[Answered] Discuss the multifaceted implications of the escalating ‘tariff wars’ and geopolitical shifts on the global development and deployment of AI. Examine how countries, particularly developing economies, might strategically navigate these challenges to leverage emerging advantages.

Introduction

Artificial Intelligence (AI) is emerging as the cornerstone of technological advancement and economic competitiveness in the 21st century. However, the intensifying geopolitical tensions and the resurgence of tariff wars, particularly between the U.S. and China, are reshaping global AI value chains. These developments have profound implications for innovation, supply chain resilience, and the strategic positioning of developing economies like India.

Implications of Tariff Wars on Global AI Development

1. Disruption of Global Supply Chains: AI development relies on complex, transnational supply chains involving advanced semiconductors, AI accelerators, and data infrastructure. Tariffs, such as the U.S.’s up to 27% duties on AI-critical components in 2025, increase production costs, cause uncertainty, and incentivize reshoring or nearshoring, often with unintended consequences — like shifting manufacturing to China or elsewhere instead of bringing it home.
2. Reduced Innovation and Economic Efficiency: Tariffs may shield domestic industries temporarily but tend to discourage innovation by reducing competition and access to frontier technologies. According to empirical studies, a one standard deviation increase in tariffs can reduce output growth by 0.4% over five years, demonstrating long-term losses in productivity and efficiency.
3. Capital Substitution and Decentralization of AI: As tariffs make hardware costlier, developers pivot to software-side optimization — such as model compression, algorithmic efficiency, and ASICs — to sustain performance at lower cost. Over 50% of AI accelerators are projected to be ASICs by 2028, indicating a decentralized, application-specific trend in AI hardware design.
4. Regulatory Divergences and Data Sovereignty: Tariffs intersect with differential data governance regimes. While the U.S. and EU impose stringent data regulations, countries with broader digital access and flexible data laws (e.g., India, Brazil) may attract data-centric AI R&D, even if hardware costs rise.

Strategic Navigation by Developing Economies

1. Positioning as a ‘Third Option’: Countries like India are strategically emerging as neutral zones amid U.S.-China AI rivalry. With 1.5 million engineering graduates annually, a growing digital market, and government support through the IndiaAI mission, India is fostering indigenous AI capabilities while attracting foreign investments (e.g., AMD’s $400M design centre in Bengaluru).
2. Building Domestic Hardware Capacity: India’s semiconductor mission and fab proposals aim to reduce reliance on imports and address supply chain shocks. Strategic investments in fabrication, packaging, and testing can support AI infrastructure self-reliance.
3. Leveraging Algorithmic Efficiency: Instead of brute-force computing power, India and other developing nations can focus on low-resource AI models, AI-as-a-service platforms, and frugal innovations to create scalable, cost-efficient solutions suited for local contexts.
4. Fostering Global Collaborations: South-South and triangular cooperation, partnerships with ASEAN, the EU, and African nations, along with involvement in global AI governance platforms (e.g., GPAI), can ensure inclusivity and equitable growth in AI.

Conclusion

The evolving tariff landscape and geopolitical tensions are not merely trade skirmishes—they are shaping the future of global technological power. For developing countries, these disruptions present both risks and historic opportunities. By aligning policies with supply chain diversification, talent development, and digital sovereignty, nations like India can emerge as innovation hubs and equitable beneficiaries of the AI revolution.