US-China battle for tech dominance heats up

Amidst a larger trade war, the race to establish dominance in the AI industry is in full flow, the winner likely to set the rules of the game. A recent meeting in Beijing is evidence of its importance.

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US-China battle for tech dominance heats up

Marco Mossad

last update on 18 Mar 2025

On the western side of Tiananmen Square in Beijing stands the Great Hall of the People, built in 1959. Renowned for its grand design, it hosts key government meetings, including the National Congress of the Chinese Communist Party.

The main hall can accommodate thousands of people, with other smaller halls and official reception rooms often used for diplomatic events and high-level political meetings. It is an iconic setting and a symbol of China’s political power.

It was interesting, therefore, that Chinese President Xi Jinping recently chose the Great Hall to host leaders in the technology sector. Something similar took place in 2018, shortly after the (then new) US President Donald Trump began his first term.

The Beijing get-together follows the Paris Summit in February, where governments and tech leaders discussed AI policies and research. Core to the talks was the debate over whether—and how—to regulate the field. Trump’s team has adopted a laissez-faire attitude, but some in Europe want strict regulation.

China’s private sector

The Great Hall meeting also comes at a time when China is facing mounting economic challenges. Long rampant growth is slowing, and US restrictions are hampering Beijing’s all-important high-tech industries.

Pedro Pardo / AFP) — Delegates arrive for the opening ceremony of the Chinese People's Political Consultative Conference (CPPCC) at the Great Hall of the People in Beijing on March 4, 2025.

China’s economy continues to rely on strong exports, which are now threatened by Trump’s second-term tariffs. All the more reason, then, for Xi to foster domestic innovation and build confidence in China’s technology firms.

The Chinese government and the country’s private sector have had a somewhat tense relationship over recent years, but Xi will know that its firms' success in the tech battle with their American peers is now of strategic importance.

According to a Reuters report, China’s private sector—which competes with state-owned enterprises—contributes more than half of China’s tax revenues, over 60% of its economic output, and 70% of its technological innovation.

President Xi wants China's private sector to keep pace with technological advances made in the US, where projects like Stargate aim to establish massive data centres. This means Beijing expanding its digital infrastructure.

In attendance at the Great Hall were prominent figures such as Jack Ma, founder of Alibaba, and Liang Wenfeng, founder of DeepSeek, which recently made headlines for developing an advanced AI chatbot at a fraction of those from US companies.

China is facing mounting economic challenges. Long rampant growth is slowing and US restrictions are hampering Beijing's high-tech industries

Ren Zhengfei, founder of tech giant Huawei, spoke about achieving technological self-sufficiency, while Wang Chuanfu of BYD, the electric vehicle (EV) manufacturer, discussed the company's global expansion.

Others included Liu Yonghao of agricultural technology firm New Hope Group; Yu Renrong of Shanghai Will Semiconductor; Lei Jun of Xiaomi, which is best known for its smartphones; Wang Xingxing of UniTree Robotics; and Pony Ma of Tencent.

All eyes were on Jack Ma, re-emerging on the public stage after a 2020 speech in which he compared Chinese state-owned banks to pawn shops and criticised the government for stifling innovation through laws, saying the future relied on innovation, not regulation. Needless to say, the speech did not go down well in Beijing.

His invitation to attend the meeting with President Xi suggests that he has served his penance. It also suggests that Beijing knows it needs to use all its resources in its competition with the US, where Trump's tariff-raising 'America First' economic strategy is in full swing.

Tech fight in a tariff war

Xi has seen it before. In 2018, Trump levied tariffs on Chinese imports of solar panels and washing machines, then on steel and aluminium. Beijing reciprocated, and the trade war ended up costing billions of dollars, impacting US firms and farmers. The latter needed $12bn from Washington to offset the effects.

Trump's approach to tariffs in his second term differs markedly from his first term because he is now using a 1977 law that allows him to declare a state of emergency and make immediate decisions—a power he did not utilise during his first term. Gone is his earlier gradual approach.

