AI Risks, Trade War Loom Over Trump-Xi Summit

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CNN reported Friday that the US military “almost started a war” with China because an intelligence report drafted with artificial intelligence included an “entirely false” hallucination claiming a Chinese ship in the Middle East was carrying nuclear weapons components. (Was this some diabolical Skynet attempt to trick us into self-annihilation?)

So when Chinese President Xi Jinping arrives in Washington on Wednesday, where he will take part in a summit with US President Donald Trump before departing Friday, they’ll have lots to talk about.

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Guess Who’s Coming to Dinner

The visit includes a state dinner where the elephant in the room won’t be a hallucination. Following a couple of weeks of fever-pitch AI anxiety, mostly on this side of the Pacific, executives of firms crucial to the AI trade, including OpenAI’s Sam Altman, Nvidia’s Jensen Huang, Qualcomm’s Cristiano Amon and Apple’s Tim Cook, are expected to be there. The White House is reportedly considering holding AI-focused sideline meetings during the summit. Altman, perhaps looking to stroke some egos via the press, told Fortune he thinks Trump and Xi could win a Nobel Peace Prize if they strike an AI deal.

Most observers, however, don’t expect more than what has already been telegraphed. Last week, China’s commerce ministry said the countries are in talks to slash reciprocal tariffs on roughly $30 billion worth of goods on both sides. Both countries are also keen to extend a one-year agreement reached last October under which Washington suspended export controls blocking Chinese firms from accessing US tech in exchange for Beijing approving rare earth and critical mineral exports.

China, meanwhile, remains saddled with domestic problems that critics say it’s mollifying at the world’s expense. The country has a massive debt pile, a struggling real estate sector, chronic unemployment issues, weakening retail sales growth, slowing GDP growth and contracting fixed-asset investment. To offset these, Beijing has encouraged manufacturers with state subsidies to produce excess goods for mass export:

• Excess production policies have resulted in 30% of Chinese industrial firms operating at a loss, up from 20% before the pandemic, according to the country’s National Bureau of Statistics.

• “The political appetite for accepting the deindustrialization and critical dependencies that come with the flood of Chinese imports is finite and shrinking,” former US Trade Representative Michael Froman wrote in the September issue of Foreign Affairs, noting Trump’s tariffs as well as the EU’s more aggressive trade posture toward Beijing. He warned that if Beijing refuses to reorient toward a more sustainable economic model and the world is unable or unwilling to absorb its excess production, “the consequence could be a global economic crisis.”

The Undercut: Hyundai’s CEO warned Friday that Chinese cars undercut competitors by 30% to 40% in some markets, and could soon erode market share of domestic carmakers in the US, having already done so in Europe.

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