China's AI Boom: A Shield Against Tariff Storms

In the ever-evolving landscape of global trade, China finds itself at a critical juncture. The imposition of tariffs by the United States, particularly under the Trump administration, has created significant economic headwinds. However, China's rapid advancements in artificial intelligence (AI) technology offer a glimmer of hope, potentially mitigating some of the economic pain inflicted by these tariffs. This essay explores how China's AI boom could serve as a bulwark against the economic challenges posed by trade tensions, while also examining the risks and challenges associated with this technological shift.

The economic impact of tariffs is well-documented. The Trump administration's tariffs on Chinese goods, which have been retained by the Biden administration, have already had a negative impact on the US economy, reducing long-run GDP by 0.2 percent and employment by 142,000 full-time equivalent jobs. The Budget Lab's analysis of the planned 25% Canada & Mexico tariffs and the 10% China tariffs, as well as the 10% China tariffs already in effect, reveals a 7 percentage point hike in the US effective tariff rate, raising it to the highest since 1943. This has led to a price level rise of 1.0-1.2%, equivalent to an average per household consumer loss of $1,600–2,000 in 2024. Real GDP growth is 0.6 lower in 2025, and in the long-run, the US economy is persistently 0.3-0.4% smaller, equivalent to $80-110 billion annually in 2024.

However, China's AI sector is projected to make big strides in the next 10 to 15 years, with its market size reaching 1.73 trillion yuan ($238.4 billion) by 2035, accounting for 30.6 percent of the global total. This growth will create enormous opportunities for multinational corporations to invest in the country, further offsetting the economic impacts of US tariffs. Executives attending the China Development Forum 2025 hailed China's efforts in bolstering technological innovation and cultivating new growth drivers, indicating a positive outlook for the future of AI in China.

The rapid advancements in AI technology in China could significantly offset the economic impacts of recent tariffs imposed by the US by fostering innovation, enhancing productivity, and creating new growth opportunities. According to Liu Liehong, head of the National Data Administration, AI technology is promoting economic and social development at an unprecedented speed and has become an important driving force bolstering a new round of technological revolution and industrial transformation. This technological shift is closely linked with the development and utilization of data, and the combination of high-quality data with AI will give full play to the multiplier effects of data elements.

For businesses in China looking to boost their productivity and maintain competitiveness, technologies led by AI present an unprecedented opportunity to create value, respond dynamically to change, and build resilience. Samantha Zhu, chairwoman of Accenture Greater China, highlighted that the recent progress in the wave of AI-led innovation is very encouraging as companies quickly pick up the signal and mobilize themselves to harness the use of such technologies. She anticipates more innovation and applications happening across industries and functions, from R&D to manufacturing, from customer interface to warehouse, from upskilling to sustainability.

Specific sectors likely to benefit the most from this technological shift include manufacturing, healthcare, and customer service. The integration of AI with other technologies, such as blockchain and the Internet of Things (IoT), is expected to continue to drive innovation and growth in these sectors. For example, the use of AI in healthcare, particularly in areas such as disease diagnosis, drug development, and personalized medicine, is a growing trend. Additionally, the development of AI chips and edge computing is enabling more efficient and powerful processing of AI applications, which can benefit sectors like manufacturing and transportation.



However, China's heavy investment in AI presents several potential risks and challenges that could influence the country's economic resilience, especially in the context of ongoing trade tensions. One significant risk is the reliance on data, which is crucial for AI innovation and industrial applications. Liu Liehong, head of the National Data Administration, emphasized that "the advancements of AI technology are closely linked with the development and utilization of data, while the combination of high-quality data with AI will give full play to the multiplier effects of data elements." However, data security and privacy concerns could pose challenges, as sensitive data might be vulnerable to breaches or misuse, potentially leading to economic and reputational damage.

Another challenge is the potential for over-reliance on AI, which could lead to job displacement and social unrest. While AI can boost productivity and competitiveness, it could also automate jobs traditionally done by humans, leading to unemployment and economic instability. Samantha Zhu, chairwoman of Accenture Greater China, noted that "technologies led by AI present an unprecedented opportunity to create value, respond dynamically to change and build resilience," but she also acknowledged the need for upskilling and sustainability efforts to mitigate the negative impacts of AI on employment.

Trade tensions, particularly with the United States, pose additional risks. The Trump administration's tariffs on Chinese goods, which have been retained by the Biden administration, have already had a negative impact on the US economy, reducing long-run GDP by 0.2 percent and employment by 142,000 full-time equivalent jobs. If China's AI sector becomes a target of these tariffs, it could face significant disruptions in supply chains and increased costs, which could hinder its growth and innovation. For instance, the 2025 Trump Trade War Timeline indicates that the US has imposed 25 percent tariffs on Canada and Mexico and 10 percent tariffs on China, with additional tariffs on Chinese goods, including semiconductors and electric vehicles, announced in May 2024. These tariffs could limit China's access to critical technologies and components, affecting its AI development and economic resilience.

Moreover, the potential for retaliatory measures from other countries could further complicate China's AI ambitions. For example, China announced retaliation on about $13.9 billion worth of US exports at rates of 10 percent and 15 percent, which took effect on February 10, 2025. Such retaliatory actions could lead to a trade war, disrupting global supply chains and affecting China's AI sector, which relies on international trade for components and technologies.

In summary, while China's investment in AI has the potential to drive economic growth and innovation, it also presents risks related to data security, job displacement, and trade tensions. These factors could influence the country's economic resilience, making it crucial for China to address these challenges proactively to ensure sustainable development in the AI sector. The world must choose: cooperation or collapse.