| This is Bloomberg Opinion Today, an entirely new software ecosystem of Bloomberg Opinion’s opinions. On Sundays, we look at the major themes of the week past and how they will define the week ahead. Sign up for the daily newsletter here. Throughout history, trade barriers have been double-edged swords. The problem is, if you initiate sanctions as a weapon, your enemies will inevitably find ways around them: wooing stronger friends, launching reciprocal punishments, finding black markets, sending in the Gungans, etc. When the Megarians of classical Greece were banned from Athenian markets because they trod on some goddess or other’s sacred soil, they wooed Sparta and triggered the Peloponnesian War — which did not end well for democracy. Likewise, the Oil Shocks of the early 1970s spurred the US to (very slowly) innovate on fuel efficiency and (more immediately) trade in gas guzzlers for Japanese compacts and Detroit firetraps. And US sanctions against the Castros’ Cuba have forced the little island to become self-sufficient in ventilators, condom-aged wine and washer-dryer coconut shredders.
But perhaps nobody learned this lesson in unintended consequences better than Le Petit Caporal himself. [1] Napoleon’s Continental System, a pretty clever plan to shut Britain off from trade with Europe, is an object lesson. It might have seemed like the UK, an island nation at the mercy of trade, would be a pretty easy target for an embargo. But that’s where the skill, bravery and abject cruelty of the Royal Navy come in. And Marc Isambard Brunel. Brunel is an interesting character: French refugee, ex-seminarian, failed candidate to design the US capitol, chief engineer of New York City and, by the early 1800s, designer of a mechanized system to produce naval pulley blocks at a rate of 130,000 per year for British ships. [2] (When it comes to inciting brain drain, Donald Trump has nothing on Robespierre.) The UK innovated in plenty of other ways: finding new markets in South America; scrutinizing captured French ships for technical improvements; devising ways to repair and refit at sea; upgrading naval yards with wet and dry docks drained by newfangled steam engines; producing fast little ships of war like sloops and corvettes; and excelling at the time-honored British tradition of smuggling booze across the channel.  Stealing talent, revolutionizing technology, reverse-engineering, cultivating nations outside the fray, even naval smuggling — it all sounds a lot like today’s superpower rivalry. And in this analogy, China is looking more like the crafty Brits, and the US like the doomed French. We’ll start with military innovation: “Pakistan is certainly spinning a good story about China’s defense industry. Its army said it used Chinese J-10C planes to shoot down five Indian jets, including three Rafales, a MIG-29 and an Su-30,” writes Shuli Ren. “Some are hailing it as another DeepSeek moment for China. In late January, a little-known Hangzhou-based startup released an AI reasoning model that performed almost as well as OpenAI at a fraction of the cost, thereby propelling a bull run in Chinese tech names. Are we witnessing a repeat, in defense this time?” And how’s that whole chip embargo going? “In the latest sign that US attempts to choke Huawei Technologies Co. are only strengthening it, the Chinese tech giant will next week release its first line of personal computers powered by the homegrown HarmonyOS operating system,” writes Catherine Thorbecke. “The move to challenge the global duopoly overseen by Microsoft Corp.’s Windows and Apple Inc.’s MacOS was not by choice. Huawei’s license to run Windows on PCs expired in March, and America’s blacklisting makes it difficult for US firms to continue to do business with it. Instead of succumbing to Washington’s squeeze, Huawei has invested heavily in the nearly impossible task of creating an entirely new software ecosystem from scratch.” To its credit, the US is seeking to improve ties with neutral parties: Trump inked big deals on chip sales and data centers during his Gulf trip. This is a boon for Nvidia, OpenAI, Cisco and the like, it might backfire on national security down the road. “The UAE in particular is home to engineers from many countries including Russia and China. Are the deals now being inked going to constrain who can work at the companies importing US technology, mandate strict controls on their intellectual property, require regular security audits or restrict their use of Chinese hardware?” asks Gideon Lichfield. “Similarly, it’s not clear that any of this is going to lock Saudi Arabia and the UAE into US technology. Why couldn’t they turn around and offer similar deals to China, thus making themselves AI powerhouses for the entire world?” Parmy Olson thinks more recent history may be repeating on those Gulf powers. “Although the Saudis want to branch away from being tied to one commodity, they could find themselves limited to another if the region doesn’t