china-us-trade-war-croppedThe escalating trade war between the U.S. and China was in the headlines last week, as negotiations stalled and the U.S. hiked tariffs on $200 billion of Chinese goods to 25% from 10%.

The overall economic impact of the ongoing battle between the U.S. and China is unclear, although it seems likely that global markets will be hit harder than markets in the U.S., where $200 billion represents only a small fraction of the $20.5 trillion domestic economy.

Gregory Daco, Chief U.S. Economist at research firm Oxford Economics, estimates “the move to hike tariffs to 25% from 10% on half of U.S. imports from China — with China raising 8% tariffs on $60 billion of U.S. imports to 25% — would reduce U.S. gross domestic product by 0.3% in 2020, while curbing China’s output by 0.8%,” writes William Watts in MarketWatch. Some observers predict the trade war might eliminate 900,000 jobs in the U.S., mostly in manufacturing and agriculture.

For technology leaders, the harder question is how the trade war will affect the development and deployment of the newest generation of AI-based tools and solutions for the enterprise. AI is now baked into almost every new technology offering, and that’s where the battle between the U.S. and China is likely to hurt American business interests.

China has unequivocally expressed its desire to become the world’s dominant force in AI development, and it’s pouring billions into AI research. It’s also critical to remember that China has virtually unlimited access to the data generated by its citizens, which effectively gives China the largest dataset in the world to fuel its AI and machine learning projects.

I’m not going to debate the virtues of free market capitalism versus state-run capitalism, but it’s absolutely essential to understand that China’s stated quest for global leadership in the technology space lies at the center of the trade war. 

As technology becomes increasingly reliant on AI, the odds tilt more in China’s favor. That’s why technology leaders need to pay attention. 

Today, we depend on companies such as Amazon, Google, Lenovo, Microsoft, Nutanix, Salesforce, SAP and Zoom to provide essential enterprise technology services. If China’s 2025 strategy is successful, companies like Alibaba, Tencent and Baidu will become the pre-eminent players in the IT and robotics space. 

There’s nothing wrong with global competition. But it’s imperative that we understand the stakes and the risks involved. As technology leaders, we need to be involved in the conversation, and we need to make our voices heard. 

As mentioned in last week’s newsletter, I recommend reading Amy Webb’s important new book, The Big Nine: How the Tech Titans and Their Thinking Machines Could Warp Humanity. Six of the nine firms she writes about are headquartered in the U.S. and three are based in China. From my perspective, the writing is on the wall.