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What country will win the AI race?
Art: Courtesy of Midjourney
Savvy startups, tech giants, and research labs woo the best engineers and financing to fuel technological breakthroughs. But the battle for AI supremacy is much bigger than the industry itself – it's a global contest, pitting nations against each other.
Many of the world’s most powerful governments are flexing their muscles to build a competitive edge by cultivating robust domestic AI sectors. Don’t be fooled into thinking that recent efforts to legislatively rein in AI models and the companies behind them are signs of governments hitting the brakes – it’s quite the opposite.
Why, you ask? Because it’s a boon for any country to attract top talent and spur economic activity, says Valerie Wirtschafter, a fellow at the Brookings Institution’s Artificial Intelligence and Emerging Technology Initiative. Hosting top AI companies also “inevitably catapults host countries to the forefront of conversations around standards and governance, both domestically and internationally.”
Beyond that, a thriving AI sector can do wonders for national security. That’s true not only for military and intelligence applications or research-and-development, but also for ensuring that standards of development “do not pose an inherent risk and are developed with a certain set of values in mind,” Wirtschafter says.
Since Google, Microsoft, and OpenAI call America home, Washington has the ultimate power play. It can better control these tech giants and set the vibe for worldwide AI regulation.
Such control sets governments an inch closer to technological sovereignty, says Nick Reiners, a senior analyst for geotechnology at Eurasia Group: “Having these companies in your country means you’re not dependent on another country.”
Governments can boost their AI sectors in numerous ways — through subsidies, research funding, infrastructure investment, and government contracts.
“Defense spending and government R&D has always been a big stimulus for civilian and commercial research and product development,” says Scott Wallsten, president and senior fellow at the Technology Policy Institute, a Washington-based think tank. “You can be sure the DOD is working on these tools for their own purposes because they’re in an arms race with potential adversaries.”
Who’s ahead? The US and China are way out in front. “While in the US, these advances have been primarily driven by the private sector, in China they have been shaped more by government support,” says Wirtschafter. But she notes that the US CHIPS Act is a sign that America is trying to boost its strategic advantage.
Stanford University’s annual AI Index report found the US and China leading in many different ways, including private investment and newly funded AI firms. (The UK, EU, Israel, India, and Canada also rank highly in many of the report’s metrics.)
While it’s unlikely that anyone will challenge the US and China, and the US is ahead, Wirtschafter notes that China is powerful on facial recognition technology.
Could governments get possessive? Yep, this is a high-stakes game, and Washington and Beijing, among others, could increasingly opt for protectionist measures to keep powerful AI models in their grasp.
The US is already doing this with chips, the underlying technology for AI. Washington exerts strict export controls over any semiconductor-related equipment, lest it get into enemy hands – meaning China. It has also blocked corporate takeovers that could shift the balance of power with chips, including a 2018 deal involving US chipmaker Qualcomm (keeping it from a Singapore-based company’s grasp). And a new report indicates the Biden administration forced a Saudi firm to divest from a US chipmaker linked to OpenAI CEO Sam Altman.
If the US and other governments determine that protecting powerful AI models is key to their national security, they could take similarly drastic measures to keep them domestic — or at least in the hands of allies. Just last week, Bloomberg reported that the London-based AI startup Stability AI, known for its Stable Diffusion image generator, is exploring a sale amid internal turmoil. The company reportedly reached out to two startups — the Canadian company Cohere and the US-based Jasper — to gauge their interest in a sale. There’s no indication yet that regulators are worried, but the potential corporate shakeup comes as British politicians have been desperately trying to make the UK a friendly place for AI firms.
The last thing the UK wants is to get burned again – like it did with DeepMind and Arm, two promising British AI companies that were acquired by US and Japanese firms in 2014 and 2016, respectively. In a recent interview with the BBC, Ian Hogarth, who is leading the UK’s AI taskforce, spoke of the need to boost European technology companies instead of allowing them to be sold. “We've had some great tech companies and some of them got bought early, you know – Skype got bought by eBay, DeepMind got bought by Google,” Hogarth said. “I think really our ecosystem needs to rise to the next level of the challenge.”
