China Will Absorb U.S. Tariffs and Hollow Out the Gen AI Industry
Protectionism does not work against strong competitors. Innovation does.
It’s been a while, but my strong sense from doing business in China over a several year period is that China cares deeply about market share. China will absorb Trump’s tariffs in an effort to capture ever greater market share, particularly as it relates to the technology industry.
On the AI front, look for China to flood the market with high performing open source AI models and Agents to further commoditize the industry.
OpenAI, Microsoft (MSFT), Anthropic, AWS (AMZN), Meta (META) and xAI don’t stand much of a chance against China’s AI effort when they stand alone. Google (GOOG) is a bit different as its products are largely AI native. Yet, if these companies stood together - perhaps sharing infrastructure - they could likely create something unique that would create a bit of a sovereign competitive moat as it relates to AI.
However, I don’t expect cooperation - too many egos - Sam Altman in particular. I expect Mr. Altman to continue to lobby the Trump Administration to block China-based LLMs from competing in the United States. Altman likes to play the protectionist card. It won’t work in the long-run. If there is demand for China’s LLMs and Agents here in the U.S., the demand will be met.
This reality puts downward pressure on the Revenue opportunity for OpenAI, Anthropic, Microsoft and Google. These AI companies ought to innovate to drive competitive differentiation and to grow their respective user bases. Invest more time and capital on UI/UX to drive user engagement. Where is the robust Agentic AI capability for example? Agentic AI is right in Google’s wheelhouse - they should be out front.