attract the scientists and entrepreneurs it needs to innovate on top of all that hardware too. There’s a stark symbol of what could happen if they don’t: unused server farms that do a better job collecting dust than collecting data,” she writes. “Unleashing their seemingly bottomless resources on fancy hardware is just one component of advancing a thriving tech sector. To rival China’s or even that of standards-laden Europe, the kingdom needs software and talent that it’s sorely lacking. Until then, it’s more likely to provide the plumbing for Silicon Valley.” Even so, plumbers make a good living — and the US tech industry has clogged pipes. “The artificial intelligence arms race has prompted a contest for America’s power plants,” writes Liam Denning. “This reflects the collision of two industries operating on very different schedules. Big Tech sees itself as being in a race for dominance in AI — especially versus Chinese competitors — that demands massive investment in computing power even before the business models this will support have been fully figured out. But it relies for the energy needed on a power generation industry that hasn’t seen growth in demand for more than a decade and takes years to construct new plants and hook them up to America’s infamously bottlenecked power grid.”  All too often, when targeting China, the US shoots itself in the foot. Consider the mystifying ruling by a federal judge that Google unlawfully wielded its market power. “The case is a decade out of date. Apple may soon offer artificial intelligence search engines in its browser, a development that was hardly foreseeable when the Justice Department first went to court,” writes the Editorial Board. “A raft of other AI efforts — OpenAI, Anthropic PBC, Perplexity AI and others — are transforming the market in unpredictable ways. … the government is pursuing maximally disruptive remedies — with a stated goal of dismantling one of the most successful companies in American history — at a moment when no one could truthfully claim to know how the markets in question are likely to evolve. You might sum up the strategy, to invert a phrase, as ‘move slowly and break things.’” Another historical lesson: First Napoleon moved fast and broke Russia, then he moved slowly and broke his own army.  Charles Minard’s epic map from 1869 shows the declining size of Napoleon’s invasion force, its path across Russia, and the falling temperatures that doomed it. Bonus Great Wall Reading: What’s the World Got in Store ? - Conference Board index, May 19: The Tariff U-Turn Came Just in Time for the Economy — Jonathan Levin
- Home Depot earnings, May 20: US Retailers Are Facing Post-Tariff Spending Disorder — Andrea Felsted
- UK CPI, May 21: Why Are the British Becoming So French? — Adrian Wooldridge
So, who’s going to be the big winner in the US-China AI race? Silicon Valley, for one. We’re going to get a whole new crop of neo-billionaires and neo-multibillionaires and neo-centibillionaires. Question is, what will they do with their fortunes? One of most generous paleo-centibillionaires, Bill Gates, is going to shut down his foundation in 2045 on the premise that tomorrow’s tech titans will fill the void. “Gates is right that there will be plenty of rich people in two decades. But what’s far less certain is just how willing they’ll be to give away their money with the abandon and largess shown by Gates,” writes Beth Kowitt. “A new model is bubbling up, driven by a subset of the Silicon Valley elite. It goes something like this: Why donate your money when you’ve already given so much to society through the technology you’ve created? Gates and Buffett felt they were returning something to a system that had allowed them to amass such wealth; the new guard believes it’s already contributed more to the system than it will ever get back in return.” Well, at least rich techies are giving generously to the noble goal of … wiping out the sun!?! “The funding going into the field of solar geoengineering — techniques that aim to soothe the symptoms of climate change by reflecting more of the sun’s heat back into space — is increasing as rapidly as the public discourse around its research and development,” writes Lara Williams, who notes that major philanthropies have provided almost half of the backing.  “This isn’t a surprise: Philanthropies often step in where governments can’t justify spending, and a simple, futuristic technique like SRM no doubt has unique appeal to the Silicon Valley cohort,” adds Lara. “This columnist shares the same view as many scientists doing valuable research: the hope that it is never deployed. It isn’t a climate solution. But it’s clear that the field is progressing. With many difficult conversations ahead of us, even those of us who find SRM distasteful should push for rigorous, transparent research, clear communication and keep our eyes on the money.” Notes: Please send Cuban wine and feedback to Tobin Harshaw at tharshaw@bloomberg.net. |
