Three areas of dramatic technological change are truly transformative.

 

First is Green Technologies (solar, wind, hydro).  Also how to mitigate effects of oil carbon tax, carbon capture, etc.

 

Second area is Artificial Intelligence and leveraging the Cloud. Cloud based function for everything - from business applications to smart phones, storage and real-time applications. From that flows AI and Machine Learning: From search AI has grown in many areas - from helpful to the dubious. Based off of Google Search - has now evolved into AI and self-driving capabilities- predict and learn. Not smarter - faster - based on number of servers. Data warehousing. But this is the new area for innovation and economic advantage. Can't grow and compete outside of digital/AI. Where the investment is, jobs are, political clout lies.

 

Third is connected and autonomous revolution in transportation and its infrastructure: electric, connected, autonomous, capitalizes on green (EV), AI and Cloud. Connectivity as important. Just at the beginning, but transportation is the largest part of economy and has been very slow to come into the digital/AI world.  Beginning with companies like Tesla, Uber and Waymo auto makers are now into the digital era with ADAS, Communications and self-driving. Has to eventually evolve into a digital ecosystem for transportation : ride-sharing network and integration of full transportation networks - self-driving cars, electric metro and train. The final - and possibly most important aspect - of an integrated, Smart and Clean City of the future.

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That combination of AI, CAV-driven transportation and green technologies are interrelated.  All aspects of the modern economy are tied to the Cloud and need to be technologically advanced and digitally connected and green. All of those vehicles need to be electric because of climate change.By 2035 cars with petrol and diesel engines will no longer be sold in Europe — one of the most drastic curbs on vehicle emissions anywhere in the world  Electric vehicles need a viable electric charging grid for EVs, and advanced edge communications to tie into the Cloud, but also require more powerful batteries, especially as they become more enhanced with self-driving and AI. Batteries, in turn, require base elements and rare earth materials. And the entire digital ecosystem requires semiconductors, because it is microprossors that collect and allow for AI, EVs self-driving cars, smart cities, smart phones, and the Cloud-based economy, become strategic to national economies. 

 

That's where investment and innovation is driving us: AI, CAV and Green Technologies all represent the evolution to a completely new economy - data (AI, machine learning, servers and the Cloud) is the new oil.

China recognized that several years ago. They were essentially starting from scratch in terms of Infrastructure. Huawei and 5G and onward. Directly tied to autonomous vehicles. New, all-electric car manufacturing companies - NIO, etc. Battery production leadership. Belt-and-road for rare earth minerals - lithium and cobalt. Semicounductors. Plan is to dominate in AI, AV, semiconducts, etc by 2025.

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US and Europe have legacy oil-based infrastructure and oil interests that made us hesitate to shift until Climate Change and AI prompted us ahead. "Many of the rising Chinese EV makers have the functional advantages of start-ups, with agility and no cumbersome legacy operations to sustain." The US needs to move quickly into that new economy - for the good of the planet and to recreate the manufacturing edge of last century for its own economy.

That's why the IRA and Chips Act are so important. Stimulate with $400 bn. Maybe most important is revival of manufacturing... In 1950s America it was said that "What is good for General Motors is Good for America." But back then..." Manufacturing in the US peaked in the 1950s at about 28 per cent share of the economy, but has since fallen to little more than 10 per cent."

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Some say that is against WTO and liberalizaation of a global economy. Defies laws of comparative advantage. Even neo-merchantilist. Certainly is.

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But the green, AI and digital economoy of the future has different characteristics from the oil economy of the last century. Connectivity and data are central to this new economy, and that has its downside: All connected means a fundamental vulnerability didn't have in the last century: the very nature of the digital world is cyber vulnerability. Denial of Service for power grids or transportation systems. Ransomware. Industrial Espionage. Cybersecurity. Surveillence and monitoring can be built into the chips, the components (eg. Huawei), the networks and the products. If connected, can all be done form the other side of the world. That's why digital and connectivity are such a different economy. Vulnerability means must have trust in your suppliers.

 

That's why all changed with the China 2017 Act - made all Chinese companies provide access of their data to the PRC CC. In a stroke, that cut off a huge number of new digitial economy products made in China to the US and its allies and began the evolution into two separate global technology blocs.

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Has led to “decoupling” and “de-risking”...

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So when people ask why can't we work with China as before, answer is very different. Not a question of simple competition. Or that US wants or needs to keep China down. But now the principal criteria is can we work together in an atmosphere of Connectivity Trust? Moves companies from efficient supply chain to resiliance. Just-in-time to just-in-case. That is second reason why IRA and Chips Act so important. Allows for secure and trusted industry supply chain partnerships.

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But that means a very different world, as a picture begins to evolve of two trading blocs, almost entirely separate on any AI, energy, communications or automotive (batteries, self-driving connectivity, semiconductors) products. That, in essence, is the IRA and Chips and Sciences Acts - Ensures national security and economic self-reliance. Maybe neo-merchantilist, but there is no choice. Could be no money better spent.

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As oil in Russia to euorpe, found, green technologies to power EVs and the household and inudstrial base with clean and renewable energy sources of electricity, semiconductors and battery technology will be the new oil. Add to this the issues of cyber security, ransomware and industrial espionage, and

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With more than $400bn in tax credits, grants and loans, the combined passage of the landmark Inflation Reduction/Chips and Science Acts marks both an extraordinary investment and a dramatic shift  in US economic, trade and foreign policy. 

 

Designed as a national green-technology industrial policy with an added emphasis on bolstering a domestic semiconductor industry, the legislation marks an unprecedented step toward American self-reliance and technological dominance in a world just beginning to transition away from oil, and into to a green, autonomous and AI-dominated economy. 

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At the same time, the IRA/Chips Act reflect a fundamental change in US trade trade and manufacturing policy - away from the free-market, globally-collaborative liberalization championed by the US (and reflected in China's admittance to the WTO in 2001) for decades, and toward   The legislation provides for huge subsidies and tax credits to companies investing in renewable energy and semi-conductor technologies – as long as the products and the components are made in America.

 

The stated goal is to "de-risk" the American economy by diversifying supply chains, rather than outright decoupling from the massive Chinese market place. Yet some say this unprecedented level of investment is just protectionism designed to help America take the lead in green-economy innovation, and a not-so-subtle effort to counter China’s potential future dominance in strategic technological growth sectors - solar panel equipment, electric and autonomous vehicles, batteries, semi-conductors and Artificial Intelligence. 

 

Will this remarkable level of investment in the US stimulate green technological innovation and growth across the globe, bolstering the transition to renewables and creating a more stable supply of semiconductors and battery technology for the coming AI and Autonomous Vehicle economies of the future?

 

Probably. But as the implications of this transition begin to emerge, the IRA/Chips Act may be seen as a declaration of economic and technological war with China and its erstwhile allies, forcing companies and countries around the globe to choose sides in a global struggle of competing technology blocs. 

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Join Dale Neef for a 1-hour talk on the economic and geopolitical implications of this extraordinary new level of American leadership and investment in emerging technologies.

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