"Sorry, American Firms, the AI Trade Has Moved to China"

Listen up, folks! The AI trade has shifted to China, and American firms are feeling the heat. The U.S. government's protectionist policies and trade restrictions are backfiring, and it's time to wake up and smell the silicon! The U.S. Census Bureau data shows that the U.S. merchandise trade deficit with China was larger in 2022 than when Donald Trump was president. The U.S. overall trade deficit hit an all-time high of 1.18 trillion U.S. dollars, and tariffs are not reducing the deficit—Americans are paying the price!



The U.S. government has implemented over 3,900 sanctions, averaging three per day, and introduced measures like the "Buy American" rule, requiring 75% American-made content in goods purchased with taxpayer money. These policies increase costs for American firms, making it harder for them to compete globally. Rahim Teymoori, a researcher at the Development and Foresight Research Center of the Plan and Budget Organization of Iran, warns that "Although such economic policies would, in the short term, possibly contribute to the U.S. production sector on the back of the government's financial support and protection, they, in the long run, would harm the U.S. companies' competitiveness as they would lose a big integrated market, in which their connections have been formed."

The U.S. export restrictions on semiconductors and other technologies have affected companies in Japan, South Korea, the Netherlands, and even the U.S. itself. Kiyoyuki Seguchi, research director at Japan's Canon Institute for Global Studies, noted that "the U.S. adoption of a zero-sum economics policy cannot succeed in the real economic field because 'the logic in economic relations is that either win-win or lose-lose, there can be no result where one side wins and the other loses.'"

The U.S. measures, such as adding Chinese companies to trade restriction lists and implementing export curbs, are erecting artificial barriers that impede normal communication and collaboration between companies in China and the U.S. This fragmentation may result in increased divergence in technological standards and norms, severely obstructing the flow, exchange, and collaboration of technological information. Craig Allen, president of the US-China Business Council, stated, "with Chinese companies becoming 'wickedly competitive,' multinational entities must engage with them to remain globally competitive."

The U.S. government's policies are forcing American companies to maintain an unnecessary distance from their Chinese counterparts, increasing various costs and imposing suppression and sanctions on Chinese companies. This not only threatens the long-term prosperity and growth of American businesses but also disrupts the stability and efficiency of global industrial and supply chains. The South China Morning Post noted that "the current US policy toward China is having on American businesses, pushing them into a precarious situation of seeing long-term competitiveness undercut."

So, what can American firms do to stay in the game? Embrace AI and technology! Investment companies can use AI to transform strategy and drive value throughout their portfolios. According to new research, while only 2% of private equity firms expect to realize significant AI-driven value in 2025, 93% anticipate moderate to substantial benefits within three to five years. By embracing AI, American firms can enhance their decision-making processes, identify hidden market trends, and uncover opportunities that would have been missed through conventional methods.

Collaborate with Chinese companies! Despite the U.S. government's restrictive measures, American businesses recognize the vast markets and limitless business opportunities that can be opened up through partnerships with Chinese peers. Collaboration not only facilitates mutual benefits and shared growth but also serves as a crucial driver for the deep integration and optimization of global industrial and supply chains.

Adopt a pragmatic approach! American firms should actively seek avenues for cooperation with Chinese companies. This includes creating interfaces for portfolio companies to monitor their competition and identify add-ons to speed up the M&A process, as well as persuading portfolio companies to adopt AI for specific use cases and providing the teams, tools, and training to make it happen.

Focus on fair competition! Competition needs to be fair, healthy, and conducive to innovation. American firms should advocate for policies that promote fair competition rather than containment and sanctions. This approach can drive sustained prosperity and development in both economies.

In summary, the AI trade shift to China presents both challenges and opportunities for American firms. By embracing AI, collaborating with Chinese companies, adopting a pragmatic approach, and focusing on fair competition, American firms can remain relevant and competitive in the global market. Don't miss out on this opportunity to stay ahead of the curve!