How Australia Wins in the US–China Trade War

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In a little over 10 years’ time, we should know exactly the outcome of the US–China trade war.

Yep, sorry to say it’s still 10 years away.

Now you might have been hoping this would all clear up in a month or two. Well, I’m here to tell you that I just can’t see that being the case.

This little to and fro has a long runway to still go. In fact, by my estimates, this ‘trade war’ is going to last another decade. Or if you want to get really precise, 10 years and 41 days.

There’s a very good reason why this ‘trade war’ is set to last that long. And there’s a very good reason why Australia stands to benefit from it the longer it goes.

You see, this trade war isn’t really about ‘trade’ at all. It’s about something far more important and far more valuable to both the US and China.

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Three steps to supremacy

In July 2017 China released an important document. This document even to this day has still gone largely unnoticed by the masses. Or those that might have heard loosely of it are dismissive of it.

The document was released by the Chinese State Council. It’s title: ‘New Generation of Artificial Intelligence Development Plan.

In this plan they outline three key steps as part of their long-term plan.

The first comes as soon as next year:

The first step, by 2020, is to keep up the overall technology and application of artificial intelligence with the advanced level of the world.

The next step comes in 2025:

The second step by 2025, we shall achieve a major breakthrough in artificial intelligence basic theory, and parts of the technology and application will be at a world leading level.

And then the final step. This is China’s real end game:

The third step: by 2030, we shall make artificial intelligence theory, technology and application achieve the world’s leading level to be the major artificial intelligence innovation center of the world, intelligent economy, intelligent society achieve remarkable results, and lay an important foundation for China’s entry into the forefront of the innovative countries and economic powers.

It’s this final step to the forefront of economic powers that’s interesting. We know the Chinese economy is huge and growing. But there’s still scepticism they will be globally more dominant than the US.

That’s not a view I have.

I believe we’re heading towards a new global empire with China at the helm. There will be influence from economic powers like the US and Europe. But it will be China steering the ship.

We’re about to see the next 100 years dominated by our friends to the North.

That opens a window of opportunity for Australia. It has the potential to open an economic boom like we’ve never seen before.

Importantly, it’s not going to be a boom because China is desperate for our dirt. It’s going to be an intelligence-led boom.

An artificial intelligence boom.

Scientific output is worth a lot

There’s a lot to like about China’s AI development plan. It’s a long-term strategic view of one of the world’s most important future technologies.

China’s always been good at that. Playing the long game that is. I guess that’s a by-product of the regime they operate. Good for some things, atrocious for others.

But this is about their thirst to be a technology powerhouse. It’s about the fact they will become global AI leaders. It’s about them being the hub of excellence for high-end technology for the next 100 years.

If they achieve it, and I believe they will, then Australia needs to get on board. Luckily, we’ve got the skills, the motivation, and the ability to ride this Chinese AI wave.

When it comes to future AI, the key is research and development (R&D). You don’t just become a global AI leader overnight. You have to spend a couple of decades pushing the boundaries of AI R&D to get there.

And that’s exactly what China has done.

The China AI Development Report 2018 was put together by the Chinese Institute for Science and Technology Policy at Tsinghua University.

In their report they highlight that since 1997, China’s AI (scientific) paper output as a percentage of global output has grown from around 5% to around 27%.

It also notes that both the US and China have seen AI paper output more than three times the next biggest (UK).

Money Morning

Source: China AI Development Report 2018

[Click to open in a new window]

You can see from the chart China produced 369,588 AI scientific papers from 1997 to 2017. The US comes in second with 327,034. And the UK in third is miles behind with just 96,536.

What you will also see however, is that Australia makes the list with 45,884. And that’s important.

Clearly the US and China have made a point to be world leaders in AI R&D. They’ve put in the yards already. And they’ll continue to do so. They can both see there’s real economic potential for this technology to give them a leg-up against the other.

But for China to come out on top, it’s not the quantity of papers that will get them over the line. It’s the quality. This is where Australia’s opportunity lies.

There’s one more chart in the development report I think is important. It’s the highly cited and ‘hot’ papers.

Money Morning

Source: China AI Development Report 2018

[Click to open in a new window]

China and the US dominate the highly cited papers again. But when you look at those as a percentage of papers produced, there’s one country that is streets ahead of everyone else…


Australia might not produce the quantity of the US and China. But when it comes to highly cited papers, quality papers, Australia is dominant. This is an indicator that the work being done in Australia on AI R&D is world-leading.

This is an industry opportunity that I believe the Chinese recognise and will continue to tap into over the next decade. If they want to be AI world leaders, they will need to leverage the relationship with Australian R&D and Australian AI developments to get there.

This trade war is merely a façade for the bigger picture. Don’t get sucked into the mainstream rhetoric on this. The real picture behind it all is the quest for AI supremacy, that’s what China really wants.

But to get there they’ll need Australia to help along the way. And that provides a big, lucrative opportunity to tap into for the next decade.


Sam Volkering,
Editor, Money Morning

PS: While US and China continue to bicker about trade deals, Australians have three opportunities to play the volatility. Download our latest investor report: ‘The US–China Trade War And The Opportunities Behind It’ to find out more about how you can profit.

About Sam Volkering

Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

He’s not interested in boring blue chip stocks. He’s after explosive investments; companies whose shares trade for cents on the dollar, cryptocurrencies that can deliver life-changing returns. He looks for the ‘edge of the bell curve’…

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