Can the US win the AI cold war with China?

The success of China’s cheap AI technology has clearly worried American AI companies. Industry leaders have openly called on the US government to take action on competition from the Chinese AI industry.

Washington has already imposed various restrictions on the sale of chips to China. Last year, it launched the Pax Silica initiative, aimed at securing supply chains for AI technology that exclude Beijing; 23 states have since joined, along with the European Union. There is now pressure from the US AI industry to ban or restrict Chinese AI models.

It increasingly appears that the two great powers are on the verge of an AI cold war, each building its own camp and bidding to set the rules of the AI era. The question now is: Having declared this war, can the US win it?

The limits of export controls

At present, the US and its allies hold the upper hand in several key areas of AI development. China’s frontier AI models remain heavily dependent on imports, chief among them chips, chip-designing software, and chipmaking equipment.

As a result, US export controls hinder China’s ability to keep pace with the latest AI technologies; they drive up costs and undermine investor confidence. They will, however, not hold China’s AI development back forever.

It is important to remember AI development is by no means a single contest over chips; human capital, financial capital, market size, regulatory agility, and industry adoption matter just as much. In response to US export controls, China is not only investing in domestic alternatives but also improving AI model architecture, optimising AI training and inference efficiency, and squeezing more out of the chips it already has.

While trying to catch up with development in chips, China is seeking various loopholes in US export controls to circumvent the restrictions. In June, the US government curbed the ability of Chinese companies to buy advanced US chips via overseas subsidiaries. This loophole was closed, but new ones will emerge.