Global Game of Chicken  

In a game of chicken, it’s not about who’s right or who has more to lose. It’s about who lasts longer. If the initiator, banking mainly on the resolve to obtain a deal, is forced to wince, the game only becomes harder.

Anticipating how this unfolds is nearly impossible. There are countless players — dozens, if not hundreds. Each move by a significant actor reshapes the board. Path dependencies are extreme: today’s base case quickly becomes outdated with tomorrow’s counter-move.

And that's before the wild cards show up — central banks, regulatory actions like short-selling bans, court interventions. The list of unpredictable variables is long, and growing.

Scenarios are everywhere — trade wars, reversals, rate cuts, political flare-ups. But two things feel locked in.

First, the U.S. using tariffs to address its deficits isn’t a one-time move. This playbook will be reopened — again and again — triggering waves of anxiety across global markets.

Second, today’s tariff threats could evolve. Into tech bans. Product blacklists. Access restrictions. The actual blowups may not arrive, but the shadow they cast will shape how companies and countries prepare — with growing caution and deeper mistrust.

It’s like facing a deeper threat while already in economic trouble. In those moments, decisions aren’t just about economics. Countries and companies must rethink their dependencies and vulnerabilities — even as other financial pressures mount.

Innovation Under Cyclical Economic Fire

Innovation is the poster child for big spending right now. When economic risk spikes and the cost of capital rises, innovation is sure to feel the heat first. There are few consistent themes across past economic downcycles; one is the fate of capital expenditure activities of the hottest sector of the previous upcycle.

One is going to hear a lot about the dot-coms of 1999 — and for good reason. But the bruises from 2021’s crypto collapse and 2023’s VC Winter are still raw and more important. Even if these don’t excite the history-loving commentators who prefer events at least two decades old, they weigh heavily on the minds of people who write the cheques. VC funding for early-stage AI startups dropped 30% in 2023, and the fear of something worse is bound to cause many to slam the brakes, redraw plans, and delay capex until the fog clears — if it does at all.

On the face of it, the innovation industry should get ready to take it on the chin and begin to worry about the consequences of all the hype and excesses of the upcycle.

When Average Isn’t Median

Not all innovators are created equal. That matters now more than ever. 

In the world of rising corporate inequalities, the gap between the two major innovation camps is wider than ever: cash-poor, privately funded companies, generically called start-ups and cash-rich giants. 

Valuation cuts and dry powder crunches are existential for the negative cash flow former crowd. Their survival may not threaten the overall financial system as heavily indebted, frequently cited corporates did during previous downturns. Still, these firms’ behavior will be similar: forced to pause, pivot, or perish. In times of crunch, media, regulator, and investor scrutiny of past claims and activities will provide them with further reasons to retreat and go into a shell.

Then there’s the other side — a situation with few historical parallels: giants sitting on mountains of cash. Some have been cautious, content to be enablers — offering cloud services, chips, or infrastructure to hungrier innovators. They have the luxury to wait, and economically, they have the reason to do precisely that. But the world’s moving too fast for neither their leaders to remain conservative for long nor for others around them to allow them to do so.

As geopolitical tension grows and innovation becomes a national mission, these firms will face pressure to act — from policymakers, from shareholders, and the sheer speed of change around them.

The Innovation Treadmill: Why Giants Can’t Stand Still

Cash-rich corporations can't sit idle, even without geopolitical mandates or national priorities breathing down their necks. The pressure to act isn’t solely arising from Washington or Beijing; it’s also coming from their industry peers, every time another breakthrough hits the wires.

Innovation doesn’t wait. And it certainly doesn’t pause because of macro headlines. While markets churn over inflation and elections, the next big AI model, robotics platform, or biotech leap will still make news. Someone — somewhere — will keep moving the frontier forward.

For the tech giants flush with capital, this creates a different kind of urgency. It’s no longer just about having a “first-mover” advantage. It’s about avoiding being left behind. In an era of compounding breakthroughs, the gap between leaders and laggards can quickly become unbridgeable.

Significant research and development efforts initiated quarters or years prior will continue bearing fruit. Furthermore, the hyper-competitive dynamics of sectors like AI, biotech, or advanced computing mean someone is always pushing the boundary. Staying quiet too long while taking economic calls risks sending the wrong message—to investors, to competitors, and to markets.

Truth Is Out, and Redundancy Must Set In

The veil is now completely lifted, even if the signs of what was to come have been around for a while. Recent tariff wars and escalating restrictions on semiconductor access and now critical minerals expose a stark reality. Global interconnectedness, once lauded, now reveals deep vulnerabilities. And every country, every company, is taking notes.

This isn’t oil or wheat. This is compute, data, and talent. The currency of power has shifted — from barrels to bandwidth, from ships to silicon.

In this downturn, nations and corporations must consider any economic reflation by not building high-speed railways or increasing the housing loan books. The upcoming state-driven activities and directives worldwide will be related to innovations, not just in AI but also in automation, semiconductors, and biotechnologies.

"AI Nationalism" is emerging. In an era of distrust, innovation investments may paradoxically continue to grow the fastest, as innovation is the axis around which various rivalries are now fought. The strength lies less in the size of the army or the technologies of the best fighter jets; this message will serve as a major counterforce against any near-term economic rationale for pausing innovation investments.

The Quiet Shift in Economic Firepower

In past downturns, societies turned to governments for fiscal stimulus and to central banks for monetary easing to cushion their blows and spur recovery. Today, those traditional levers appear constrained by debt, inflation, and political gridlock. Instead, a new set of players wields significant power to shape economic outcomes: the cash-rich technology giants. These companies have vast reserves and ongoing strategic imperatives that uniquely position them to invest, innovate, and potentially reflate activity even amidst broader caution.  

Their influence extends beyond their core markets. They drive significant capital expenditure through massive investments in areas like AI infrastructure, cloud computing, and even automation, mobility, or healthcare technology via corporate VC arms. While traditional industries might retrench, these giants could also be called in to support employment while focussing on their innovation drives.

Cash-rich tech giants may complain about how they, too, are weathering economic storms, but few are likely to allow them to be in charge of recession-enforcing decisions in the period ahead. If, in the previous era, central banks called on banks to undertake a merger with a bankrupt company or extend certain loans for national benefits, the burden is likely to be more on innovation and tech giants for economic reasons, as well.  

Why Innovation May Stumble but Won’t Stop

When economic logic says “cut back” but geopolitical logic says “push forward,” something has to give. Innovation lies precisely at that fault line.

There will be pauses. Startups will fold. Projects will get shelved. But the core trend — pushing the technological frontier — isn’t going away. It can’t. Not when so much power, identity, and strategy are now tied to innovation outcomes.

Cash-rich firms will keep moving, governments will fund what they must, and even in a downturn, the breakthroughs seeded in past quarters will keep surfacing.

So yes, innovation may stumble. But it’s not going to stop. Governments cannot allow them to stop.