US-China Tech Race: Application, Installation, and Self-Sufficiency Challenges - Episode Hero Image

US-China Tech Race: Application, Installation, and Self-Sufficiency Challenges

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Original Title:

TL;DR

  • China's deliberate focus on key technologies and sustained investment, particularly in areas like quantum communications and batteries, positions it to lead in application and installation outside Western allies, potentially outpacing US innovation in specific domains.
  • US export controls on advanced GPUs to China, while slowing progress, have inadvertently forced Chinese companies to innovate and develop alternative capabilities, potentially leading to competitive domestic AI models and supply chains.
  • China's dominance in global installations of digital infrastructure, exemplified by Huawei, creates leverage and market control in the Global South, challenging US influence and potentially dictating future technological standards.
  • The US faces significant energy constraints for data center growth, potentially shifting AI development to regions like the Middle East with cheaper power, while China actively invests in renewable energy to power its AI ambitions.
  • China's strategy of fostering domestic chip manufacturing and favoring local industry, even at the cost of near-term performance, aims to accelerate self-sufficiency and secure markets, countering Western decoupling efforts.
  • The US risks losing trust and market share if it fails to uphold its values in technology advancement, as demonstrated by actions like cutting satellite access, while China's controlled, non-interoperable model faces trust challenges.
  • While the US leads in foundational technologies like semiconductors and AI frameworks, China's rapid progress in applying technology, particularly robotics in manufacturing, and its sheer volume of STEM graduates present a significant challenge to US dominance.

Deep Dive

The US and China are engaged in a critical technology race where leadership in data, standards, and compute will determine future geopolitical and economic influence. While the US currently leads in foundational technologies like semiconductors, AI frameworks, and cloud infrastructure, China is rapidly closing the gap and holds advantages in specific applications, global installations, and its determined pursuit of self-sufficiency. The outcome hinges not only on technological innovation but also on strategic investments, talent development, and the ability to secure global markets and trust.

The technology race between the US and China is multifaceted, encompassing leadership in developing technology, applying it, installing the underlying digital infrastructure, and achieving self-sufficiency. The US maintains an edge in core areas such as semiconductors, AI frameworks, cloud infrastructure, quantum computing, and global talent attraction. However, China is making significant strides, leading in quantum communications, hypersonics, and batteries, and aggressively applying technologies like robotics in manufacturing, leading to a notable disparity in adoption rates. Furthermore, China is dominating the installation of digital infrastructure outside of US allied nations, with companies like Huawei holding a commanding global market share. This push for global installation is a strategic move to secure future markets and reduce reliance on Western technology.

China's pursuit of technological independence, driven by strategies like "dual circulation" and government edicts disincentivizing the use of Western chips, is accelerating its development. US export controls, while slowing China's progress, have primarily served to hasten their independent development efforts rather than providing a lasting advantage. Similarly, China's leverage over rare earth minerals, critical for many advanced technologies, presents a significant risk that the US has not adequately addressed despite prior awareness. To counter this, the US must foster greater international collaboration with allies like Australia and Canada, invest strategically in domestic supply chains, and commit to sustained funding for university research and attracting global talent.

The ability to power future technological advancements, particularly the immense compute demands of AI, is a critical differentiator. China is heavily investing in renewable energy sources like wind, solar, and nuclear power to fuel its data center growth, while the US faces a more fragmented and inconsistent approach to energy infrastructure development. This disparity in energy scaling, coupled with supply chain challenges for essential components like turbines and transformers, could force US companies to seek data center capacity in regions with more abundant and affordable power, such as the Middle East. Moreover, the US faces a challenge in fostering trust in its technological offerings, particularly when actions like temporary satellite access disruptions or conditional AI sales can erode confidence among international partners. China, conversely, leverages its installed infrastructure and perceived reliability to gain market share, despite concerns about data privacy and control inherent in its model.

Ultimately, the tech race is not a simple linear competition but a complex interplay of strengths and weaknesses across multiple domains. A scenario where the US leads in technological blueprints while China dominates in global installations and application is plausible, with significant geopolitical and economic ramifications. China's sheer volume of engineering graduates and its directed investment in key technologies, combined with its focus on securing global markets in the Global South, positions it to potentially outpace the US in adoption and installation, even if the US retains a lead in fundamental research. The development of AI models, for instance, sees Chinese companies releasing leading open-source models, which, while being developed with older or domestically produced chips, are rapidly gaining traction due to accessibility and lower deployment costs, presenting a challenge to the US's proprietary model.