British lawmakers passed the National Security and Investment Act in 2022, granting the government new national-security powers to intervene in the foreign acquisition of domestic companies. “The pace of change has been really significant since that period,” Wirtschafter said of the DeepMind acquisition, “and the desire to maintain a competitive national position in this space would be central to any potential sale.” The UK’s National AI Strategy, published in 2021, says that the government will “protect national security” and protect against “potentially hostile foreign investment.”
But ministers are now considering rolling back those new rules to appear more business-friendly. And that’s the central tension that all AI-hungry countries face: They need to appear AI-friendly while trying to be forceful with regulation. The battle for AI supremacy is on the line.USMCA faces its biggest test
Mexico’s protectionist energy policies have caused a spat with its closest trade partners — the US and Canada — that appears to be heading into a high-stakes arbitration process.
The dispute represents the biggest challenge yet for the US-Mexico-Canada Agreement, which tightly binds the economies of the three countries. Though no one believes the USMCA is headed for a break-up, the conflict could discourage talk of moving more supply chains to Mexico as the US seeks to reduce its reliance on China. And a likely arbitration ruling against Mexico could be highly damaging – economically and politically – for the country.
How protectionist is Mexico? Since coming to office in 2018, President Andrés Manuel López Obrador has tried to reassert national control over Mexico’s energy sector, which he sees as an important source of national wealth.
His administration has rolled out a series of policies designed to favor Pemex, the state-owned oil firm, and the Federal Electricity Commission, the state-owned electricity company – and to slowly squeeze out the competition. It has also erected new regulatory hurdles to investment by private companies in Mexico’s energy sector and given the national electricity company priority access to low-cost power generation.
Most experts agree these measures violate the anti-monopoly, equal treatment, and energy chapters of the USMCA, the trade agreement that succeeded NAFTA in 2020. They have prompted protests from powerful US and Canadian firms invested in Mexico’s energy sector, which have urged their governments to intervene on their behalf.
After months of informal talks with Mexican officials that failed to find a resolution, the US and Canada triggered the USMCA’s dispute resolution mechanism in late July. That launched a 75-day period of formal consultations that recently ended after failing to reach an agreement. Talks may continue, but the US and Canada are now entitled to request a hearing on the issue by a USMCA arbitration panel made up of members chosen by each of the three countries.
Previous USMCA arbitration proceedings have gone amicably and smoothly, without significant negative fallout (political or economic) for the countries involved. The ruling in one case – a US-Canada dispute over Canadian rules on dairy imports – even allowed both sides to declare victory.
The situation is different from Mexico’s energy policies. López Obrador regards his efforts to reshape the sector as a key part of his agenda, raising the stakes of an arbitration ruling against them. In the talks so far on the issue, his administration has tried to delay and obstruct, offering token concessions while proceeding full speed ahead with its plans. In the run-up to Mexico’s independence-day celebrations on Sept. 15, the president planned to make a fiery speech defending Mexico’s right to make its own decisions, though he then decided to bite his tongue.
A recent shakeup at the economy ministry signals the administration is not likely to waver from its hardline approach to the dispute. Deputy Trade Minister Luz Maria de la Mora, a respected technocrat responsible for implementing the USMCA and most of the country’s trade negotiations, was replaced by Alejandro Encinas Jr., an official known for his headstrong approach to negotiations and loyalty to López Obrador.
On the other side of the conflict, US President Joe Biden has been prioritizing other issues in the bilateral relationship with Mexico that resonates more with voters, such as immigration and drug trafficking, especially ahead of the Nov. 8 midterm elections. In the interest of maintaining collaboration with Mexico on those issues, he appears to have been soft-pedaling on disagreements in other areas.
