Look Forward — 2 December 2025
Geopolitics of data centers: An AI showdown that will reshape the world
The policies of the latest chapter of the fourth industrial revolution will impact the global geopolitical landscape, with data center security and data sovereignty emerging as critical themes.
By Dan Thompson, Tony Lenoir, and Perkins Liu
Highlights
Technological advances historically have led to commercial empowerment and enhanced military capabilities, resulting in greater influence within the spheres of ideas, culture and economics. The stakes around global AI leadership could not be higher.
Accordingly, governments around the world are supporting the data center infrastructure build-out and trade in AI chips needed to secure at least a degree of independence and, for the top players, dominance. The US and China are in the driver's seat, respectively hosting 39% and 22% of global data center power available to IT equipment.
Established geopolitical dynamics and national security are in the balance. Under a prevailing AI umbrella, globalization likely would stay the course, while the coexistence of competing systems might reverse the trend, raising new questions about data sovereignty and cross-border implications for data center security.
Nations worldwide are engaged in an AI race, determining the future of economic competitiveness, national security and societal paradigms. This race requires a massive infrastructure build-out, supported by some public policies and potentially hindered by others. The US has established an early lead in developing data centers to support AI, but China is not far behind. Analyzing the strengths and weaknesses of the two markets suggests a potentially close finish in the home stretch for AI advantage.
Major powers are eager to achieve AI dominance
Like other transformative technological breakthroughs before it — including the steam engine, electricity and the internet — AI could alter human interactions, conditions and behaviors, reshaping global commerce and international relations yet again. If the past is any indication, effectively developing and regulating the emerging technology will give those that prevail an edge in economic competitiveness, national security and soft power. Maintaining technological leadership is therefore a key priority for the world's leading powers.
Strategic implications
Promoting and supporting adequate data center infrastructure represents a major policy focus for world powers wishing to remain at the forefront of the AI revolution. Performance, costs and acceptance are key. Achieving a dominant position in AI technology could confer decisive global sway, possibly determining the shape of globalization. Conversely, a scenario with no clear winner, where competing systems coexist globally, could result in a compatible multipolarity, but could also revert the world to the "bloc" dynamics of the Cold War era, with fragmented approaches to data sovereignty.
World leaders recognize the crucial implications. In "America’s AI Action Plan," released in July 2025, US President Donald Trump states, "It is a national security imperative for the United States to achieve and maintain unquestioned and unchallenged global technological dominance." Meanwhile, the Chinese State Council's August 2025 "Opinions on Deepening the Implementation of the 'Artificial Intelligence Plus' Action Plan" notes that AI presents the opportunity to reshape "the paradigm of human production and life, promoting a revolutionary leap in productivity, and profound changes in production relations." Even as far back as September 2017, Russian Federation President Vladimir Putin declared in a televised address that "whoever becomes the leader in [AI] will become ruler of the world."
Bottom-up vs. top-down — a tale of two AI-focused data center strategies
United States
America's AI Action Plan stresses the urgent need for robust infrastructure to support AI growth, particularly in energy generation, data management and data center security. The plan highlights AI as a digital service requiring vastly greater energy generation than is available today. As part of a strategy for achieving AI dominance, the plan calls for streamlined permitting processes for key infrastructure, including data centers and semiconductor manufacturing facilities.
As AI systems increasingly process sensitive government data, high-security data centers resistant to cyber threats are essential. The plan advocates "new technical standards for high-security AI data centers" to withstand potential attacks. Critical infrastructure cybersecurity also requires enhancement as AI systems evolve. The plan recommends establishing an AI Information Sharing and Analysis Center (AI-ISAC) to promote the sharing of AI security threat information across US critical infrastructure sectors.
National strategy and security imperatives meet federalism
In addition to federal policy, state regulations influence US data center development. Historically, states have used tax incentives to attract data center investments, but this trend is shifting. Leading markets are implementing stricter regulations for large-load energy customers due to unsustainable demand and costly infrastructure build-outs.