Action Items

  • Audit semiconductor supply chain: Identify 3-5 choke points (e.g., lithography, etching, foundries) and assess US dependency.
  • Develop rare earth supply strategy: Collaborate with 3-5 allied nations to secure critical mineral sources and mitigate China's chokehold.
  • Measure AI model diffusion: Track adoption rates of open-source Chinese AI models versus proprietary US models across 5-10 industries.
  • Evaluate energy infrastructure: Analyze US data center power constraints and identify 2-3 alternative regions for deployment.
  • Track semiconductor R&D investment: Compare US and China's directed research funding in 3-5 key technology areas over a 2-year period.

Related Episodes

Key Quotes

"Tech isn't just at the center it's really the switchboard because whoever is going to route the data the standards the compute in the future is really going to impact every domain from military might to economic influence to how you reach out with your message and I think it's not overplayed but I think what's underplayed is the geopolitical implications of that."

Mark Kennedy argues that technology is the central organizing principle of the US-China rivalry, acting as a "switchboard" that will determine future influence across various domains. Kennedy emphasizes that the geopolitical consequences of this technological dominance are often underestimated.

"The US needs to take that seriously but we've known about this for a while and we've admired the problem as opposed to really taking deliberate steps there have been some more recent steps of taking ownership interests in rare earths investing but here we need our allies so Australia Canada others are vital to those sources of supply so I think we need to be even more deliberate than we are and take the risk of China's chokehold on this very seriously."

Mark Kennedy highlights the critical importance of rare earth minerals and criticizes the US for a lack of proactive measures to secure supply chains. Kennedy stresses the necessity of allied cooperation and more deliberate actions to mitigate China's potential leverage over these vital resources.

"The actions that the minerals that they will allow us will help but it's something we're going to need to do because these are very volatile cyclical commodity markets and China with their dominance has the ability to basically bring the price down squeeze out competitors so it's unrealistic for us to have assured supplies of some of the most vital minerals if we're not willing to have some kind of an offtake agreement where we're guaranteeing a level price that they can at least sustain their production."

Mark Kennedy explains that government actions regarding mineral sourcing can be helpful but are insufficient on their own due to market volatility. Kennedy suggests that securing assured supplies of vital minerals requires offtake agreements that guarantee stable prices for producers.

"The most effective is that they are sustained deliberate stay on course target their efforts you know when you look at the research that they're investing into these technologies and compared to the us the us is still somewhat ahead on total research but china is all directed at a few key technologies that they think are going to determine the future and so I think having a sustained level of investment has been very helpful to them."

Mark Kennedy points out that China's success in technology is driven by its sustained, deliberate, and targeted investment strategy. Kennedy contrasts this with the US, noting that while the US may invest more overall, China focuses its resources on a few key future-determining technologies.

"The other thing they need to do is they need to be trusted because the Chinese model is controlled and not only do they come in with control it's not interoperable and it's not easily changeable you're kind of locked in but they also have the china cyber laws that would require any chinese company to give the government any data that it asked for so those types of things reduce trust."

Mark Kennedy argues that a significant hurdle for China in the tech race is the lack of trust in its technology models. Kennedy explains that China's controlled, non-interoperable systems and cyber laws requiring data access reduce trust among potential users.

"So the word supply chain is not all that representative of what the reality of the industry is it's the most complicated set of technologies that crisscross the globe to get put into a final product there are these key technologies that are part of that so the first one that is fairly commonly talked about is advanced lithography this is the tool that eventually prints the picture of the semiconductor layout onto silicon wafer and that's being done now at levels that's really hard for the human brain to comprehend two nanometers right which is way smaller than a single strand of hair."

Paul Triolo clarifies that the semiconductor industry involves complex, interlocking global supply chains rather than a single linear one. Triolo highlights advanced lithography, the process of printing semiconductor layouts onto silicon wafers at incredibly small scales, as a key technological component.

Resources

External Resources

Books

  • "The Cold War" - Mentioned in comparison to the US-China tech race.

Articles & Papers

  • "The US-China Tech Race" (Goldman Sachs Exchanges) - Discussed as the primary topic of the episode.

People

  • Mark Kennedy - Founding director of the Wahba Initiative for Strategic Competition at NYU's Development Research Institute.
  • Paul Triolo - Partner at DGA-Albright Stonebridge Group.
  • Allison Nathan - Host of Goldman Sachs Exchanges.