But the pressure is mounting on Biden to address the complaints of US energy firms. Triggering the USMCA arbitration process would be welcomed by both Democrats and Republicans in Congress.
Biden and Canadian Prime Minister Justin Trudeau are set to visit Mexico City in December or January for the North American Leaders Summit. López Obrador has touted their visit as evidence of a solid working relationship, and a sign that an arbitration process is unlikely. But there doesn’t seem to be any other way of resolving the dispute.
An arbitration ruling against Mexico could allow the US and Canada to impose damaging tariffs on Mexican imports. López Obrador knows this but is probably counting on the process dragging out long enough so that the economic fallout is not felt by voters until he leaves office in 2024. Until then, he will be able to preserve his image as the proud Mexican president who was willing to challenge the mighty US.
How to consolidate power by creating an enemy
As things become more unstable in the world with inflation and rising food prices, and commodity prices, there is going to be more and more appetite with strong leadership.
Part of the pushback against globalization has been led by autocrats who reject things like free trade and the liberal international order. For them, globalization means losing control.
But the world today remains more interconnected than ever. So, do they want less globalization, or rather a version that fits their narrative? On GZERO World, Ian Bremmer speaks to Gideon Rachman, chief foreign affairs columnist for the Financial Times, who wrote a book about the rise of the age of the strongmen.
A modern example of the strongman appeal are resentment at minority groups and how strongman leaders exploit that. Autocrats are generally not fond of minorities, yet resentment against them is always a good pitch to fire up the base, says Rachman.
Good examples are India's Narendra Modi, China's Xi Jinping, or the European far right with Muslims. But the European strongmen have not behaved the same way with Ukrainian migrants.
"It's pointless to deny that people are more likely to feel compassion for people who maybe look a bit like them," Rachman tells Ian Bremmer.
Countries representing more than half of the world's population — including China and India — are not on the anti-Russia bandwagon.
Why? For one thing, US hypocrisy after the war in Iraq. For another, many countries "simply don't want to return to a unipolar world.
Your global guide to America’s baby formula shortage
America is the richest country in the world, so it is perplexing that parents nationwide are currently faced with shortages of a crucial food staple: baby formula.
It is nothing short of catastrophic. The share of baby formula across the country is down 40%, forcing distressed parents to drive across state lines to secure formula – only to be faced, in some cases, with more naked shelves.
How did we get here? The immediate trigger for the crisis was a recall of products made by Abbott Laboratories after four infants – two of whom died – contracted bacterial infections linked to a pathogen called Cronobacter sakazakii. Abbott has since shut down its sprawling Michigan plant while the Food and Drug Administration and Centers for Disease Control and Prevention investigate claims of unsanitary conditions. (This week, Abbott reached an agreement with the FDA to reopen the plant, but it could take two months to resume a regular supply cadence.)
So, what does it feel like to be a formula-reliant parent in America right now? In short, it’s a nightmare.
“As someone who opted not to breastfeed, formula is how I feed my daughter,” says Jennifer Lemon, 35, a New Jersey based mom. “I literally wake up in the middle of the night sometimes to check online to see if stocks have replenished to hopefully pick up one tin,” she says.
“If anyone has formula fed, they know how important it is to stick to the same brand because babies have such sensitive digestive systems … it is the difference between a calm, happy baby, and a baby in pain,” Lemon says.
Similarly, Paige Dawes, 33, who lives in New York City, says this issue “has been the bane of my life for the last three months,” adding that last week she went to seven different stores to try and find formula. “I have now figured out which day the local supermarket gets their stock in and make sure I go first thing in the morning.” Still, because of rationing, Dawes can only get two tubs at a time, which doesn’t last very long. “It’s a nightmare,” Dawes says.
The shutdown has caused shortages at a time when inflationary pressures and pandemic-related supply-chain disruptions were already leading to spotty formula supply. But this isn’t the full story. Drugs and foods are recalled all the time for various reasons, and they don’t usually result in post-apocalyptic scenes at Walmart.