For example, Virginia, which hosts the largest data center market in North America, has enacted tax exemptions for qualifying data centers. However, recent zoning changes and stricter approval processes indicate a tightening approach. See Navigating the US data center power crunch: On-site solutions offer a faster path to power for more information. In Texas, legislation now requires large-load customers to pay substantial fees and contribute to infrastructure costs, signaling a shift in the state's management of data center growth.
Arizona is witnessing increased resistance to data center incentives, with calls to end tax breaks and adopt new utility pricing guidelines that charge large customers for a significant portion of their requested demand. Similarly, Oregon’s lack of sales tax remains attractive, but new regulations are shifting infrastructure costs to developers, which could deter future projects.
While states such as Georgia and North Carolina continue to offer favorable tax incentives to attract data center development, the growing trend of increased regulation in major markets may lead to a redistribution of data center projects toward less saturated regions, particularly in the southeastern US. This shift could significantly alter the dynamics of the data center industry across the country.
America’s AI Action Plan outlines a strategy to build the infrastructure for AI leadership. By focusing on streamlined permitting, revitalized semiconductor manufacturing, workforce investment and enhanced cybersecurity, the US aims to secure its position in the evolving AI landscape. However, as state regulations increasingly dictate the terms of data center development, the industry must adapt to a new reality where tax incentives are no longer guaranteed and where compliance with stringent regulations will be paramount for future growth.
China
China has been enhancing its AI standing through a series of targeted initiatives. In 2017, China introduced its "New Generation Artificial Intelligence Development Plan," focusing on five key areas of research and development: big data intelligence, cross-media intelligence, human-machine hybrid intelligence, swarm intelligence and autonomous intelligent systems. The plan emphasized leveraging national open innovation platforms to enhance enterprise leadership and create synergies between theoretical and engineering innovation while maintaining strict data sovereignty.
On July 13, 2023, the Cyberspace Administration of China enacted the "Interim Measures for the Administration of Generative Artificial Intelligence Services," effective Aug. 15, 2023. This framework, the world's first for generative AI, establishes regulations for technical development, service standards, governance, and legal liabilities, mandating responsible management of training data and labeling of generated content.
In September 2024, China’s State Council published the "Regulations on Network Data Security Management," emphasizing enhanced security management of training data for generative AI. On Aug. 26, 2025, the council issued the "Opinions on Deepening the Implementation of the 'Artificial Intelligence Plus' Action Plan," proposing goals to reshape productivity and transition to a data-driven economy. The document outlined six key actions: advancing science and technology, fostering industrial development, improving consumption quality, enhancing people's well-being, boosting governance capabilities and strengthening global cooperation. It also called for robust policy safeguards and improved assessments of state-owned capital investment in AI, with an eye toward strengthening data center security and maintaining data sovereignty.
A top-down, strategic approach to data center location
While these policies address AI, they are underpinned by broader initiatives concerning data centers, which are critical for AI technologies. In early 2021, China proposed a national "big data center" development plan delineating "Eastern Data and Western Computing" and identifying eight major hub nodes. By December 2021, China had approved four national data center hubs in Inner Mongolia, Guizhou, Gansu and Ningxia for non-real-time computing needs. In February 2022, four additional regions — Beijing-Tianjin-Hebei, the Yangtze River Delta, Chengdu-Chongqing and the Guangdong-Hong Kong-Macao Greater Bay Area — were approved for data center development. These clusters benefit from concessions, including favorable land, energy and tax policies.
Stakeholders involved in the Eastern Data and Western Computing initiative — telco providers, data center operators, end users, local governments, and utility systems — must navigate these complexities. Telco providers may need to enhance network connections in the west, potentially reducing revenue from interprovincial settlements. Local governments face challenges regarding tax collection from data centers, as location does not always align with revenue generation.
The initiative aims to promote data center concentration in clusters and to transfer data from populous, industrial eastern regions to the resource-rich west for processing and storage. Projects outside clusters may proceed in the short term but will face tighter scrutiny. As resources and regulations favor designated clusters, data centers outside these areas will likely face rising operational costs, leading to increased prices.
