An AI Deal as a Diplomatic Weapon

A relatively small deal — by Microsoft’s standards, anyway — is leading to big geopolitical ripples this morning.

The tech giant is investing $1.5 billion in G42, an Emirati artificial intelligence company. On its face, that may appear to be just another effort by the tech giant to claim a foothold in a fast-growing A.I. company, as it has done with OpenAI and others.

But details of the transaction reflect a collaboration between the Biden administration and Microsoft to box Beijing out of tech influence in the Gulf, as the U.S. and China compete for A.I. superiority.

The terms of the deal: G42 will be able to sell Microsoft services that use powerful A.I. chips; in return, it will use Microsoft’s Azure cloud services for its A.I. offerings.

More important, G42 agreed to strip out equipment from Chinese companies like Huawei from its systems, eliminating what U.S. officials worry could be a potential backdoor for Chinese intelligence agencies.

It’s meant to bring an influential A.I. company into America’s orbit. G42 is seen as an increasingly important player in the Gulf and beyond: Its chairman is Sheikh Tahnoon bin Zayed, the Emirates’ top security official and a brother of the country’s ruler, and it has struck a number of high-profile business partnerships. Peng Xiao, the company’s C.E.O., was previously associated with DarkMatter, an Emirati spyware company that had employed former spies.

But G42 has had deep relationships with Huawei and other Chinese companies that U.S. officials feared could give Beijing access to advanced technology, Americans’ data and more. (At one point, Biden officials raised the prospect of sanctions on G42.) More broadly, Washington leaders have been worried about Middle Eastern countries playing the U.S. and China off each other.

Over the past year, G42 has bowed to pressure from Washington, agreeing to steps like divesting its stake in ByteDance, the owner of TikTok. “When it comes to emerging technology, you cannot be both in China’s camp and our camp,” Gina Raimondo, the commerce secretary and a lead negotiator in talks with G42, told The NY Times.

The investment is a collaboration between business and Washington. It arose out of dialogue between U.S. officials and tech executives last year over how to encourage business transactions that deepened American interests in important regions and technologies. As part of the deal, Brad Smith, Microsoft’s president and top diplomat, will join G42’s board, and his company will be able to audit G42’s use of its technology.

“The U.S. is quite naturally concerned that the most important technology is guarded by a trusted U.S. company,” Smith told The NY Times. Raimondo added that Washington officials were “comfortable that this agreement is consistent with our values.”

There are benefits to Microsoft as well. The company gains a stake in yet another promising A.I. company, as it seeks supremacy over the technology. (Some of those investments, however, are being scrutinized by Washington antitrust regulators.) And it will acquire a foothold to reach more customers, particularly those in Middle Eastern countries eager to spend billions on A.I.

–From The NY Times Newsletter