Horizons Newsletter – 44 // 2020

Horizons is a bi-monthly Dasym Research initiative to show you how the Dasym themes have been in the news. We publish the Horizons on our website and as an email newsletter. If you wish to receive the email, please contact Investor Relations.
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The politics of strategic technology
What do semiconductors and artificial intelligence have in common? Both have great impact on the economy as well as national security. Historically, such “strategic technologies” trigger a predictable pattern of politics, as shown by Jade Leung. The pattern describes how the roles of the state, firms and researchers change in each phase of technological development. During the first phase, emergence, there is primarily synergy between them as the state supports its firms. In the second phase, commercialization, however, fearful images arise as the impact on security gains more attention. In the third phase, maturation, a big shift occurs as the state attempts to take back control to prevent foreign actors from gaining access to its strategic technology. This is happening in the semiconductor industry (see graph) and it is likely to happen in AI as well. Part of the pattern is that some firms will cooperate with the state (e.g. Palantir), whereas others publicly distance themselves from the state (e.g. Google). Overall, the politics of strategic technology will shape the future of semiconductors and AI.

Who do we trust in the stack war?
After threats from Trump to ban TikTok on security grounds, Oracle, Walmart and TikTok’s mother company Bytedance have proposed a deal in which the U.S. will have a 20% stake in TikTok Global. Furthermore, Oracle will host the service for the U.S. as a ‘trusted technology provider’, in order to guarantee the safety of U.S. citizen’s data. However, the deal will not involve the transfer of the service’s algorithms. The fight over services and underlying algorithms and user data seems to be a progression of the tech war that mostly has been focusing on lower layers of the stack, whether it be rare-earth metals, hard infrastructure (Huawei) or soft infrastructure (new IP). Even though both the U.S. and China still have to approve it, this deal could become a future template for popular services that aim to operate in adversarial regional markets. In fact, Apple and Amazon are already subject to a similar treatment for their services in China, having to store their users’ data within China in partnership with a trusted local firm.

Rare earth materials become the battleground of digital hegemony
Rare earth materials are the critical material backbone of our digital technology, powering data centers, electric cars and solar panels. For decades, China has invested heavily in rare earth industries (Deng Xiaoping compared the importance of rare earth metals to the status oil has) and is now home to 90% of global production. Last year, China scared markets when it threatened to halt the export of rare earth metals to the U.S. Fully blocking these strategic resources will be interpreted as an outright act of economic war, as China did to Japan in 2010 after the Senkaku boat collision incident, making this an unlikely policy option for China. But again, in September 2020, China stockpiled huge quantities of rare earth materials, threatening markets that it could halt exports. Given the rising geopolitical tensions between China and the US and the fact that nascent exponential technologies such as AI, 5G, and quantum computing are dependent on these materials, rare earth materials increasingly come in the crosshairs of geopolitical conflict. Achieving digital hegemony will increasingly depend on the securization of these old materials.