructure.
The Biden administration has sought to address these concerns through initiatives like the Partnership for Global Inclusivity on AI, which aims to expand access to AI models, computing credits, and open-source tools while concurrently mobilizing billions of dollars toward digital infrastructure investments.
Challenge of “Good Enough” AI
The U.S. may hold an edge in frontier AI, but China poses a significant challenge in “good enough” AI systems. These systems, powered by China’s domestically produced chips, cater to various commercial AI tasks, allowing Beijing to gain a foothold in emerging markets, particularly across the global South.
However, even if the United States maintains its lead in high-end AI, China could still dominate the global AI landscape by providing more affordable and accessible solutions.
To counter China’s growing influence in the “good enough” AI market, the Biden administration has sought to promote public-private partnerships and targeted investments in emerging markets.
Yet, skeptics question whether this approach will overcome the challenges posed by China’s subsidized financing and state-backed loans, making its AI offerings particularly appealing to developing nations.
Europe’s perspective
The European Union has expressed concerns about the potential negative consequences of the Biden administration’s restrictions on AI chip exports. The EU believes that it poses a security risk to the transatlantic supply chain and could ultimately hamper the flow of AI technology between the U.S. and European companies. However, it remains committed to finding ways to ensure a secure and beneficial flow of AI technology for companies and citizens on both sides of the Atlantic.
New administration strategy
The incoming Trump administration faces a complex landscape in navigating the U.S.-China AI rivalry. It must balance the need to protect U.S. technological leadership with the imperative of fostering international collaboration and promoting AI’s responsible development and deployment.
First, the Trump administration should consider the potential economic and geopolitical ramifications of dismantling the existing export restrictions. While some argue that a more laissez-faire approach could strengthen partnerships with key allies and unlock new markets, flooding the zone with advanced AI chips without adequate safeguards could inadvertently benefit China.
Instead of dismantling the existing framework, the Trump administration should focus on refining export controls to stay ahead of China’s evolving strategies. This requires close coordination with allies and partners and a willingness to offer clear pathways to Tier 1 status for countries that demonstrate a commitment to aligning with U.S. AI goals. Strategic negotiations with Middle Eastern partners and swing states like Brazil, India, and Malaysia could give Trump valuable leverage to shape partner behavior and safeguard U.S. national security interests.
The Trump administration must also proactively counter China’s AI outreach in the global South. It requires deeper partnerships with the private sector, allied governments, international organizations, and philanthropic institutions to provide significantly more generous cloud computing credits to entrepreneurs and researchers in developing countries.
“The Trump administration should take more ambitious actions to distribute the benefits of U.S. frontier AI models and compete with China’s delivery of ‘good enough’ AI and digital infrastructure across the global South,” says Colin H. Kahl, senior fellow at Stanford University’s Center for International Security and Cooperation. “To start, the new administration should form deeper partnerships with the private sector, allied governments, international organizations, and philanthropic institutions to offer significantly more generous cloud computing credits to entrepreneurs and researchers in the global South.”
Access to these credits would empower them to train and fine-tune AI models through trusted U.S. and allied cloud providers, enhancing the global appeal of the U.S. AI while enabling the detection of malicious AI uses that could threaten U.S. national security.
Beyond cloud computing credits, the Trump administration should consider offering tax benefits and other incentives to encourage U.S. companies to invest in AI and digital infrastructure projects in the global South.
It could involve expanding the role of the U.S. International Development Finance Corporation, the Export-Import Bank, and other government agencies to provide loan guarantees, export credits, and equity investments in digital projects. Political risk insurance and partial credit guarantees could also mitigate concerns about expropriation, regulatory changes, and currency convertibility, thereby attracting private capital that these uncertainties might otherwise deter.
The Biden administration’s legacy on AI export controls will likely face scrutiny and potential revision under the Trump administration. The Trump administration’s approach to trade will be a critical factor in shaping the future of the U.S.-China AI rivalry.
A return to protectionist policies could undermine the progress made in recent years, while a more strategic approach that leverages trade agreements and targeted investments could bolster U.S. competitiveness and counter China’s growing influence.
The competition for AI supremacy extends beyond technological advancements. It encompasses a struggle for global influence and establishing norms and standards that will govern the development and deployment of this transformative technology. The choices made by the new Trump administration will have profound implications not only for the United States and China but for the future of the global AI landscape.