The relationship between the United States and China has decisively entered a new phase, with technology, particularly AI, increasingly becoming the central battleground rather than traditional trade disputes. This shift is primarily evident in the semiconductor sector, which is foundational to advanced AI development. These small, intricate chips are the engines that power AI, enabling the massive computational power required for everything from training complex machine learning models to deploying AI applications at scale. Without cutting-edge semiconductors, advanced AI simply cannot function, making control over their design and manufacturing a critical strategic imperative for any nation competing for AI supremacy. Recent high-level engagements between the United States and China suggest a tactical de-escalation of immediate trade friction, but a closer look reveals that the fundamental geopolitical and technological rivalry between these two nations remains firmly intact. For India, these immediate developments present both challenges and opportunities. This first part of our blog series, however, will examine the latest developments in the US-China AI rivalry, and analyzing the geopolitical situation and the shifting technological balance at the core of this rivalry.
The Intensifying US-China AI Rivalry: A Deeper Look
As of June 11, 2025, following two days of intense negotiations in London, US President Donald Trump announced a deal with China, pending final approval from both national leaders. This agreement primarily addresses two specific flashpoints that had previously escalated tensions – granting the US access to rare earth metals, which are crucial for its technology and clean energy sectors and permitting Chinese students to resume their studies at American universities. These negotiations were initiated in response to US concerns over China's perceived delays in rare-earth exports and Beijing's grievances regarding US restrictions on semiconductor technology and student visas. Earlier in the year, despite a May 2025 truce in Geneva that had lowered tariffs, non-tariff barriers (including export controls and critical mineral shipments) had remained significant points of contention, leading to further escalation and a near trade embargo between the two economic giants.
The current deal should be understood as a strategic de-escalation of immediate trade friction, rather than a fundamental shift in the underlying geopolitical and technological rivalry. This outcome suggests a deliberate tactical maneuver by both sides to manage market sentiment and prevent full economic paralysis, while carefully preserving their long-term strategic objectives. Nigel Green, CEO of deVere Group, articulated this perspective clearly, stating that "nothing fundamental has changed" and describing the agreement as merely "a partial restoration of a fragile status quo". The agreement only addresses immediate pain points, such as rare earths for US industry and student mobility for China, which had driven the relationship to the brink of a "trade embargo". However, it avoids core issues like technology control and supply chain independence. This strategic omission indicates a calculated move to stabilize short-term economic conditions and provide market relief, functioning more as a market management tool than a durable solution to the deeper structural conflict. Both nations can thus claim a diplomatic win without compromising their long-term strategic competition for global technological supremacy. Here is how the current state of the affairs looks like:
Trend #1: The Unyielding Grip on AI Chips and Strategic Decoupling
Despite the London agreement, the United States remains firm in its policy to block the sale of advanced AI chips and semiconductor equipment to Chinese firms, consistently citing national security risks. On the other hand, China has not secured any meaningful concessions regarding its access to high-end AI technology from the US. This ongoing technological friction is symbolic of a broader, systemic trend where the US is steadfastly committed to reshoring critical industries, including semiconductors and AI, while China intensifies its efforts towards domestic substitution and financial insulation. This stance aligns with the US’ strategy of implementing targeted, layered sanctions on China's semiconductor supply chain. The main objective is to impede China's AI development by restricting its access to cutting-edge chips, advanced manufacturing equipment, and design software. This restrictive policy extends even to modified GPU variants, such as NVIDIA's A800 and H800, which were initially engineered with reduced capabilities to comply with earlier regulations. Notably, export restrictions on advanced semiconductors increased by 18% month-over-month in June 2025, further highlighting the tightening controls.
The exclusion of AI chip restrictions from the London agreement, despite the broader trade discussions, clearly signals that AI technology control is a paramount national security interest for the US, overriding immediate economic considerations. This also suggests a deepening technological decoupling that will fundamentally reshape global supply chains, leading to the creation of parallel, independent tech ecosystems. Nigel Green's observation of "two economic systems forming" and the "ongoing decoupling across multiple fronts" reinforces that this is a systemic shift, not just a dispute over tariffs. The US's willingness to make concessions on raw materials like rare earths to stabilize its existing industries, while rigorously maintaining restrictions on foundational AI technology, shows its strategic priority of preventing future Chinese AI advancement. This approach has introduced substantial operational uncertainties for technology firms globally.
