The Innovation Winter Is Coming: How the U.S.-China Trade War Endangers the World

Abstract

Massive amounts of data, increased computing power and advances in technology have created the recent AI Spring. While some feel the continuation of this period of AI innovation is inevitable, its future is in jeopardy due to the recent trade war between the U.S. and China. Although the U.S. spearheaded the globalization movement after WWII, it has shifted to a policy of protectionism and rejectionism. China, conversely, has begun to fill the gap that the U.S. has left in its wake with its withdrawal from multilateral trade agreements, rejection of the World Trade Organization, and retreat from free trade principles. The future of AI, especially the Internet of Things (IoT), rests on the availability of a massive communication infrastructure that 5G can provide. Although the U.S. was the undisputed leader in 4G technology, China is the primary supplier of 5G networking equipment and, through its Belts and Roads Initiative, seeks to spread its 5G technology throughout the world. Additionally, China has created a long-term strategic plan for AI providing billions for tech start-ups (locally and abroad), promoting collaboration and research, investing in educational programs, and designing technical standards as well as supporting the needed 5G infrastructure. Conversely, the U.S. government relies on private industry to move this field forward. The U.S.-instigated trade war with China appears to be an attempt to thwart China’s progress. This trade war not only threatens the global economy and endangers democracy, it will likely cause an innovation winter – hindering future developments in AI. There is a very real danger that should the U.S. and China continue with this decoupling, the result could be a bifurcated internet, the development of technology on two divergent tracks, and a 5G infrastructure with non-interchangeable components requiring the rest of the world to choose a side.

Keywords: innovation winter, U.S.-China trade war, globalization, protectionism, artificial intelligence, internet of things, 5G technology, Belts and Roads Initiative

JEL Classification: K33