How is the US-China tech war going? Ask AI

US-led restrictions, exemplified by ASML's inability to sell its cutting-edge chip manufacturing equipment to China, aim to slow a rival's AI advancements. However, assessing the true economic fallout of such policies is complex. The academic paper "Geoeconomic Pressure" employed open-source large language models to analyze corporate disclosures, identifying genuine causality in how state coercion directly altered business operations, a more nuanced approach than traditional keyword searches.

The study's findings suggest these restrictions had varied effects. In the US, firms subject to Washington's controls reportedly faced lost sales volumes and compressed profit margins. Conversely, in China, approximately 40 percent of management calls flagged for export curbs indicated an increase in research and development spending. Two-thirds of this reported higher spending was specifically directed toward what the AI categorized as "Core Technology Indigenization," focusing on developing homegrown chip equipment to lessen reliance on foreign technology.

This pattern of unintended consequences was also observed in other geopolitical events. Western sanctions on Russia after its 2022 invasion of Ukraine led to write-downs and higher logistics costs for European and US firms, while non-aligned countries like China and India reportedly benefited by accessing discounted resources. Similarly, US tariffs under President Trump often resulted in inflated input costs for domestic companies, rather than foreign exporters absorbing the duties as initially anticipated.