Trend#2: China Closing the AI Innovation Gap
Another significant development, highlighted by Trump's AI czar David Sacks, is the assessment that China's AI development is now estimated to be only six months behind that of the US. The emergence of China's DeepSeek model, developed on relatively lower budget yet competitive with advanced US AI models, was described as an "AI Sputnik moment" in Washington, thus increasing the US’ concerns. Furthermore, China demonstrates its capability to rapidly deploy AI infrastructure, supported by lower energy costs and centralized coordination, in comparison to US data center delays often attributed to environmental compliance.
This rapid progress by China has occurred despite stringent US efforts to restrict its access to advanced chips. Unexpectedly, these constraints have compelled Chinese firms to maximize efficiency and innovate within their limitations. This suggests an unintended consequence of US’ restrictions which, rather than crippling China's AI ambitions, have arguably accelerated its indigenous innovation and efficiency. This can be seen as a valuable lesson for other nations on developing world-class AI under resource constraints.
Trend#3: Geopolitical Undercurrents Beyond Trade Deals
Rare Earth Minerals: The US-China AI rivalry extends far beyond traditional trade disputes. A pivotal aspect of China's strategy has been its leveraging of dominance in rare earth minerals, which are indispensable for a wide array of modern technologies, from electric vehicle motors to advanced military aircraft. In response to escalating US tariffs, Beijing implemented an export-licensing regime for rare-earth magnets. This new system mandated detailed applications from Chinese producers, sometimes even requiring photographs of the final products and specifying the end-use of every shipment. This strategic move triggered a cascading industrial crisis globally, severely impacting major Western manufacturers such as Ford and Tesla among others.
This demonstrated China's clear strategic intent and its willingness to weaponize its supply chain dominance, directly exposing American companies to significant risk. While the London agreement granted the US access to rare earths, China's stringent permitting system remains firmly in place, retaining Beijing's control over the future flow and destination of these critical minerals. China has effectively established a new form of asymmetric geopolitical leverage through critical raw material control, fundamentally shifting the focus of economic warfare from traditional tariffs to strategic supply chain chokepoints.
Funding and Talent: Going beyond hardware and software, the US immigration barriers and unpredictable research funding policies are inadvertently pushing top AI talent towards friendlier shores such as Singapore and Abu Dhabi. Conversely, China is actively reversing its brain drain, with a growing number of Chinese-origin scientists from leading global tech firms returning home. Senator Dan Sullivan has raised concerns about the flow of US venture funding to Chinese AI startups via offshore accounts. In a strategic move, the US is also positioning the Middle East as a fallback compute zone for AI infrastructure, signing significant AI chip deals with UAE, Saudi Arabia, and Qatar, reversing previous Biden-era restrictions.
Summary of Key Developments in US-China AI Rivalry (June 11-12, 2025)
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Development
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Key Outcome
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AI Implications
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US-China Trade Agreement (London Talks)
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- US gains access to rare earth metals
- Chinese students permitted to resume studies in US universities.
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- US maintains existing ban on advanced AI chips and semiconductor equipment to China.
- No meaningful concessions on high-end AI technology for China.
- Export restrictions on advanced semiconductors increased by 18% month-over-month in June 2025.
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Analyst’s Closing Thoughts
The intensifying AI rivalry is driving a global re-alignment of talent, capital, and infrastructure, creating significant opportunities for non-aligned nations like India to attract investment and human capital seeking stability and alternative ecosystems. US policies, while aimed at restricting China, are inadvertently creating a brain drain from the US, pushing top talent to other nations. This opens a strategic window for countries like India, which already boasts the second-largest AI workforce globally, to become a more attractive destination for both talent and investment seeking a more open and stable environment. The US's strategic pivot to the Middle East for compute power also indicates a diversification away from East Asia, potentially creating a vacuum or opportunity for other reliable partners in the global AI supply chain. This fragmentation of the global AI ecosystem necessitates a proactive strategic positioning for India to capture these shifting flows of talent and capital.
So, what do these macro shifts mean for India? In the Part 2 of this blog series, we will shift our focus to India, analysing the immediate impacts of these geopolitical events on its growing tech startup ecosystem, and exploring the critical opportunities and challenges that lie ahead.
![[Part 1] The Geopolitical Chessboard: Navigating the US-China AI Rivalry and India's Strategic Imperatives](/sites/default/files/styles/960_x_600/public/media/images/ChatGPT%20Image%20Jun%2014%2C%202025%2C%2005_39_04%20PM-edited.png?itok=qgCkFUEr)
