When Donald Trump visits the Middle East this week, he will bump into some familiar people. Elon Musk, Mark Zuckerberg, Larry Fink and Sam Altman will also be in Riyadh. I doubt they will spend much time talking about Gaza, or Iran. They are all there for the same reason: to talk about AI.
The stock markets have currently put a high price on these tech companies. But AI is also commanding a high price from America’s foreign and security policy community: it will change the nature of warfare more profoundly than any other innovation we have experienced in our lifetimes. Ronald Reagan’s infamous Strategy Defence Initiative, also known as Star Wars, failed because the old technology could not deliver the precision that was needed. But AI could make it a reality and America’s concern is that China might get there first.
But America also worries that they are leading the charge with AI-powered drones. We think of drones as modern, but those used in the Russia-Ukraine war still need an operator. Imagine, then, if one side had AI-powered drones at their disposal? The West and Nato may be comfortable in their current — swiftly dating — military capabilities. But AI warfare is a completely new game.
And China is already forging ahead in the two areas that will prove critical. The first is the supply of energy — which is vital to power large AI data centres. The West should be concerned by the sheer scale of the expansion of China’s energy capacity. China has a renewable capacity target of 2,461 gigawatts by 2030. The corresponding numbers for the EU and US are respectively 1,100 and 500 gigawatts. For the Chinese, the heavy lifting will come from renewable sources, such as the world’s largest hydropower plant in Tibet, which will have an energy capacity roughly the size of Germany’s capacity today. Just from one single dam. This dam is not even included in China’s target number.
AI is furiously energy-hungry. As the car industry has only recently found out, the electric car is not just an evolution — it is a different product. The same applies to anything reliant on AI. Germany’s Rheinmetall is a formidable producer of ammunition and tanks. They make the best tanks in the world. But they are old-school — the heavy-metal version of defence manufacturing. You don’t want to be in one of them when being attacked by a swarm of AI-powered drones.
And so, as China marches ahead, Europe’s absurd data protection regulations and AI regulation effectively criminalise the 21st century’s most important evolving business sector. The Financial Times reported that British soldiers were prevented from using signal jamming on the grounds that it violated GDPR. Europeans have, in general, no idea what damage they are inflicting upon themselves with their absurd data protection obsession. And no clue what it does to their security. In the gilded foreign policy salons of Europe’s capitals, you will not hear much about AI-drones, or satellite-based AI-missiles systems. It is as though AI has yet to be invented in the Western foreign policy universe.
China, meanwhile, has more energy than we do, puts serious money into AI, and is not regulating itself to death. Take 5G. While we Europeans struggle with it, the Chinese are already developing 6G — the technology which is needed to handle the communications for next generation manufacturing.
This is the second critical area in which China is excelling: high-tech manufacturing. In the US and the UK, the prevailing view is that sophisticated countries should move into services and leave the shop-floor economy to upstarts like China. This is a story we have been telling ourselves for too long. And it is one that economists, in particular, don’t understand. They think it is more efficient to let China do all the manufacturing, for the US to specialise in high tech and finance, and to let Europe be a museum. They are simultaneously oblivious to those voters who want real jobs, to the nature of 21st-century manufacturing, and to security concerns.
The irony here is that the US understands the AI-service economy like no one else. And it still just about leads the world in research. But China has been able to catch up because all the new technology is open-source. As an anonymous employee at Google candidly admitted: “We have no moat, and neither does OpenAI.” Nor does the US. This is not a world of secret algorithms, or of industrial patents. The costs of entry are low — all you need is a bunch of desktop computers with a good graphics card. Anyone can join in. In the old world, the technology leadership meant that the US was years ahead of the competition. No more.
But the threat from China is more sophisticated than just copying our homework. They are better at producing and deploying at scale. Tim Cook, the CEO of Apple, said years ago that his company picked China for its manufacturing not because it was cheap, but because they were good at it. Similarly, Elon Musk built his main European car plant in Germany because they know a thing or two about manufacturing. But there are also downsides — which he has recently discovered — but he still respects the skills. And while Germany’s mid-tech manufacturing economic model is no longer working, there are still skills in Germany and other European countries that may be tapped for a US keen on reinventing manufacturing.
“The threat from China is more sophisticated than just copying our homework.”
While the US is keen for manufacturing to return to its shores, we must be clear that this doesn’t mean the reanimation of those old blue-collar jobs that were lost in the Rust Belt. This industry will be run by robots, not men, and serviced by robots. This isn’t about jobs. This is about capability.
For the US to acquire these capabilities, it needs allies. The Biden administration did manage to lure Europeans into relocating to the US through the Inflation Reduction Act. And Trump is trying to do the same through his much cruder policy of tariffs. The means are different, but the goal is ultimately the same — to get European companies to invest in the US.
I doubt, though, that Trump’s tariffs will turn the US into an Industry 4.0 manufacturing powerhouse, capable of competing with China. It has taken Beijing 30 years to get from a position of a pre-industrial economy to where they are now. Energy and manufacturing are what matters in this 21st-century arms race. China is streets ahead on both. The only chance the US has in this race is to build a clever alliance. The Riyadh meetings are useful. I still have not heard a plausible plan that tells us where the manufacturing know-how will come from.
