Artificial Intelligence is the upcoming giant of mankind – How China and Russia might outplay the US

Nearly 60 years ago, in the United States, the then- Senate majority leader Lyndon B. Johnson seized his colleagues with a stark Cold War warning: Whoever wins the space race, he predicted, would gain “control, total control, over the Earth for purposes of tyranny or for the service of freedom”. The US won that race not only by reaching the moon, but by inspiring the next generation of scientist, technologists and optimists. Eight of the world’s most highly valued companies are technology businesses. The combined market capitalization is 4.7 Trillion US Dollar of these companies. That is 30% of the combined market capitalization of the other 92 companies in the world’s 100 most valuable firms. Of these eight companies, five (Apple, Alphabet, Microsoft, Amazon and Facebook) are from the US, two are Chinese (Alibaba and Tencent) and one is South Korean (Samsung).

Recently, Russian President Vladimir Putin echoed Johnson’s forecast in light of the next great technological race: Artificial Intelligence, or A.I. “Whoever becomes the leader in this sphere will become the ruler of the world,” Putin said.

So, what are the implications of the remarkable US dominance in the tech industry until today and what are the economics of these extraordinary valuations? The answer must be monopoly. As of September 30, the book value for example of Apple’s equity was 134 Billion US Dollar, while its market valuation was close to 900 Billion US Dollar. The difference has to reflect the expectation of enduring “super-normal” profits. This may not be the product of malign behavior, but of innovation and economies of scale and scope, including the network externalities that lock in customers. Yet only monopoly could deliver such super-normal profits.

Johnson, leaning into the consequences of the Soviet threat, can be accused of hyperbole. Putin can be accused of the same and, perhaps, worse. But there is truth in their common understanding of technology’s power, one that transcends generations and geopolitics. Right now I fear, the US is at risk of losing this critical race, even so one of Google’s leading engineers, spotlighted a Google project called ‘Auto ML’ ML is short for Machine Learning, referring to computer algorithms that can learn to perform particular tasks on their own by analyzing data. Auto ML, in turn is a machine learning algorithms. With it, Google may soon find a way to create AI technology that can partly take the humans out of building AI systems that many believe are the future of the technology industry.

The tech industry is promising products as varied as smart phones apps that can recognize faces and cars that can drive on their own. But by some estimates, only 10,000 people currently worldwide have the education, experience and talent needed to build the complex and sometimes mysterious mathematical algorithms that will drive this new breed of artificial intelligence.

One of us commanded 150,000 troops from 50 nations; the other invents AI technologies that are used in among the other applications energy, finance, and systems for our national defense. We have seen firsthand how AI will transform warfare, from autonomous flight control systems that can revolutionize air combat to algorithms that can give commanders an unprecedented and precise view of the battlefield. Soon, throughout most areas of our society and economy, both in work and leisure with consequences far beyond the usual debate about automation supplanting manufacturing jobs.

While the US is the birthplace of AI and has historically been the home of the most important innovations and research institutions in this space, America’s global competitors are on its heels. China recently announced a multibillion-dollar AI development plan to lead the world in the technology by 2030. Russia is developing the next generation MIG-41 fighter with AI that could control the aircraft at hypersonic speeds as fast as Mach 6. If America doesn’t approach this contest with the same fierce focus that it found during the Cold War, it risks losing a lot more than pride.

I would like to give an advice to the whole world and particularly to Mr. Trump and the United States, that you must be careful with China as their President Xi Jinping had referred to his homeland’s status as a “great” or “strong power” 26 times in a lengthy address in October 2017 Xi Jinping’s ambition in my eyes are quite dangerous for the whole world, as China uses its money to buy off many leaders, but none of the countries that are its close allies, like North Korea, Pakistan and Cambodia have done well. Countries that are close to America have done better in the past.

In the name of halting Communism, the United States once sent troops to Indochina and propped up dictators elsewhere in Asia. The American devised security landscape also created a stable environment in which Asian economies expanded.

President Trump’s recently concluded trip to Asia had the potential to advance important American security and economic interests. Played correctly, his ambitious five country 12-days trip could have steadied his administration’s rocky start in this vital region. Instead, it left the United States more isolated and in retreat, handing leadership of the newly christened “Indo-Pacific” to China on a silver platter. The trip began with solid performance in Japan and Korea, where Mr. Trump’s relatively measured words left key allies reassured of United States’ commitment to their security. The President largely shelves his belligerent trade rhetoric, called for allies to buy more American military hardware and reopened the door to diplomacy with North Korea. But in China, the wheels began to come off his diplomatic bus. The Chinese leadership played President Trump like a fiddle, catering to his insatiable ego and substituting pomp and circumstance for substance. China always prefers to couch state visits in ceremony rather than compromise on policy. This approach seemed to suit President Trump just fine, as he welcomed a rote recitation of China’s longstanding rejection of a nuclear North Korea and failed to extract new concessions or promises. He also settled for the announcement of 250 Billion US Dollar in trade and investment agreements, many of which are nonbinding and, in the words of Secretary of State Rex Tillerson, “pretty small”. Missing were firm deals to improve market access or reduce technology sharing requirements for American companies seeking to do business in China in my opinion.

