Commentators once warned that the cloud – or even the internet itself – could face ‘Balkanisation’, a term coined for the brutal dismantling of former Yugoslavia into smaller, fragmented countries.
In this vision of the future, governments would prioritise their national interest over the free flow of data. Perhaps the internet would become a ‘splinternet’, with differing experiences for users based on their location. This would not only mean a ‘Great Firewall’ blocking Google’s services in China, but a Russian internet, a European internet, a US internet, an Indian internet and many more forking paths of what was once a US-led, standardised, global web.
Artificial intelligence risks following this path, as countries race to introduce their own domestic capabilities. At the Paris AI Summit yesterday, the European Commission’s president, Ursula von der Leyen, announced $200bn (£161bn) for European AI ‘gigafactories’. France announced a €109bn (£91bn) domestic AI infrastructure investment. China, once the world’s factory for outsourced production, is now an economic powerhouse in its own right, competitive in AI, 5G, R&D, electric vehicles and frontier tech such as quantum computing.
Meanwhile, OpenAI’s big pitch for the US is an ‘America-first’ form of AI that underscores national interest and national security. This is now policy, as laid out on the White House’s official page for AI: Artificial Intelligence for the American People.
In the UK, Prime Minister Keir Starmer said that Britain’s independence means the country can go its own way on AI, which will neither follow Washington’s deregulatory drive, nor the EU’s tougher stance, instead opting for a yet-to-be determined third way.
A significant shift in global tech policy seems to be underway. Governments are finally catching up to something that China has been honest about for decades: it matters where computing power is located, it matters where data centres are hosted, it makes sense to put a tight regulatory leash on powerful foreign companies and it’s important to boost domestically owned R&D.
The reality, though, is that not all countries will become AI leaders, no matter their ambitions. Not every country will have the resources, nous, or cash and people power to compete with the two world superpowers: the incumbent US and the challenger, China.
How trade wars galvanised China
Although the returning president provided ample warning that he would do so before he settled into the White House afresh, much of the world responded with shock to Donald Trump’s aggressive tariffs aimed at both historical allies and rivals.
China was more prepared than most, having previously faced increases to its tariffs in 2018, during the US president’s first term. This triggered a trade war that was continued by Biden and is being given new life under Trump once again.
In response to these tariffs, China redoubled its efforts to boost its domestic technology industry. Six years later and, counter to the aims of that trade war, the country is in an even stronger position.
Domestic companies in China have had to think outside the box in order to compete. Now, they have launched a wave of competitive generative AI models in spite of tough export controls on AI chips. Deepseek, with its promise of much higher energy efficiency for generative AI at vastly cheaper costs, caused US tech stocks to tumble. Chinese firms, such as Alibaba and Tencent, are also closing the gap on US providers.
China’s flourishing domestic tech sector
China’s domestic technology capabilities did not materialise out of the blue. The country has long recognised the need to boost home-grown capacity. A decade ago, China was the largest consumer of semiconductors in the world and policymakers understood that its reliance on foreign businesses for semiconductors was a major vulnerability.
Exposure to risk often sparks corrective action from China’s government. In 2021, the collapse of Evergrande, a real-estate giant, led to China prioritising economic security in its 14th Five-Year Plan, which emphasised building technological self-reliance, developing green tech and improving its advanced manufacturing capabilities.
Now, China, by the US’s own admission, surpasses the latter country in science, engineering and technology talent. It has, for nearly two decades, been the main driver for the world’s economic growth – accounting for 35% of nominal GDP growth, compared with 27% from the US. Two of the world’s most powerful quantum computers now reside in China. It is the biggest exporter of electric vehicles and has the largest deposits of rare earth minerals on the planet – essential for electronics production – with a near-monopoly on mining many heavy rare earths.
And home-grown Chinese talent, such as the artificial intelligence researchers behind Deepseek, happily skipped potentially lucrative careers in Silicon Valley to work in their homeland.
Trump’s anti-China rhetoric: a concern for business
That’s not to say China’s economy is not facing challenges. An inflated real-estate sector and the Covid-19 pandemic have caused some damage. In late 2024, the country missed its 5% GDP growth target and business confidence has waned.
But the country’s long-term view and emphasis on economic stability has positioned it well. The sanctions and export controls have only succeeded in forcing the country’s considerable STEM talent to be more imaginative.
Contrast that emphasis on planning and stability with the first few weeks of Trump’s second presidency. The Wall Street Journal says that Trump’s “conflicting business policies sow economic uncertainty”. While the US’s businesses are excited about fossil fuels, lower taxes and deregulation, they’re also confused about waves of deportations, federal cuts and the impact of trade tariffs.
Global business groups are also worried about the impact of Trump’s international policy. Director general of the Confederation of British Industry, Rain Newton-Smith, warned that the UK must “ignore” the “growing siren calls of protectionism”, while the chair of the same group, Rupert Soames, said the UK should embrace China, no matter Trump’s opinion.
Anti-China fervour would hold the UK back
There are real concerns about data and security from Chinese-made devices – just as there should be about US-manufactured devices, which have previously been tampered with to include surveillance back doors. While it’s inadvisable for the Home Office to equip staff with computers from Temu, underplaying real technology success stories from China will have an undesirable impact.
This was previously seen when Trump first instigated the US-China trade war. Politicians in the UK grew increasingly suspicious of the reliance on Huawei to build its telecommunications networks, despite it being a world leader in 5G equipment. The UK decided that the best solution would be to rip out all of this equipment on the off-chance that they were secretly conducting surveillance.
However, there was absolutely no evidence this was happening. For a decade, GCHQ had been scrutinising Huawei’s equipment, with full cooperation of the company. Huawei also provided its full source code for the UK government to analyse. GCHQ found no evidence of bugged devices, but that didn’t stop the UK from blacklisting Huawei anyway.
As a result, the UK’s 5G rollout is lagging behind other countries. Huawei equipment is still in UK networks and timelines have shifted for its removal because the procedure is so complicated and costly.
This was a case of ideology over evidence, a tempting drum to beat for hawkish politicians, but one that is rarely beneficial for anyone.
So, while it’s logical that countries should develop their domestic computing power, policymakers must resist what will be increasingly feverish calls from the US about the dangers of Chinese tech.
Should the UK miss out on China’s world-leading edge on nanoscale materials and manufacturing, synthetic biology, nuclear energy, electric vehicles, renewables and 6G? It makes little sense to turn away from good, capable and affordable engineering with only jingoism on one’s side – provided that the technology is embraced under scrutiny and regulated adequately, just as any technology should be.
Commentators once warned that the cloud – or even the internet itself – could face ‘Balkanisation’, a term coined for the brutal dismantling of former Yugoslavia into smaller, fragmented countries.
In this vision of the future, governments would prioritise their national interest over the free flow of data. Perhaps the internet would become a ‘splinternet’, with differing experiences for users based on their location. This would not only mean a ‘Great Firewall’ blocking Google’s services in China, but a Russian internet, a European internet, a US internet, an Indian internet and many more forking paths of what was once a US-led, standardised, global web.
Artificial intelligence risks following this path, as countries race to introduce their own domestic capabilities. At the Paris AI Summit yesterday, the European Commission’s president, Ursula von der Leyen, announced $200bn (£161bn) for European AI ‘gigafactories’. France announced a €109bn (£91bn) domestic AI infrastructure investment. China, once the world’s factory for outsourced production, is now an economic powerhouse in its own right, competitive in AI, 5G, R&D, electric vehicles and frontier tech such as quantum computing.
