Trump’s Nvidia-fueled AI diplomacy is doomed

This week, chips were on the menu in the White House. “When you ask about AI and chips, Saudi Arabia has a huge need for computing power,” Crown Prince Mohammed bin Salman (MBS) said at a press conference  on Tuesday with President Trump, where he floated a potential $50-billion purchase of American microchips.

Trump’s Commerce Department signed off on exporting 70,000 such advanced microchips made by Nvidia to state-owned AI firms in the United Arab Emirates (UAE) and Saudi Arabia. Little wonder why Jensen Huang, Nvidia’s high-flying CEO, joined a gaggle of tech moguls – including Elon Musk, Tim Cook, and Michael Dell – at a dinner honoring the Saudi royal.

By the time MBS was on his flight back to Riyadh, he could tout a new data-center partnership with Musk’s xAI and fleshed-out joint ventures with firms like Amazon and Cisco. Silicon Valley’s bevy of deals with the oil-rich Gulf states are central to so-called “AI diplomacy”: a policy bet that the United States can leverage access to select tech to compete with China’s broader economic influence.

“We’re leading by a lot on AI,” Trump chimed in during the press conference. “China would be in second place, but we’re leading by a lot.” In his administration, this has been a constant refrain. David Sacks, his AI czar and a venture capitalist, has argued that chip sales could “shift the balance of power in the region,” as the White House’s AI diplomacy “boxes China out of the Middle East.”

Yet the reality is that there’s no amount of chips that the United States can throw at Saudi Arabia, the UAE or other Gulf states, to persuade them to decouple from China. China-Gulf relations are already deeply entrenched, with Gulf rulers relying on Chinese supply chains to pursue ambitious visions of domestic economic transformation. So while offering access to Nvidia chips might be useful for securing Gulf-state investments in the United States, they are by no means a “killer app” that can easily re-establish U.S. market share — or geopolitical influence — in the region.

Chips-based diplomacy

It’s easy to see why the oil-rich Arab monarchies have emerged as the key test case for AI diplomacy.

Saudi, Emirati, and other Gulf rulers want to transform their current resource wealth into post-oil sources of income and influence, amping up their strategic value to global powers by routing the flow of global data – not just oil – through the Persian Gulf.

Washington, in turn, wants to capture that strategic value and use the Gulf as a beachhead for pushing back against China’s growing global influence, ensuring that American tech companies build out Gulf compute infrastructure and that Gulf capital, in turn, flows into U.S. markets. Withholding chips from the Gulf states, Sacks argues, would “drive [these states] into the arms of China,” helping to “create a Huawei Belt and Road” in the Gulf, a reference to the tech firm.

China ties

There’s a glaring problem with this argument, though: The building blocks of Gulf rulers’ AI visions are overwhelmingly manufactured in China. While the Gulf monarchies might downplay economic cooperation with China out of respect for American sensitivities, they are unlikely to go all-in on a second American century short of a monumental shift in what the United States can offer them.

Since 2010, the Gulf states’ Chinese imports have nearly tripled, even as imports from the United States have barely increased – with little reason to expect these trends to reverse in the near future, owing to the fallout from Trump’s tariffs and China’s continued manufacturing growth. This extends beyond cheap commercial goods, encompassing important pieces of digital or electrical infrastructure like cell-phone networks and solar panels.

The Gulf states have ramped up imports of semi-conductors as part of investments in knowledge-economy industries, data centers, and government e-services. Semiconductor imports to the UAE, for example, grew from around $500 million in annual spending from 2015 to 2019 to over $730 million from 2020 to 2023, with over two-thirds of imports in the latter years sourced from Chinese firms. The UAE also expanded its annual imports of higher-end graphics chips to nearly $1 billion in 2023, with Chinese firms providing over half of that value.

Geopolitical annoyance

It’s little wonder, then, that the Gulf states have resisted pressure from Washington to “pivot from China” on matters of economic or even security cooperation.

The UAE, for one, has repeatedly annoyed Washington through the closeness of its ties to China, facing allegations of leaking sensitive information about U.S. national-security capabilities to Chinese firms. While state-run AI firm G42 committed to severing ties with Chinese entity Huawei as a condition of partnering with Microsoft in 2024, it did so by selling off its Chinese holdings to yet another state-run Emirati firm – overseen by the same Emirati royal.

Saudi Arabia, generally more sensitive to U.S. policymakers’ views on China, has likewise kept its options open with respect to Beijing. Saudi entities continue to partner with Hong Kong-based SenseTime in AI development and deployment, even as the company remains under U.S. sanctions for its role in surveillance of Chinese Uyghurs.

This hedging also reflects Gulf rulers’ concerns about the staying power of present-day U.S. technological advantages. At a time when the United States is floating new restrictions on Chinese students and scholars, the UAE is welcoming them to its Mohamed bin Zayed University of Artificial Intelligence.

The Gulf states will do what they need to keep the door open to U.S. technology – including outright bribery – but they’ll be building compute in partnership with China no matter what the United States does.

Can they even build it?

Set aside the “strategic-competition” framing, and more practical questions come up – like whether the Gulf states can even build and power these projects.

While the UAE has pulled off complex projects before, its proposed 5 GW Stargate campus would be larger than the largest AI data center in the United States and around 50 times larger than the largest such in-country installation. Saudi Arabia’s proposed 500 MW data-center partnership with Elon Musk’s xAI is larger than the country’s entire installed capacity at present, and comes even as the monarchy is quietly abandoning its failed megaprojects of yester-year.

To be sure, Silicon Valley firms will want these deals all the same, and – properly structured – such partnerships might shore up U.S. influence alongside China’s economic influence in the region. But at least for now, there’s no level of U.S. direct investment or degree of technology sharing that will get the Gulf states to pivot back away from China.

And that means asking hard questions about how much the United States can afford to place critical digital infrastructure on a geopolitical fault line for generations to come.