China's approach to AI development is intertwined with broader data center initiatives. By optimizing resource allocation and improving digital infrastructure through projects such as the Eastern Data and Western Computing initiative, China aims to support a data-driven economy while ensuring ethical standards and adequate security measures.
Rest of the world — maneuvering to exist between the two global superpowers
Though not in the same league as the US and China, other world actors across Europe, the Asia-Pacific outside of China, Latin America and the Middle East are building up their data center infrastructure to preempt potential technological overreliance on the world's superpowers. This includes a focus on data sovereignty and data center security to protect national interests and maintain control over critical data assets.
At the February 2025 Artificial Intelligence Action Summit in Paris, EU Commission President Ursula von der Leyen announced InvestAI, a €200 billion EU initiative for AI-related investment in Europe, including funding for infrastructure, democratized access to high-performance computing power, and development of AI applications across areas such as medicine, climate research and manufacturing. The initiative includes a €20 billion "AI Gigafactory" fund for large-scale AI infrastructure modeled after Switzerland-based CERN, the home of the European Organization for Nuclear Research. Focusing on proximity to research hubs and major enterprises, the EU has identified seven locations for AI infrastructure development.
French President Emmanuel Macron, meanwhile, is flexing France's nuclear power muscle to attract data center investment. With the UK having exited the EU and Germany facing economic challenges, France is positioning itself as a central AI hub in Europe. In an Élysée Palace post during the summit, the French government announced €109 billion in investments for France-based AI infrastructure.
France, and by extension Europe, is also bolstering its tech sovereignty via Mistral, a French AI startup aiming to compete with the space's heavyweights. On Sept. 9, 2025, Dutch semiconductor equipment giant ASML announced a €1.3 billion investment in Mistral as part of a partnership. Dutch export frameworks have kept ASML from exporting its most advanced chip-fabrication systems to China.
In Latin America, countries including Colombia, Chile, Brazil and Mexico are positioning themselves as digital infrastructure hubs, using financial incentives to attract top hyperscalers. However, water usage amid ongoing, widespread drought poses legal challenges and risks of unrest in the region. Brazil leads the region in data center capacity by a large margin, with Mexico and Chile competing for the second and third spots, respectively.
India — the world's fastest-growing economy and the region's second-largest data center market by power available to IT equipment — is vying to establish itself as a major global data center hub. India's Ministry of Electronics & Information Technology's draft "Data Centre Policy Document" outlines a strategy focusing on ease of doing business, data center economic zones and the promotion of domestic hardware and software to minimize reliance on outside markets.
Farther south, Malaysia is positioning itself as a core regional data center base, leveraging its location to attract investments from Singapore's constrained market and to access a range of Asia-Pacific IT and cable infrastructure. Down under, data centers are expanding in Western Australia, Northern Territory and Queensland — regions hosting subsea cables that serve Asia-Pacific markets.
The Middle East is also emerging as a global data center force, driven by cloud computing and AI demand. Saudi Arabia's Saudi Vision 2030 and the United Arab Emirates' UAE Smart Dubai seek to attract investment from the world's top hyperscalers, among other economic diversification objectives. The UAE's data center play notably involves a significant nuclear energy build-out. See The Saudi Arabia data center market: a catalyst for economic innovation for more information.
Looking forward
With AI technology still in its infancy, fully comprehending its ramifications is likely years, if not decades, away. Governments around the world are not taking any chances, however. Given the national security implications of AI, we expect a concerted effort to create an AI-friendly environment through a strategic mix of data center policies for years to come, factoring in distinct characteristics, resources and limitations. Focusing on minimizing dependence on outside markets, geopolitical directives will include incentives to shore up domestic suppliers across the data center value chain, as well as protectionist measures such as tariffs and export controls to keep competitors at bay while strengthening data center security and data sovereignty.
Contributors: Aries Poon, Veronica Retamales Burford, Eric Hanselman, and Matthew Richesin
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