AFP — Peter Navarro and Trump in the Oval Office of the White House in Washington, D.C., on February 13, 2025.

Tariffs are now being placed on a wider range of consumer goods and then used as a tool to press foreign governments in other areas. It has taken seasoned observers by surprise. "No one expected him to start imposing broad tariffs from day one," said Mark Bush, a former US government trade advisor, who warns that American consumers will be hit.

Like other tariff-hit states such as Canada and Mexico, China has responded by imposing selective tariffs targeting US Republican states to put political pressure on Trump. Mexico is even considering a 'rotating retaliation' strategy, periodically changing the American products it subjects to tariffs, to increase the uncertainty for US companies.

The tariffs imposed by Trump have accelerated the shift of companies away from China. Firms such as Apple, HP, and Dell have chosen to relocate their manufacturing centres to China's near neighbours, such as Cambodia and Vietnam. The latter, in particular, has benefited, with $260bn of investments since 2016, according to Fortune magazine.

It is not just Trump. Before his second tenure, the Biden administration put restrictions on supply chains linked to China under the Inflation Reduction Act to boost domestic manufacturing and discourage China-sourced components in the clean energy and automotive industries.

If the objective is to import less Chinese goods, all these measures seem to be working. According to the US Census Bureau, 21.6% of US imports came from China in 2017, when Trump's first term began, but as of November 2024, that had declined to 13.5%.

The US-China trade war is unlikely to be won or lost on tariffs but on technology, which is why Trump unveiled the $500bn Project Stargate

Infrastructure development

The US-China trade war is unlikely to be won or lost on tariffs but on technology, which is why Trump unveiled the $500bn Project Stargate within days of his second term beginning. This is designed to cement US supremacy in AI by developing the infrastructure needed to compete.

Yet, as DeepSeek demonstrates, Chinese firms are making waves by spending a considerable amount less. Despite being cheap to develop, its R-1 deep-inference model can still outperform some American AI models in certain tasks.

ByteDance, which owns TikTok, also said it was testing an advanced deep-inference model, while Alibaba launched its own model, QWQ-Max, accompanied by a $53bn three-year investment commitment to bolster its cloud computing and AI infrastructure. Alibaba also said it intends to make QWQ-Max open-source.

China is no underdog in the tech battle. Its universities produce around 3.5 million students annually in science, technology, engineering, and mathematics (STEM), more than four times as many as the United States.

It has also launched its own Starlink-like AI infrastructure investment push with its 'Green Data Centres' initiative. This will see the construction of 15 huge data centres in Inner Mongolia and Gansu, powered by state-backed wind energy and coal.

ADEK BERRY / AFP — A long March-2F carrier rocket carrying the Shenzhou-19 spacecraft and crew of three astronauts lifts off from the Jiuquan Satellite Launch Center, in the Gobi desert, northwest China, on October 30, 2024.

At the Paris Summit, ministers and tech leaders discussed international collaboration in AI development, exploring potential partnerships between countries and corporations. Although Beijing did not send a high-level delegation, firms like Alibaba, Huawei, and ByteDance were there.

French President Emmanuel Macron said EU states would rethink their digital laws to boost innovation and attract investment, while European Commission Vice-President for Technological Sovereignty, Security and Democracy Henna Virkkunen said the bloc was streamlining its digital regulations to be more business-friendly.

Yet there were signs of disunity. A joint declaration on developing inclusive and sustainable AI was agreed by more than 60 other nations, including France, China, India, Japan, Australia, and Canada, but not signed by the US or the UK.

In Paris, US Vice President JD Vance warned allies against cooperating with "authoritarian" regimes—a reference to China. "Some of us in this room have learned from experience partnering with them means chaining your nation to an authoritarian master that seeks to infiltrate, dig in and seize your information infrastructure," he said.

Beijing wants to take an independent approach to AI development, whereas Washington wants to forge an alliance of nations aligned with Western and democratic values to secure technological superiority before China can catch up. The stakes are high. Whoever achieves AI supremacy will likely dictate the rules of the game.

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