On top of that, President Trump’s decision to take the United States out of the Trans-Pacific Partnership (TPP) trade pact, which would have given 11 other economies an alternative to a Chinese-led economic order, is leaving them without another choice. With the other 11 members of the pact agreeing to proceed without the United Stated, Washington’s withdrawal-not to mention Mr. Trumps “American First” speech at the Asia Pacific Economic Cooperation (APEC) meeting leaves some nations wondering if their best option may be Chinese-backed trade pacts and financing deals that have fewer guarantees for workers and less official transparency.

China is one of the few countries in the world that doesn’t observe international law in many areas. This is why, by contrast, President Barack Obama sent his national security advisers to China before summit meetings. In 2014, the US agreed with China on military confidence building measures, cooperation to fight Ebola, extended visa validity and a historic United States-China deal on climate change, which led to the Paris Agreement. In 2015, under Obama the US secured agreement from China to curtail cyber theft of United States intellectual property for commercial gain and to cooperate on development and global health security. In 2016, China stepped up its commitment to crack down on fentanyl precursors, support United Nations peacekeeping and strengthen nuclear security.

President Trump’s last stop in Vietnam and the Philippines proved the most problematic. At the APEC summit meeting, he made no progress toward the bilateral trade agreements and says he wants to replace multilateral deals. That means that China now ranks as their No. 1 trading partner. In return, for investment and project financing -roads, railways, dams, airports and colossal government buildings- leaders of regional economies are increasingly doing Beijing’s bidding.

Cambodia and Laos for example have already given crucial support for Beijing’s South China Sea claims. Thailand has complied with Beijing’s demand that it return Chinese dissidents who once counted on it as a heaven. The region is looking for a robust American presence, not just in security but also on trade. For Trump to come with an ‘American First’ agenda leaves Asian leaders in the lurch. Indeed, Mr. Trump was the odd man out at this meeting of the Asia Pacific Economic Cooperation forum. The other 20 leaders formally endorsed the idea of a liberal trade regime, arbitrated by the World Trade Organization, and condemned moves to erect new barriers.

Instead, Mr. Trump railed against the W.T.O, accusing it of treating the United States unfairly. Rather than uphold principles of free trade, he said, it contributed to a systematic exploitation if Americans, in which “jobs, factories and industries were stripped out of the United States. While Mr. Trump vowed never to sign a regional trade deal like the Trans-Pacific Partnership, from which he withdrew the United States early in his presidency, the remaining 11 members of that deal agreed to press on with it, creating a “broader free-trade area” across Asia that will pointedly exclude the United States. President Trump’s lighthearted embrace of a self-proclaimed killer, President Rodrigo Duterte of the Philippines, was the nadir of a high-stakes trip that set back American leadership in Asia. But it was, perhaps, the perfect if unintended coda to the President’s “Make China Great Again” tour.

America doesn’t need an advanced machine to calculate where is competition is outpacing it. It can see its weaknesses with the naked eye: the exclusion of AI from high level national agenda, a reduction in science and technology funding, and immigrations curbs all these in my opinion will drastically harm America’s competitiveness in the near future. The question is whether it will correct course before it’s too late. America has lots of thinking to do about the problem it faces and what action to take.

Intellectual property disputes:

First, the same openness that encourages American researchers to lead world in innovation also pushes their discoveries quickly into public view, before they are even granted protection. Coupled with accessible online lectures from top universities, competitors copy America’s research easily. While Americans value their culture of academic openness, US companies need a faster patent process and government support that can give them some teeth in intellectual property disputes with foreign infringers.

Second, America’s regulatory regime makes it more difficult to build things in the US and sell them to other countries, creating a market for foreign competitors who would otherwise not stand a chance. For years, the US curbed exports of encryption technology and basic processors. This only led international competitors to fulfill demand, creating a market for themselves. When US allies needed access to unmanned aerial systems to execute the war on terror, these requests were delayed or denied. America has since lost all of these markets to Chinese, exports and indigenous development. As the clamour for curbs on AI grows, America needs to keep its competitiveness in mind when it puts rules in place.

Third, China is publishing a larger number of papers than the US about deep learning and beating America in fielding supercomputers. America needs more public investment in AI research, not cutbacks in agencies that have been longtime backers of this field, as the current administration’s budget proposes. We also need more science and technology funding in the US to compete with the Billions of dollars China is investing in its 2030 vision.

Fourth, China is attracting better AI talent and is buying American tech companies. The solutions are simple: Give more green cards, not fewer, to expert in this field, provide more federal grants, not fewer, to support AI research labs at public universities, and invest more, not less, in educational programs like the Rhodes scholarship to attract future PhDs. The American government should also support deserving small businesses specializing in AI the way it did for clean energy companies, offer tax breaks to those that produce this technology the way it did for electric cars, and give AI start-ups a limited tax holiday the way other countries have done for software companies.

