AI Geopolitics: The Fight for Tech Dominance

There’s nothing like a geopolitical sibling rivalry to kick off the holiday season. Who gets what, who’s left out, and who’s going to win on the global stage? Earlier this week, the United States imposed additional export restrictions on certain high-performance chips (also known as semiconductors), aiming to limit the development of AI for domestic, government, and military use. Not to be outdone, China responded with export restrictions of its own—this time on two rare earth elements used to produce those very semiconductors: germanium and gallium. They sound more like ancient Roman cities than critical minerals, don’t they?

If you’re not that familiar with semiconductors, let’s take a brief dive into the topic to understand one of the most crucial components powering AI at every level.

Semiconductors: The Technological Heart of the Modern World

Semiconductors are the chips inside everything from our phones and refrigerators to data centers and the most advanced systems driving cutting-edge AI.

Put simply, semiconductors make the world we live in possible—and digital. That cat meme you made on TikTok? A semiconductor did that. Directions to the restaurant? Yep, a semiconductor was there too. Even reading this column? Brought to you by the magic of semiconductors. Thinking of getting a tattoo? Might want to consider a chip.

It’s also worth mentioning that not all semiconductors are created equal. Some are less advanced, others incredibly powerful. Some store data, others process it. Today, we’re talking about the most advanced chips—the ones used in the most powerful AI systems. We won’t go deep into variations and types, but it’s important you get a high-level view of the chips transforming how we live.

China vs. the United States: The Battle for the Future of Technology

While the U.S. and China haven’t started hurling rare earths and semiconductors across the dinner table, they are very much sticking their tongues out and calling each other names between courses. If this escalates into an open fight, companies and countries could find themselves with food on their faces—and no chips to power their AI strategies.

Here’s the reality: if China and the United States enter a full-blown tech conflict and start limiting each other tit-for-tat, access to computing could become significantly harder—and far more expensive. (If you remember, I wrote a column recently about the nuclear energy demands of some of these models.) So yes, we can hit hard limits on AI infrastructure, and this time, it’s the chips that are at risk.

When it comes to rare earths, no country even comes close to China’s grip on access and refinement of the key materials needed to make semiconductors—the kind that power modern life. China controls roughly 70% of global rare earth deposits and nearly 90% of the world’s refining capacity for those materials. That’s as close as it gets to a monopoly. While China doesn’t currently lead in the production of advanced semiconductors, it does have the power to severely limit the production capabilities of nearly every major chip-producing nation, including Taiwan, South Korea, and the United States.

What Should Businesses and Governments Do in This Tech Race?

One of the few ways countries could reduce their dependence on China’s control of these materials is through breakthroughs in material science, powered by AI and quantum computing. This combination could lead to new semiconductor designs that don’t require the same rare earths—or even help discover entirely new materials to replace the hard-to-get ones. I’ll be going deeper into quantum tech in 2025, so keep an eye out.

Just as China holds the monopoly on rare earths, the United States holds its own monopoly on the design of the most advanced semiconductors. China is racing to catch up, but it’s still years behind the technology required to develop the most cutting-edge chips. The U.S. doesn’t want to give up its lead in this tech arms race, which is why it’s placing restrictions on the export of its most powerful chips—to maintain the current balance of power.

So that brings us to the natural question: who’s going to win—and what should business and government leaders do about it? Here are three quick takeaways to consider:

• It’s never been more critical for companies and governments to strengthen their technological supply chains to guarantee access to the chips that would be hardest to source in a potential trade war.

• Rising tensions between the U.S. and China could have major effects—both positive and negative—on Latin American economies looking to build strong national digital strategies. You should be asking how this affects your sector.

• Until there are true breakthroughs in material science and chip design, neither side can win—or lose—completely. Each controls one side of the same coin.

Just like in any sibling rivalry, it looks like China and the United States will need to learn to play nice—at least until one (or both) find a way to walk away on their own terms. Until that happens, keep your supply chains agile, your semiconductors stocked, and don’t get caught off guard in 2025.

Originally published in Spanish for Fast Company Mexico:
https://fastcompany.mx/2024/12/04/semiconductores-geopolitica-ia-control-tecnologico/