Formula is big business. Part of the problem is rooted in good old corporate monopolization. Four corporate behemoths – Abbott, Gerber, Mead Johnson, and Perrigo Nutritionals – control 90% of the infant formula supply in the US, meaning there’s little resilience in the system to weather big shocks, such as a nationwide recall.
What’s more, the aftershocks aren't being felt equally. This crisis is even more acute for poor Americans who buy baby formula through the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). Recipients of the program – which includes 1.2 million infants – are only allowed to buy formula manufactured by select companies that have negotiated government contracts. Therefore, even if they find a rare baby formula tin sitting on a dusty Target shelf, they often can’t use their WIC card to purchase it.
The baby formula shortage isn’t just about corporate greed. The current calamity – which has given rise to some previously unthinkable rationing resembling Cuba’s food rationing system – can also be directly attributed to (misguided) US trade policy.
Milk melodrama. The US and Canada, whose trade relationship topped a whopping $615 billion in 2020, have long been at loggerheads over agricultural exchanges, with both trying to exploit the benefits of free trade while also trying to protect the distinct interests of their farming sectors.
Things came to a head during the Trump administration’s painstaking renegotiation of the NAFTA trade agreement with Canada and Mexico in 2018, when disagreements over dairy proved a major sticking point that threatened to derail the 24-year trade pact.
Perturbed by a Canadian policy known as “supply management ” that dates back to the 1960s – where the government has played a role in stabilizing agricultural pricing so that farmers only produce quantities reflecting expected demand – American farming lobbies had long pushed for their own protections.
As a result, the Trump administration – in a bid to win over the country’s influential farming sector – insisted on a provision in the revised trade pact making it all but impossible for Canada to export baby formula to the United States. Remarkably, it also imposed limits on the amount of baby formula Canada could produce for exports to other markets. But US-imposed trade barriers aren't just for Canada. In other instances, the US has put in place tariffs on baby formulas as high as 17.5%, an insurmountable restriction for manufacturers wanting to enter the US market.
What’s more, the Food and Drug Administration has also been accused of imposing overly stringent regulations (at best), and politically motivated decision-making (at worst) that prevents imports of European baby formula. The FDA says this is because of insufficient labeling and health concerns. But some analysts say this justification is risible because baby formula manufactured in the US often contains less-than-ideal ingredients – such as corn syrup – that are banned in the EU.
To be sure, Donald Trump is not the only one with protectionist proclivities. Joe Biden, who boasted to allies last year that “America is Back,” has also pursued protectionist trade policies in the hopes of wooing unions and the broader working class. Notably, the Biden administration infuriated Canada with its proposal to roll out financial incentives for Americans to buy US-made electric vehicles, a move Ottawa says will hurt the auto industry, one of its largest manufacturing sectors.
“The viewpoint from Canada is that Americans need to treat their friends better,” says Eurasia Group’s vice chairman Gerry Butts, who previously served as Canadian Prime Minister Justin Trudeau’s advisor. “There was a lot of misguided hope that a lot would change on the trade front with the change in administrations, but the Democrats can be just as protectionist as the Republicans,” Butts says.
But Canada clearly does it, too. As part of its “supply management” scheme, Ottawa maintains sky-high tariffs on dairy goods; US cheese exports, for instance, can be hit with a whopping 300% levy.
How should we understand this crisis in the context of an otherwise thriving, interconnected economy? “This is what happens when general agreement on trade rules starts to break down,” says Butts.
Whether it's India banning wheat exports to save domestic supplies amid a heat wave, or the US buffering its dairy sector, it is all part of the same theme: protectionism. Canada's supply management system is decades old, but it could certainly be a sign of what's to come globally: “We just don’t have general agreement on how we are going to trade with each other,” says Butts, “regardless of what trade agreements say.”