USA vs. China: The arms race that is changing the global economy

The struggle between the USA and China for technological hegemony has long ceased to be just a competition between high-tech companies, but rather a national arms race that is driving a massive investment boom and bringing with it inflation challenges and new investment opportunities.

If until recently it was customary to view artificial intelligence as a tool for improving productivity and social efficiency, recent developments clarify that it is a strategic asset of the highest order. In the eyes of the powers, and especially Beijing, artificial intelligence is critical infrastructure for national security, military superiority, and global influence. The result is a direct bloc-based struggle between the USA and China for control over all components of the value chain: from chip design and manufacturing, through computing power and models, to data and global economic standards.

In response to the export restrictions set by the US administration, China is operating in the format of a national security program. It is uniting laboratories, researchers, and local companies to develop chips, advanced packaging, memory, and software, leading a policy that pressures local companies to use Chinese equipment, even when its performance is inferior to Western alternatives. And through international organizations like WAICO, China offers open and cheap models to countries in Asia, Africa, the Middle East, and Latin America, and even achieves high adoption rates among American companies.

The understanding that control over artificial intelligence requires independent physical infrastructure is leading to the relocation of production centers (Re-Shoring) and five parallel waves of investment: the establishment of server farms with massive capacity, massive upgrading and expansion of power grids and the construction of power plants, the return of chip and critical technology factories within the country's borders, automation and upgrading of existing factories, and the strengthening of ports, roads, and bridges to support supply chains.

The scope of physical construction required in the USA alone is estimated at trillions of dollars, a scale not seen since the deployment of the railroad network in the 19th century.

Although in the long term artificial intelligence is expected to increase productivity, in the coming years the geopolitical split and the enormous investments in infrastructure will keep price levels high. This aspect is expected to force central banks in the West to maintain a restrictive monetary policy and a higher interest rate environment than what we have been accustomed to in recent decades.

In the current race, smart models grab the headlines, but it is the physical infrastructure that generates the return. Instead of betting on the company that will develop the leading software model, the promising strategy focuses on the "suppliers of means" — those who provide the shovels and pickaxes of the artificial intelligence revolution.