US-China divide over AI chips is manifesting a 'Splinternet'

US stocks (^DJI, ^IXIC, ^GSPC) are trading higher Wednesday morning after Treasury Secretary Scott Bessent condemned China's latest export controls on rare earth minerals vital to semiconductor production, going so far as to suggest US decoupling from the nation over this trade move.

TPW Advisory Founder Jay Pelosky comments on how investors should be interpreting this commentary on global trade and AI chips.

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Video Transcript

00:00 Speaker A

I want to dig into that, Jake, but I am curious about one thing that you talked about, which is that you shouldn't put much stock in the sort of back and forth commentary that we've been hearing from the Treasury Secretary. But why put stock in it when China says we don't need Nvidia chips. I mean, why is that not a little disingenuous as well?

00:22 Speaker B

Well, because I think evidence is increasingly uh clear that China has uh has gotten to a point in the semi uh uh space and in the artificial intelligence space where it's uh a

00:41 Speaker B

peer of the United States. If you look at open source models for example, several years ago, uh of the top five, three or four were US. Most recently, uh the top five, uh all of them are Chinese.

01:05 Speaker B

If you look at uh Huawei's uh public statements over the last couple of weeks, uh which is quite unusual for a Chinese tech company to publicly talk about how it's going to move up the uh the uh ladder of expertise and compete with the video, uh they laid out a three-year plan to do so, publicly.

01:31 Speaker B

And so I think it's not that China has gotten to a point where it's as good as Nvidia. No, I'm not saying that. Uh what I'm saying is that China is comfortable uh positioning itself uh to compete with the US without any US inputs into its tech stack.

01:58 Speaker B

And something we've called Splinternet. We've been writing about it and talking about it for years, and it's really manifesting where the two countries, US and China, their tech stacks are are increasingly being separated as AI becomes kind of a a weapon that uh both sides are reaching for to uh in their view potentially control uh the global economy and the global security uh setup.

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