Monopoly Round-Up: Will the Trade War Pop the AI Bubble?

Lots of monopoly news, as usual, including the Pope putting on his anti-monopoly hat, some actually good antitrust decisions at the Supreme Court, a new law in California that lets you opt out of most tracking through a one click toggle in your browser, and new levels of corruption in sports gambling.

But first, I want to focus on the most important monopoly story of the week, which is what China just did with its export regime. The PRC unveiled sweeping global controls on its monopoly of rare earth materials that go into every major tech system built on this planet, meaning that it will decide who gets to participate in the modern economy, including whether Americans can continue to build AI data centers. In fact, China explicitly said that it would focus on rare earths that go into high-end semiconductors. So while China imposed the controls all nations, the U.S. response is especially important. Trump’s rejoinder is that China is “holding the world captive” from a “monopoly position,” and he issued a variety of threats, including tariffs.

To understand the importance China’s decision, we have to start with a storyline that everyone in the financial markets talks about daily, which is the bubble in generative artificial intelligence technology, and how it’s holding up the U.S. economy. Now, AI is a genuine technological innovation, so this essay isn’t attempting to belittle what machine learning can do. But we have to distinguish between engineering advances, and financial investment patterns. And right now, decision-making on investment is coming from a particularly concentrated set of firms controlling profits in the economy, and the small number of people making decisions at those firms have placed their chips, and thus America’s chips, on a large AI data center build-out.

Here’s what I mean. A few years ago, Mark Zuckerberg changed Facebook’s name to Meta, with the idea that virtual reality and augmented reality were going to be the next computing platform, versus social networking, which made all of his company’s profit (and still does). Since then, Meta has spent $45 billion on “the Metaverse,” an odd attempt to popularize tacky virtual reality worlds. While there are some interesting projects coming out of all of this spending, so far it has mostly been a massive money-losing venture. And yet, Zuckerberg’s net worth has doubled, to more than $200 billion, and investors had no problem with this ...