Otaviano Canuto
The United States leads in most fundamental advanced technologies, while China leads in practical implementation.
When, in 2019, the first Trump administration imposed restrictions on market access and technology for all subsidiaries of the Chinese group Huawei, as well as for the company ZTE, we observed that this would be only the opening salvo of a confrontation destined to endure.
It was as if the US were sending this message to China:
“You have made good use of the opportunities to climb the ladder of technology and income, combining the technological availability provided by globalization with investments in your own capabilities, but you will have to climb the rest of the ladder alone.”
Indeed, since then we have witnessed a Chinese investment effort aimed at reducing dependence on external technological frontiers in various areas. We have addressed here the cases of semiconductors and clean energy, including the refinement of critical minerals and rare earth upstream by China. US export controls on advanced chips and manufacturing tools slowed China down at the technological frontier but did not prevent its progress. In some cases, they accelerated China’s effort to develop domestic alternatives.
The possibility of renewed Chinese access to advanced semiconductors, as well as US access to critical minerals and rare earths refined by China, allowed the two countries to holster their trade weapons in October.
Technology has become the main stage of strategic competition between the United States and China. Technology is no longer just a driver of productivity and economic growth: it is the “central control panel” that determines military capability, economic influence, data management, and geopolitical influence, even with global supply chains remaining deeply interdependent.
The technological race between the US and China is now the organizing axis of their broader strategic rivalry, with the US still leading in cutting-edge innovation. However, China is rapidly gaining ground, especially in applied implementation, infrastructure, and control over essential physical inputs such as rare earth elements and energy.
What is the current state of this war? While the US remains a leader in most fundamental advanced technologies—such as cutting-edge semiconductors, artificial intelligence (AI) frameworks, cloud computing infrastructure, and quantum computing—China is rapidly closing the gap or leading in other critical dimensions. American companies dominate chip design, key semiconductor manufacturing equipment, and the development of the most advanced AI models. The US also benefits from capital markets that attract resources from the rest of the world and a strong system of research universities capable of attracting global talent (at least until the self-inflicted restrictions in the country during the first year of the Trump 2.0 administration).
On the other hand, the US faces some domestic constraints, including shortages of skilled labor for advanced manufacturing, high factory construction costs, fragmented power grids, and regulatory hurdles that slow the implementation of infrastructure projects.
China leads in the practical implementation of technologies, benefiting from scale and coordination. This is seen in the use of robotics in manufacturing on a scale twelve times greater than that of the US (according to a recent Goldman Sachs report) and in physical applications of AI, such as autonomous vehicles and drones, as well as in large-scale digital infrastructure installations.
Three main battlefields can be identified in this rivalry. First and foremost, semiconductors and AI. It is always important to remember that there is not a single simple semiconductor supply chain, but rather a network of interconnected chains that extend across the globe. Key bottlenecks include advanced lithography, etching equipment, and cutting-edge manufacturing capacity.
The US and its allies maintain a slight overall advantage, particularly in chip design and manufacturing tools. Advanced chip manufacturing is dominated by Taiwan. According to a Chinese former colleague familiar with the subject, China faces considerable technical challenges in replicating advanced lithography. It is important to emphasize that leadership in AI will depend not only on access to the most advanced chips, but also on the dissemination and adoption of models. China’s adoption of open-source and low-cost AI models has allowed for rapid real-world implementation, even with less advanced hardware.
Another focal point is the rare earth supply chain. China dominates the mining, refining, and production of magnets, particularly for heavy rare earths used in defense and advanced technologies. This gives China significant leverage, even though total US demand for rare earths is relatively small in absolute terms.
An increase in US resilience will require diversification of sources, selective government support, and cooperation with allies. Even so, rare earth elements will continue to be a persistent vulnerability and a recurring source of geopolitical friction, now and in the near future.
Beyond the two previous battlegrounds, the availability of energy and infrastructure must be highlighted as decisive factors. Advanced AI systems and data centers are extraordinarily energy-intensive. China’s abundant and coordinated investment in power generation—especially in renewable and nuclear energy—gives it an advantage. In contrast, US energy constraints and the fragmentation of the US power grid could become a limitation for AI expansion.
The technological rivalry between the US and China spills over into other regions, including energy-rich countries of the “Global South.” China is pursuing an initiative to “digitize the Global South,” offering comprehensive contracts that include infrastructure, services, and data access. This could position it to control networks and data flows across much of the world’s landmass and to adapt AI models to these markets.
The Gulf and the Middle East, an energy-rich region, are considered key energy producers in the AI era. Both Washington and Beijing are competing to secure partnerships in data centers and energy in this region, with the US needing security guarantees to prevent sensitive technologies from being shared with China.
Jorge Arbache, from the University of Brasilia, has been discussing “powershoring,” that is, the possibility of countries like Brazil exploring an industrial relocation strategy driven by the availability of green, secure, and cheap energy, aiming to attract investments from energy-intensive sectors, reduce emissions, and strengthen integration into sustainable global supply chains. It is hoped that the potential for energy production will not be captured solely as a chapter in the US-China rivalry in providing data centers for their AIs.
Otaviano Canuto, based in Washington, D.C, is a former vice president and executive director at the World Bank, a former executive director at the International Monetary Fund, and a former vice president at the Inter-American Development Bank. He is also a former deputy minister for international affairs at Brazil’s Ministry of Finance and a former professor of economics at the University of São Paulo and the University of Campinas, Brazil. Currently, he is a senior fellow at the Policy Center for the New South, a professorial lecturer of international affairs at the Elliott School of International Affairs – George Washington University, a nonresident senior fellow at Brookings Institution, a professor affiliate at UM6P, and principal at Center for Macroeconomics and Development.
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