We should never lose sight of the fact that AI represents a breakthrough in humanity’s ability to invent. We must resist AI alarmists like Elon Musk who irresponsibly label this technology as an effort to “summon the demon” and blame it for a coming World War. The race to dominate the AI space doesn’t have to be a story about fear of technology. If anything, what America should fear is ceding its leadership in critical areas of defense and industry if it fails to pursue science and technology research with a sense of national purpose.

We are certain that Russia and China will do what they must for their national security. Every dollar in AI investment that the US cuts and every way in which it gets harder for American companies to attract capital only comfort America’s competitors.

A few years after Johnson predicted what the space race would mean for global leadership, he sat directly behind President John F. Kennedy in the US Capitol, while Kennedy pledge America would go to the moon. The audience wasn’t just the members of Congress in the chamber whom Kennedy asked to authorize funding. It was also the millions of young American who could cite that speech as their inspiration to study computers, math, engineering, and the cosmos.

When Putin made his prediction in September 2017, he did so to a broadcast audience of a million Russian schoolchildren. How many of them are now dreaming of studying computer science, building the next great machines, and advancing their own national security and national interest?

Artificial Intelligence in my opinion is the next giant leap for mankind. The country that took the first steps on the moon must now take the right steps towards tomorrow.

America First – international trade last

I would like to refer to a statistic that tells you much of what you need to know about the US trade debate only 1% of US companies export. It’s an astonishing figure that I uncovered recently in a McKinsey Global Institute report on the state of US manufacturing, which confirmed much of what my own reporting has informed me about US trade problems.

They begin at home not abroad. That is not a line you will hear over the next few days, as negotiators meet in Mexico for the latest round of North American Free Trade Agreement talks. The Trump administration is likely to point fingers and threaten again to pull out of the whole agreement. But if the White House wants to fix trade, it would do better to look at three crucial mistakes that haven’t been made at home in the US and then compare them with opposite strategies in China, the world’s biggest manufacturing country.

T he first mistake was to starve manufacturing of investment. Private sector investment in the sector in the US is at 30 year lows; the eyes of the average factory and piece of machinery are 25 and 9 years, respectively. The McKinsey Global Institute report estimates that about 115 Billion USD of investment would be required annually over the next decade to fix this problem. But trade and tax policy in the US does almost nothing to provide an incentive for that investment. Companies talk a good game about repatriation, but privately admit that the bulk of any money brought home will go into share buybacks and dividend payments.

As the past two decades have shown, supply side economics alone does not result in a productive use of capital, particularly when it comes to global multinationals, sometimes, you have to push investment to the areas where it is needed. That’s exactly what China is doing with its 1 Trillion USD infrastructure investment plan.

Second, the US trade debate has focused far too much on the largest domestic companies, which are doing quite well, in terms of share price, profit margins and sales growth. Yet the vast majority of the 250,000 manufacturing groups in the US employ fewer than 100 people. The current zero-sum game global trade debate hardly applies to them at all. Most do not export, not because they cannot but because access to capital has been tighter for them relative to their rich country peers since the Great Recession. Recounting the dots between the largest exporters and the supply chain could fix that.

Regionalization is the new globalization the largest firms in the US should be given explicit government incentives to work with the local suppliers, which would do much to address the President’s trade deficit obsession, since 70-80% of the value of a finished product is in the supply chain.

Again, this is something that China has prioritized in its 2025 development plan, which states explicitly that the country wants to minimize the dependence on foreign markets and technologies.

Finally, the US desperately needs to connect Silicon Valley and the rust belt. High-tech manufacturing-3D printing, the internet of things, sensors in products that create business opportunities in data analytics and services, rather than just goods- may well be the future. Yet shockingly, roughly half of US manufacturing companies have no digital strategy whatsoever, according to an MGI survey.

Meanwhile, the technocrats in the Chinese Communist party are giving speeches about the integration of the physical and digital worlds that would leave many people in US boardrooms scratching their heads. Of course, it is easier to do economic dot connecting in an autocracy. No one is arguing for that, but it does speak to the core problem- the Trump Administration is trying to push “America First” without any clear and coherent plan of what that means, or how to make an industrial strategy succeed. You just look at the current trade debates and you just think-how many lost opportunities. The countries that the US recently left behind when the administration pulled out of the Trans Pacific Partnership high growth emerging markets with expanding middle classes that are engaged in major infrastructure building works are exactly those with the largest demand for the US’s most valuable exports, such as high tech products, pharmaceuticals and heavy machinery.

Pulling out of NAFTA, particularly without any kind of homegrown industrial policy, would be an equally big mistake. Economic nationalism with no economic plan will not make America great again. In fact, it may be worse than the laissez faire alternative.