Organizations & Institutions

  • Goldman Sachs - Host of the "Exchanges" podcast and provider of research.
  • Wahba Initiative for Strategic Competition - Affiliation of Mark Kennedy.
  • NYU's Development Research Institute - Affiliation of Mark Kennedy.
  • DGA-Albright Stonebridge Group - Affiliation of Paul Triolo.
  • US (United States) - One of the two major economies competing in the tech race.
  • China - One of the two major economies competing in the tech race.
  • Soviet Union - Mentioned in comparison to the US-China tech race.
  • Huawei - Chinese telecommunications company mentioned in relation to global installations.
  • Intel - US semiconductor company mentioned in relation to domestic foundry capabilities.
  • TSMC (Taiwan Semiconductor Manufacturing Company) - Mentioned for its role in semiconductor manufacturing and business model.
  • Lam - US toolmaker mentioned in the semiconductor manufacturing process.
  • Applied Materials - US toolmaker mentioned in the semiconductor manufacturing process.
  • ASML - Dutch company mentioned for developing advanced lithography tools.
  • Nvidia - Company mentioned for its GPUs used in AI model development.
  • Meta - Company mentioned for its leadership in open-source AI models.
  • Mistral - French company mentioned for its leadership in open-source AI models.
  • OpenAI - Company mentioned for developing proprietary AI models.
  • Anthropic - Company mentioned for developing proprietary AI models.
  • Alibaba - Chinese company mentioned for developing open-source AI models and having cloud infrastructure.
  • Tencent - Chinese company mentioned for developing open-source AI models and having cloud infrastructure.
  • Baidu - Chinese company mentioned for developing open-source AI models and having cloud infrastructure.
  • Moonshot AI - Chinese company mentioned for developing open-source AI models.
  • Jupit AI - Chinese company mentioned for developing open-source AI models.
  • Deepseek AI - Chinese company mentioned for developing open-source AI models and receiving government support.
  • Australia - Allied nation vital for rare earth mineral supply.
  • Canada - Allied nation vital for rare earth mineral supply.

Websites & Online Resources

  • gs.com/research/hedge.html - URL for disclosures applicable to research.
  • megaphone.fm/adchoices - URL for ad choices.

Other Resources

  • Tech Race - Central theme of the episode, compared to the Cold War.
  • Semiconductors - Key technology area where the US is leading.
  • AI Frameworks - Key technology area where the US is leading.
  • Cloud Infrastructure - Key technology area where the US is leading.
  • Quantum Computing - Key technology area where the US is leading.
  • Global Talent - Key technology area where the US is leading.
  • Quantum Communications - Key technology area where China is leading.
  • Hypersonics - Key technology area where China is leading.
  • Batteries - Key technology area where China is leading.
  • Robotics - Key technology area where China is applying and leading in manufacturing.
  • Dual Circulation Strategy - Chinese strategy focused on achieving independence.
  • Export Controls - US policy implemented to impact China's technological advancement.
  • Rare Earth Minerals - Critical resource with Chinese dominance.
  • Research Funding for Universities - Area where the US is seen as flat or reducing.
  • Digital Plumbing - Concept referring to the infrastructure that routes data and standards.
  • Geopolitical Implications - Consequences of the tech race beyond economics.
  • Economic Influence - Impact of technology leadership on global economies.
  • Military Might - Impact of technology leadership on military capabilities.
  • Dual Circulation - Chinese strategy mentioned in relation to achieving independence.
  • Western Chips - Chips manufactured outside of China.
  • Energy Discount - Incentive offered by China for training models without Western chips.
  • Offtake Agreement - Agreement to guarantee a price for mineral production.
  • Foundry - Facility for manufacturing semiconductors.
  • Silicon Shield - Term referring to Taiwan's semiconductor industry's strategic importance.
  • Stem Education Programs - China's focus on science, technology, engineering, and mathematics.
  • US Export Controls - Policies restricting the sale of advanced GPUs to China.
  • GPUs (Graphics Processing Units) - Units of compute for developing AI models.
  • Open Source Models - AI models that are publicly available.
  • Open Weight Models - AI models with accessible weights.
  • Proprietary Models - AI models that are not publicly available.
  • Data Centers - Facilities for housing computing infrastructure.
  • Rare Earths - Mentioned as less salient for AI data centers but important for other industries.
  • Magnets - Application of rare earths in the semiconductor industry.
  • Energy Supply - Critical constraint for data center buildout in the US.
  • Grid - Power distribution network.
  • Moore's Law - Observation that the number of transistors on a microchip doubles approximately every two years.
  • Advanced Lithography - Key technology for printing semiconductor layouts.
  • Extreme Ultraviolet (EUV) Lithography - Most advanced form of lithography.
  • Etch - Stage in semiconductor manufacturing after lithography.
  • Wafer Starts - Beginning of the semiconductor manufacturing process.
  • Feature Sizes - Dimensions of components on a semiconductor.
  • Systems Integration - Combining complex systems for a specific function.
  • Photoresists - Materials used in lithography.
  • Serviceability - The ability to maintain and repair complex equipment.
  • Spare Parts - Components needed for equipment repair.
  • Software Updates - Updates for the operating systems of complex machinery.
  • Uptime - The period during which a system is operational.
  • Defects - Imperfections in manufactured products.
  • Commercial Enterprises - Businesses involved in trade and commerce.
  • Capital Markets - Markets for the trading of financial securities.
  • Patient Capital - Investment capital that is not expected to be repaid quickly.

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