US attempts to slow down Chinese progress on AI through economic restrictions could backfire, according to a researcher at the Horizon Insights Centre. The success of China’s affordable AI technology has raised concerns among American AI companies, prompting industry leaders to urge the US government to take action against competition from the Chinese AI sector.
Washington has imposed various restrictions on the sale of chips to China and launched the Pax Silica initiative last year, aimed at securing supply chains for AI technology that exclude Beijing. Currently, 23 states and the European Union have joined this initiative. There is increasing pressure from the US AI industry to ban or restrict Chinese AI models.
The situation suggests that the US and China may be entering an AI cold war, with each nation striving to establish its own standards for the AI era. The US and its allies currently maintain an advantage in several key areas of AI development, although China’s advanced AI models remain reliant on imports, particularly chips and related technology.
US export controls are seen as hindering China’s ability to advance in AI technologies, raising costs and undermining investor confidence. However, experts warn that these measures may not permanently impede China’s AI development. AI progress is influenced by various factors, including human capital, financial resources, market size, regulatory flexibility, and industry adoption. In response to US export controls, China is investing in domestic alternatives and improving its AI model architecture and efficiency.
China is also exploring loopholes in US export controls to continue acquiring necessary technology. In June, the US government restricted Chinese companies from purchasing advanced US chips through overseas subsidiaries, but new loopholes may arise.
The effectiveness of US efforts to contain China’s AI advancement also depends on the cooperation of its allies, as advanced chips are produced through a global supply chain involving multiple countries. If US export controls are excessively stringent or prolonged, they could backfire, leading allies to seek alternative supply chains and technologies.
Christophe Fouquet, CEO of ASML, a Dutch chipmaking equipment company, has questioned whether restricting sales of advanced chipmaking equipment to China will be effective or merely incentivize China to enhance its own capabilities.
Doubts about the US strategy are echoed within the US AI industry. Nvidia, a major US chip manufacturer, opposes export restrictions, citing China as a significant market. CEO Jensen Huang has labeled the export controls a “failure” that has cost US companies billions.
Moreover, Chinese open-source AI models are becoming essential to the US tech industry. Nearly 200 US startups have urged the Trump administration to avoid banning access to advanced Chinese AI models, warning that such actions could stifle innovation and consolidate market power among a few large US companies.
In this competitive landscape, China holds significant leverage over the US due to its dominance in rare earth materials, which are crucial for chipmaking. China controls the largest reserves of rare earths and accounts for 91 percent of global production in this area. In response to trade tensions, China previously banned the export of certain rare earths to the US, impacting US manufacturing.
The US has since attempted to reduce its reliance on Chinese rare earths, but challenges remain due to the economic advantages of Chinese deposits and the country’s expertise in processing these materials. The US and its allies face difficulties in quickly catching up in this area, as China employs a large workforce of experienced engineers in rare earth processing.
If the US escalates its measures against China, it risks facing retaliatory embargoes and tariffs that could hinder its own AI development. Additionally, rare earths are critical for military applications, including advanced weaponry. As geopolitical tensions persist, the US must balance its strategy towards China with the need to maintain its own technological and military readiness.
The interdependence between the US and China, referred to as “Chimerica,” underscores the complexities of their economic relationship. Acknowledging this mutual reliance may be beneficial for both nations and the global community, which could otherwise be adversely affected by escalating tensions between these two superpowers.