In the face of an AI trade war, it’s the tailwinds that matter most
It wasn’t long ago that artificial intelligence was considered a futuristic pipe dream. Novels, films, and television shows have been serving up images of an AI-driven world for decades. Fiction authors like Neal Stephenson and Isaac Asimov painted a picture of a world in which whoever controlled technology and AI controlled the world—including the resources and, more importantly, the people. I have to wonder if Stephenson or Asimov had any inkling how accurate their visions would be—or how quickly their concept of ‘technology as power’ would become a reality.
Today, the global AI race is on. Governments may have been slow to realize the sheer power of AI, but over the past decade, that power has been too evident to ignore. The Arab Spring was driven by social media, which gave people the power to communicate, organize, and resist in a way that had never before been possible. Russian meddling in the 2016 US presidential election shed light on just how vulnerable social media networks and their users are to information warfare.
China gets it. Announced in 2015, the country’s Made in China 2025 initiative outlined a plan to regain manufacturing dominance within a decade, primarily through aggressive government funding and support of technology and AI. But that’s not all. China’s three-step plan includes:
1. Accelerating its AI capabilities to keep pace with global leaders by 2020
2. Making major breakthroughs in AI by 2025
3. Establishing China as the world leader in the AI field by 2030
It seems China is well on its way to success. This past year, the Chinese AI industry grew by nearly 70%. In a July interview, Air Force General VeraLinn Jamieson stated that China’s total spending on AI systems in 2017 was $12B, and that Air Force researchers estimate China’s annual spending to grow to “at least $70 billion by 2020.” According to the 2016 Obama White House report Preparing for the Future of Artificial Intelligence, China has increased its number of AI patents by 200% since 2015 and has out-published US researchers in journal articles focused on deep learning—a key capability of AI.
As 2025 gets closer, China has precisely what it needs to achieve its goals: talent, funding, and data. Lots and lots of data. And like Neal Stephenson and Isaac Asimov cautioned us years ago, whoever has the data wields the power. While it’s easy to assume the current trade war with China is all about soybeans, technology and AI leadership may, in fact, be the biggest driver of all.
Clearly, the US is being outpaced, which has put the Trump administration on the defense. According to research by CB Insights, China leads the AI startup-funding race, with an equity funding share of 48% of the global total, compared to 38% for the US. With 3,000+ AI startups globally, the total level of funding is astounding. Those numbers have been a wake-up call, but the response to that call hasn’t been what many technology experts had hoped. Rather than focusing on funding and striving to enhance AI capabilities through greater innovation, the administration has initiated a true Cold War that seeks to slow innovation in China. But though all gloves are off in the fight for AI leadership, there is no clear winner. At least not yet. And US efforts to thwart China’s progress seem doomed to fail; China and the US are too neck-and-neck in the race for one to dominate, through tariffs or otherwise.
That said, it’s no surprise that the US has taken steps to slow China’s progress. Unfortunately, while healthy competition in an emerging market typically helps speed progress for all players, a trade war is likely to do the opposite, impeding progress for both sides. With the G20 Summit slated to kick off on November 30, everyone is watching with bated breath to see if the US, China, or neither party blinks. The outcome is likely to impact the pace of innovation in both countries.
For investors, the most important thing is to keep an eye on the end goal. The obvious misstep would be to focus on short-term trends and attempt to time the market. While a continued trade war with China may temporarily increase headwinds in the space, the tailwinds are here to stay. AI will accelerate. 5G networks and quantum computers will be a reality within 18 months, perhaps even sooner. 6G will be next in line, and with that level of computing capability will come the next wave of AI deliverables. Fully autonomous vehicles to make our roads safer and more efficient. Cybersecurity tools to protect against identity theft and terrorism. Better, cheaper healthcare. Near-real-time drone deliveries. Precision farming to increase food production and reduce waste. Each of these innovations will help make the world a better place, regardless of which country “wins.” It’s just a matter of when.
One thing is for certain: the global hunger for data and the AI that makes it meaningful is escalating, and that pace will only continue to accelerate as innovations in machine learning, deep leaning, data analytics and other AI drivers continue to evolve. If headwinds created by the trade war slow that progress, now may be the perfect time to take advantage of lower prices with an eye to future growth. When the tailwinds once again prevail, investors who stayed in the game are sure to reap the rewards.
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