OpenAI’s New Chip and the Evolving Tech Cold War

On June 24, OpenAI revealed its first custom-built inference chip, developed alongside Broadcom and internally referred to as “Jalapeño.” While it’s unlikely that most Americans will ever encounter this chip, it didn’t go unnoticed in Beijing. This development indicates that the conflict between the U.S. and China has evolved beyond mere software initiatives and chatbots; it’s now a struggle for dominance over the technological infrastructure that will dictate economic, military, and technological influence in the coming century.

Control over chips, data centers, power sources, and networks is critical for any nation aiming to shape the future balance of power. This reality should be on every American’s radar.

As discussions in Washington focus on inflation, immigration, and various foreign issues, a new Cold War is quietly gaining momentum. Unlike previous global tensions, this one centers on machine intelligence rather than nuclear arms or ideological conflicts.

Many in the U.S. perceive advanced computing as simply a helpful consumer tool for tasks like answering questions or drafting emails. However, that’s not the case for China. The Chinese government views these technologies as significant assets for enhancing state power and boosting military effectiveness, economic output, and global standing.

Recent events illustrate the rapid progression of this technology race. For instance, Chinese computing firm DeepSeek is seeking around $7 billion in new investments, showcasing Beijing’s intent to develop autonomous computing capabilities free from U.S. technology. Meanwhile, Huawei is expanding its semiconductor ecosystem for advanced applications, and the Chinese military is rapidly integrating autonomous systems and intelligent command networks. This aligns with Xi Jinping’s objective for the People’s Liberation Army to develop “new high-quality combat capabilities,” which directly relates to machine intelligence in warfare. Additionally, the White House has accused Chinese companies of a systematic campaign to extract unique functionalities from U.S. computing models.

These advancements aren’t isolated; they substantiate the claims presented in my recent book, AI’s New Cold War: the competition has entered a more perilous phase.

Infrastructure and Control

The new arms race does not merely concern software anymore; it centers on control over the technology infrastructure that empowers advanced computing. This includes not just chips but also energy resources, data centers, and networking systems. Dominance over this entire technology stack translates to significant advantages in economic productivity, military strength, intelligence capabilities, and innovation.

It seems China’s leadership grasps this more clearly than many in America.

Xi Jinping has directed both the government and military to consider machine intelligence as a strategic asset in the global tech race. The actions of the Chinese government reflect this priority. China is actively pursuing a national strategy that encompasses state-backed financing, integration of military and civilian technology, and the development of domestic semiconductor capabilities, all aimed at creating an independent computing ecosystem based on Chinese technology.

Implications of Jalapeño Chips

The strategic importance of OpenAI’s new inference chip goes beyond just improving processing speed. It’s indicative of a trend toward vertical integration in the competition for technological supremacy. Future advantages in the tech space may not just go to those developing superior software, but to those who command the entire ecosystem—from chips to cloud infrastructures. China appears to be well aware of this reality, while the U.S. is only beginning to wake up to the implications.

Extracting U.S. Capabilities

One of the more overlooked threats in this contest is what the U.S. government has termed “adversarial distillation.”

This term may sound complex, but the essence is straightforward. Foreign actors can extract functionality from American computing systems through mass queries and coordinated techniques without needing direct access to source code. A memo from White House Science and Technology Director Michael Kratsios has warned that Chinese firms are conducting an extensive campaign to replicate U.S. computing capabilities using numerous proxy accounts.

During the Cold War, spies sought nuclear and aerospace secrets mainly through human intelligence. Today, similar strategic advantages can be acquired through commercial programming interfaces.

Even if the U.S. develops the most advanced computing systems, failing to safeguard them could leave their technological superiority tenuous.

Supply Chain Vulnerabilities

However, the most significant risks may be closer to home. The U.S. is pouring hundreds of billions into advanced computing infrastructure and companies are constructing large data centers nationwide. Yet, power suppliers are grappling with anticipated electricity demands.

This situation seems optimistic until we examine the supply chain intricacies. Many electrical components essential for these facilities, like transformers and power management gear, rely heavily on overseas manufacturing—much of which is linked to China. Moreover, the production of critical minerals and rare earth elements, mostly supplied by China, poses further risks. This reliance on foreign suppliers leaves America’s technological superiority more exposed than policymakers might realize.

This conflict creates a strategic inconsistency that Washington has yet to resolve. As the U.S. increasingly identifies China as a long-term challenger, its tech giants remain dependent on vulnerable Chinese supply chains. A nation cannot triumph in a technological race while depending on its primary rival for the infrastructure necessary to compete.

Actions Needed

Policy initiatives like stricter semiconductor export controls and increased Pentagon investments in autonomous systems indicate that Washington is on the right path, but progress seems slow in light of the looming threats.

The U.S. must secure its semiconductor production, develop dependable domestic energy sources, create resilient supply chains that avoid reliance on Beijing, and maintain robust research funding and partnerships with like-minded allies. More crucially, it’s important to recognize that machine intelligence is not just a tech story; it’s a matter of national power whose implications extend beyond current political debates.

The first Cold War was shaped by industrial capabilities, military resolve, technological advances, and a clear moral vision favoring freedom over oppression. The current Cold War will demand a similar blend of strengths.

Chinese leaders have already concluded that advanced computing will play a key role in shaping the global balance of power this century. The U.S. currently enjoys a significant edge, but this advantage could disappear if taken for granted. The competition is already underway. Whether the U.S. leads or falls behind will likely hinge on decisions made today regarding chips, energy, infrastructure, and national determination.China is aware of the risks. The pressing question is whether the U.S. recognizes them as well.