Highlights

• The U.S.-China tech contest has expanded beyond semiconductors and AI to rare earth refining, clean energy manufacturing, and critical mineral processing, where China controls over 85% of global rare earth refining and near-total dominance in magnet production.
• China's strategic advantage lies in industrial-scale implementation—embedding AI into robotics, EVs, and smart manufacturing—while the U.S. leads in cutting-edge chip design and frontier AI models but faces grid fragmentation and regulatory bottlenecks.
• The Global South has become the critical battlefield where minerals, energy infrastructure, and machine intelligence converge, with processing capacity now defining technological sovereignty more than mining rights alone.

---

In “The New South as a Frontline of the U.S.-China Technological Rivalry” (Policy Brief PB-07/26, February 2026), Otaviano Canuto, (opens in a new tab) Senior Fellow at the Policy Center for the New South (opens in a new tab) and former World Bank Vice President, delivers a blunt assessment: the U.S.–China contest is no longer confined to labs or chip fabs—it now runs through rare earth refining plants, battery factories, robotics floors, and power grids across the Global South. While the United States retains leadership at the technological frontier—advanced semiconductors, top-tier AI models, and deep capital markets—China has consolidated commanding positions in industrial-scale implementation, clean-energy manufacturing, and critical mineral processing, particularly in rare earth refining and magnet production. The decisive edge, Canuto argues, will belong not to whoever invents fastest, but to whoever integrates innovation, industrial policy, supply chains, and energy systems into a cohesive national strategy.

The Four Frontlines of the Tech War

Semiconductors & AI

The U.S. leads in cutting-edge chip design and frontier AI models. Export controls have slowed China’s access to advanced lithography and equipment. Yet China counters with open-source, lower-cost AI models and rapid industrial deployment, narrowing practical gaps even without leading-edge chips (pp. 4–6).

Applications & Industrial Ecosystems

China’s edge lies in embedding AI into physical production systems—robotics, EVs, drones, smart manufacturing. Robotics adoption rates (Figure 3) show China integrating automation at scale, transforming AI from code into factory-floor dominance (p. 7)

Clean Energy & Critical Minerals

This is where leverage sharpens. Figure 6 (p. 10) shows China holding overwhelming shares in rare earth refining and magnet production, with magnet manufacturing approaching near-total dominance. The brief notes China commands over 85% of global rare earth processing, alongside strong positions in lithium and silicon refining

Mining may be geographically dispersed, but refining—the choke point—remains concentrated.

Energy & Infrastructure

AI is electricity-hungry. Data center demand is projected to surge dramatically (pp. 11–12). China’s coordinated expansion of renewable and nuclear generation contrasts with U.S. grid fragmentation and regulatory bottlenecks. In this war, megawatts may matter as much as microchips.

Rare Earths: The Strategic Pressure Valve

Figure 6 makes clear: rare earth refining and magnet production give Beijing quiet but potent leverage. Even if U.S. firms dominate AI model development, defense systems and energy hardware still require materials processed largely in China. This asymmetry, Canuto suggests, partly explains last year’s easing of tensions—each side controls chokepoints the other needs.

The New South: From Bystander to Battlefield

Africa, Latin America, the Gulf, and Southeast Asia now sit at the center of contestation. China bundles infrastructure, financing, and digital ecosystems. The U.S. pushes security-aligned partnerships and selective industrial reshoring. Concepts like “powershoring” position energy-rich countries as magnets for AI-era manufacturing.

Limitations and Realities

The brief synthesizes policy and industry data rather than presenting new empirical modeling. Market share figures emphasize processing dominance but simplify upstream vs. downstream distinctions. U.S. policy volatility (IRA rollback, CHIPS implementation) complicates forecasting. And despite sharp rhetoric, deep interdependence persists—full decoupling remains improbable.

What Comes Next?

The message for rare earth and critical mineral stakeholders is uncompromising: processing capacity defines sovereignty. Mining without refining is leverage surrendered. For policymakers, the AI race will hinge as much on grid stability and energy abundance as on algorithmic breakthroughs.

The “New South” is no longer peripheral geography—it is the arena where minerals, megawatts, and machine intelligence converge.

In this emerging Great Powers 2.0 Era, the country that masters this integration will shape the next technological order.

Citation: Canuto, O. (2026). The New South as a Frontline of the U.S.-China Technological Rivalry (opens in a new tab) (Policy Brief PB-07/26). Policy Center for the New South.