AI and the US-China race for supremacy

By Andreas Charalambous and Omiros Pissarides

In recent years, advances in machine learning algorithms, combined with an unprecedented increase in the volume of data and the underlying strength of computing power, have enabled rapid progress in the application of artificial intelligence (AI). The pandemic itself created a particularly fertile ground for the evolution of local and global network platforms due to the necessary imposition of social distancing and remote work.

The leaps in AI research, development and commercialisation are particularly strong in the US and China. Other regions, most notably the EU and Canada, are also following step, but they are still not on par with the world’s two biggest economies, which already possess significant first mover advantages and all the resulting synergies. At a practical level, therefore, the vast prospects, as well as the associated risks, of AI will depend, to a great extent, on the developments in these two countries.

When considering the future of AI, the following conclusions may be drawn:

First, although opposing views are often expressed, AI is essential and the pace of its penetration into our daily lives is virtually impossible to stop. Users of network platforms for all sorts of information, entertainment and driving/navigation, among other, purposes are growing exponentially, and these platforms have no option but to rely on AI to deliver services at the required scale. On Facebook, for example, the sheer number of billions of users and their respective visits far exceed the monitoring capabilities of human moderators. It must be pointed out that, contrary to traditional economic theory, according to which an increase in the number of users of a good or service results in scarcity, the expanding scale of network platforms creates a positive impact for their users. Taking Google’s search engine as a case in point, not only is it not inherently limited within any state or geographical boundaries, but, on the contrary, due to the impact of machine learning, it also continues to improve alongside the degree of use.

Second, as AI becomes increasingly critical for the operation of network platforms, it evolves, most often in a gradual and discreet manner, into an important agent of credibility, as well as a decision influencer at both the national and international levels.

Third, the degree of diffusion and the reliance we place on AI far exceeds the existing framework for its coherent management, operation and monitoring on a global scale. Indeed, humanity at large, governments and international organisations have not yet had the required time to develop the legal, regulatory, ethical and philosophical infrastructure that would be required to effectively manage this new technology with its seemingly endless potential.

Fourth, given the standing disagreements in perceptions between the US and China, the two behemoths are pursuing diverse approaches. If one of the two countries takes the lead, the results will be different on key issues such as acceptable content, approved usage and user restrictions, etc. If neither country prevails, the risk of two separate approaches, which would limit the potential advantages of global-scale AI and would contribute to further polarisation, is visible.

Leading University of Oxford Professor Nick Bostrom considers AI to be more dangerous than climate change. While it is not immediately evident whether he is right, investors seem to believe in AI. In 2023, the MSCI All-Country World Index indicates that the total $3.4 trillion increase in the capitalisation of the 3,000 mid- and large-cap companies which it tracks globally, virtually originated from the ‘Magnificent Seven’ IT companies (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla). The question is which, ultimately, of the world’s two largest economies will determine the way forward and set the course for the future of AI.

Andreas Charalambous and Omiros Pissarides are economists.