January 29, 2024

The USA is moving with great speed to reverse its free trade mantra and towards targeted disruption of its competitors' ability to compete.

New curbs on China's ability to use "American" companies' cloud infrastructure to develop AI systems will undermine capital plans for major tech firms, just as the denying of chip sales to China have undermined the chip industry. These companies' only response will be to pivot to India and other countries focused on developing their IT-related services.

The new rules set to come into effect in a few months is the second part of the attempt to deny access to AI physical infrastructure to Chinese companies and the security state apparatus. First it was chip sales, now it is chip rental in the "cloud".

This is less about re-shoring and more about denying what the USA sees as its current adversaries access to "its" technology.

The division created by the USA's full reversal of trade ideology is going to create an unpredictable response and increase geopolitical tensions. All in the name of "sustaining" the USA's technical advantage in warfare. This is not a reversal of free trade to reduce labour costs for USA businesses, it is about denying a certain area of the world with the supposed benefits of free trade (access to USA technology).

It is also a mix of laws that is going to have little to no effect in the medium term on the speed of development in China of AI systems and semiconductor development. If anything, it is going to speed it up.

While USA-based companies are the lead in some of these areas, the government's policy makers continue to over-state its differences from Asia-based industries, and under-estimate the reliance the USA's war machine has on China's processes.

China's industrial development programs are as robust as the USA's in that they are state financed, support innovation, but also support basic research. China's shift to application of advanced research is driven by lessons learned from the failure of the USA and Western countries to have state-backed research initiatives not embedded with their companies.

What might be the biggest impact of the USA's new policies will be to drive Chinese academic research closer to industry. This will be the same mistake as the West has made since the mid-1990s.

The commercialization-focused policies in the USA and other OECD countries what has hobbled the speed of development of useful tools. Academics have complained for decades that the "innovation" program through commercialization of university research of the OECD has been extremely short-sighted, undermining long-term research programs. We see this in almost every aspect of research from new drug development, application of new industrial capacity, productivity, and the academic system's over-focus on business and technology.

A large incentive in Western academia is about advancing an individual researcher's academic goals, protection of research data, very short-term publishing pressures, and undermining of social sciences and humanities, and over-funding business schools and STEM.

The lack of broad investment in basic research is part of the reason the West is so reliant on China is the lack of investment in developing new production. Things such as mid-stream processing of materials such as lithium and critical minerals, making the mass-produced input parts, assembling tech devices, and adopting new production technologies have all been faster in China as it became the world's production plant. That kind of investment takes individuals trained in a broad area of thinking and a very different investment regime.

The investment in these processes takes public-directed funding, not just hoping for some magical "commercialization" to happen.

Humanity has many issues to solve in the next little while. The concern is that while we are gearing-up for what the USA sees and an inevitable war with China, we are going to be farther and farther away from gaining the ability to deal with these problems.