In this captivating article titled “The Geopolitics of Artificial Intelligence,” Lazard’s Geopolitical Advisory (LGA) group explores the global competition over artificial intelligence (AI) and its geopolitical and business implications. As countries vie for economic, political, and military advantages in AI, businesses involved in its development or deployment will face increasing regulatory complexity and potential bottlenecks in the AI value chain. This report provides an overview of the geopolitical dynamics influencing different countries’ approaches to AI, national policy responses, and their interaction with bottlenecks in the AI value chain. It also highlights the forthcoming implications for businesses in various sectors, such as technology, healthcare, finance, and energy. With the frontier of U.S.-China geostrategic competition shifting to AI and emerging technologies, this article sheds light on the opportunities and challenges faced by businesses in the evolving global AI ecosystem.
Executive Summary
AI, or artificial intelligence, has become a major driving force in the global competition between the United States and China. Not only is AI important for defense and military functions, but it also has significant economic implications. Other countries such as the United Kingdom, Canada, France, Singapore, India, South Korea, and Israel have emerged as prominent players in the AI field. However, developing AI capabilities and navigating geopolitical competition pose challenges for countries around the world. Governments have implemented various policies to promote, protect, and establish principles for AI development. Key building blocks for AI include computing power, talent, data, and physical infrastructure. The diverging regulatory and commercial approaches between the U.S. and China have implications for companies, including restrictions on global customer bases, corporate espionage, and opportunities in third-country markets.
Leadership in AI
U.S.-China competition
The United States and China are at the forefront of the global AI competition. AI has become strategically important for both countries, not only for defense purposes but also for political functions. The economic gains that AI can bring are driving the centrality of AI competition in the global policy agenda. However, other countries have also emerged as prominent players in the AI field.
Defense and political functions
AI is crucial for defense purposes, particularly through the development of next-generation autonomous weapons. It also plays a role in the political functions of countries, as AI-generated content and “deep fakes” significantly lower the cost of influence operations. This can have a significant impact on democratic processes and create new challenges for governments.
Economic gains
The economic potential of AI has captured the attention of countries around the world. Strong AI capabilities offer opportunities for countries to remain economically competitive and geopolitically influential. Middle powers such as the United Kingdom, Canada, France, and Israel have recognized the importance of AI and are positioning themselves to harness its economic benefits.
Prominent AI Players
United Kingdom
The United Kingdom has established itself as a prominent player in the AI field. It has invested significant resources into AI research and development, and its universities and research institutions are at the forefront of AI innovation. The UK government has also implemented policies to promote AI adoption and support the growth of AI startups.
Canada
Canada is another country that has made significant strides in AI. It has a strong academic and research community, particularly in the field of deep learning. The Canadian government has prioritized AI as a key driver of economic growth and has implemented policies to attract and retain AI talent and support AI research.
France
France has recognized the importance of AI in maintaining its economic competitiveness. The French government has invested in AI research and development and has established AI-focused institutions and initiatives. France is also working to create an AI ecosystem that fosters collaboration between startups, industry, and research institutions.
Singapore
Singapore is positioning itself as a global hub for AI and innovation. The Singapore government has implemented various AI initiatives, including the establishment of AI research institutes and the development of AI-focused infrastructure. Singapore’s strong government support for AI has attracted international companies and talent to the country.
India
India has recognized the potential of AI in driving economic growth and addressing societal challenges. The Indian government has launched several AI initiatives, including a national AI strategy and the development of AI research institutions. India’s large pool of talented engineers and data scientists gives it a competitive advantage in AI development.
South Korea
South Korea is known for its advanced technology sector, and AI is a priority for the country’s government. South Korea has set ambitious goals for AI development and has implemented policies to support AI research and development, talent development, and AI deployment in various industries.
Israel
Israel has emerged as a global leader in AI innovation. The country has a vibrant startup ecosystem and a strong culture of entrepreneurship. The Israeli government has prioritized AI as a key driver of economic growth and has established initiatives to support AI research, development, and commercialization.
Tension and Complications
Developing AI capabilities
While countries recognize the importance of developing strong AI capabilities, there is tension and competition among them. Countries view slowing down their own AI deployment as a “zero-sum” loss, without guarantees that others will follow the same approach. This makes it challenging for countries to strike a balance between developing AI and minimizing potential harms.
Geostrategic competition
The competition between the United States and China in AI has geopolitical implications. As these countries solidify their leads in AI, they are also tightening control over the inputs necessary for its development. This poses challenges for companies that operate in the AI supply chain and face diverging regulatory and commercial approaches between the two superpowers.
