2025 AI Race Fractures Global Tech Order with US-China Rivalry
In 2025, the rivalry between the US and China over artificial intelligence (AI) fractured the global technology order, resulting in segmented hardware, software, standards, and supply chains. Civilian AI increasingly informed military strategy, reflecting a merging of civilian and defense technology agendas.
DeepSeek developed the R1 model at a comparatively low cost using older H800 GPUs, challenging assumptions that hardware dominance would limit China's AI progress. Notably, Nvidia's market share in China plummeted from 95% to zero, coinciding with Beijing's ban on foreign AI chips in government data centers.
Chinese companies Huawei and Cambricon rose to prominence as leaders in AI infrastructure. Domestic players were projected to capture about 40% of the internal AI server market by the end of the year. Parallelly, the US government introduced an AI Action Plan, expanded export controls including a ban on Nvidia H20 chips in April, and restricted chip usage in government-funded data centers. In November, the US announced the Genesis Mission, aiming to create an integrated AI platform for science and defense.
China implemented the strictest rare earth export controls ever, applying the Foreign Direct Product Rule. In response, the US Department of Defense invested $400 million in MP Materials, securing a 10-year price floor of $110 per kilogram. MP Materials produced around 1,000 tons of magnets compared to China's 138,000 tons.
Under President Xi Jinping, China's Military-Civil Fusion strategy sought to intertwine civilian AI advances with military objectives. The People's Liberation Army (PLA) envisioned intelligentized warfare using cognitive operations and autonomous drone swarms. Western technology firms began engaging more with defense contracts, including companies like Palantir and Anduril. Meanwhile, AI leaders OpenAI, Google, and Anthropic expanded into military-related AI applications.
Open-source AI models grew markedly, with Alibaba’s Qwen accounting for roughly 40% of new models on the Hugging Face platform, accumulating hundreds of thousands of derivatives and hundreds of millions of downloads. However, DeepSeek faced bans in multiple countries. OpenAI released GPT-oss, while groups such as Nous Research pursued cross-border AI initiatives.
Significant AI investment pledges came from Saudi Arabia and the United Arab Emirates, collectively amounting to around $2 trillion. Saudi Arabia committed $600 billion, forming data-center partnerships with Nvidia, AMD, Google Cloud, and AWS. Europe launched its InvestAI program with €200 billion but allocated a smaller proportion of venture capital to AI (18% of €252 billion) compared to the US (34% of $1.33 trillion).