National and local-level responses
Most regulatory responses to AI are occurring at the national and local level. Governments around the world are grappling with the tension between developing AI capabilities and establishing guardrails to minimize potential harms. As a result, there is a diverse range of policies, both at the national and local level, aimed at promoting, protecting, and establishing principles for AI development.
Types of Government Policies
Promote Policies
Promote policies aim to foster AI development and adoption. These policies include allocating research and development funding, enacting flexible immigration policies to attract AI talent, and providing subsidies for manufacturing or other AI-related activities. By promoting AI, governments aim to stimulate economic growth and maintain competitiveness in the global AI race.
Protect Policies
Protect policies focus on safeguarding national interests and minimizing potential risks associated with AI. These policies include the imposition of export controls on key AI inputs and bans on outbound investment in specific AI applications. Protect policies aim to protect sensitive technologies and prevent their unauthorized use or transfer.
Principles Policies
Principles policies are focused on establishing ethical and safety guidelines for AI development and deployment. These policies aim to address societal concerns and prevent potential harms associated with AI. Principles policies can cover aspects such as privacy, accountability, transparency, and fairness in AI applications.
Key Building Blocks for AI
Computing power
Computing power is a crucial building block for AI. Powerful computers and high-performance processors are needed to process vast amounts of data and run complex AI algorithms. The United States has been at the forefront of deploying computing power for AI, but other countries are also investing in supercomputing capabilities.
Talent
Talent is another critical factor in AI development. Skilled AI researchers, data scientists, and engineers are needed to push the boundaries of AI and develop innovative applications. Countries with strong educational systems and research institutions, such as the United States, Canada, and the United Kingdom, have an advantage in attracting and retaining AI talent.
Data
Data is the fuel that powers AI algorithms. Access to large, diverse, and high-quality datasets is essential for training AI models and improving their accuracy and performance. Companies and countries with access to vast amounts of data, such as those in the tech industry, have a competitive advantage in AI development.
Physical infrastructure
Physical infrastructure, including data centers and high-speed internet connectivity, is necessary to support AI development and deployment. Robust infrastructure enables the processing and storage of large amounts of data and facilitates the real-time analysis required for many AI applications. Countries that invest in AI infrastructure will have a competitive edge in the global AI race.
Diverging Regulatory and Commercial Approaches
Impact on companies
The diverging regulatory and commercial approaches to AI between the United States and China have implications for companies operating in the AI space. As governments assert the importance of geopolitical and ideological alignment in the sale of AI services, companies may face restrictions on their global customer bases. Export controls, tariffs, sanctions, and subsidies can be deployed against strategically important firms, limiting their ability to do business with certain countries.
Geopolitical and ideological alignment
Governments are increasingly considering geopolitical and ideological alignment when establishing regulations and conducting business in the AI industry. Companies that operate in the AI supply chain or are significantly impacted by the rise of AI may face challenges if their operations or values do not align with the geopolitical interests of certain countries. This can impact market access and business opportunities.
Strategic Considerations for Companies
Restrictions on Global Customer Bases
Companies should anticipate potential restrictions on their global customer bases due to geopolitical and regulatory considerations. Export controls, tariffs, sanctions, and subsidies can be used by governments to limit business transactions with companies deemed strategically important. Companies should evaluate their customer base and diversify their markets to mitigate potential risks.
Corporate Espionage
Strategically important companies in the AI value chain may face increased risks of corporate espionage. Competitors or state-sponsored actors may attempt to gain access to valuable AI-related information through talent poaching, cyber espionage, or explicit knowledge transfers required by regulation. Companies should assess their vulnerabilities and implement robust security measures to protect their intellectual property.
Opportunities in Third-country Markets
As restrictions between the United States and China increase, companies may find opportunities in third-country markets. Countries that are well-positioned to support AI development or are primed for AI adoption can provide new avenues for expansion. Companies should look beyond the U.S. and China and identify countries that have advantages in terms of talent, data, computing power, and infrastructure.
Conclusion
The geopolitical competition in AI has significant implications for countries and companies around the world. While the U.S. and China are leading the AI race, other countries have emerged as prominent players in the field. Governments are implementing various policies to promote, protect, and establish principles for AI development. Computing power, talent, data, and physical infrastructure are key building blocks for AI, and countries are investing in these areas to gain a competitive edge. Companies operating in the AI space must navigate diverging regulatory and commercial approaches, consider potential restrictions on their global customer bases, address the risk of corporate espionage, and identify opportunities in third-country markets. By understanding the geopolitical landscape and strategic considerations, companies can minimize risks and capitalize on the evolving global AI ecosystem.
