AI Startups in an Era of Tariffs, Nationalism, and Strategic Realignment

A heavily tariffed world requires adaptation and agility

It seems like we are headed into a recession, induced at the behest of Trump’s trade war on the world. This downturn promises to be not a cyclical reset, but rather a structural schism. While legal and political challenges may temper the full extent of these tariffs, the assumption for builders and investors should be clear: protectionism and nationalism are the base case. Everything else is upside risk.

This structural shift will carve the AI startup ecosystem into two camps: those that align with a sovereignty-first industrial policy and those that remain tethered to globalized assumptions. The latter will slowly suffocate; the former, if shrewdly positioned, will thrive not just commercially but geopolitically.

Sovereign AI refers to artificial intelligence systems developed, trained, and deployed using domestic compute, vetted data, and a trusted supply chain, all under a nation’s legal and territorial jurisdiction. It is to technology what domestic energy was to Cold War geopolitics.

In this emerging regime, AI is no longer a consumer novelty or enterprise efficiency tool. It is a sovereign capability, akin to nuclear power or rare earth minerals. Just as OPEC and energy independence shaped the foreign policy calculus of the 20th century, AI will shape the strategic imperatives of the 21st. This shift will not be gentle. Startups that fail to recognize the implications of economic nationalism will be either regulated into irrelevance or starved of capital, talent, and customers. The post-2010s playbook of scale at all costs, partner globally, and raise endlessly, will become a liability. We are entering the age of AI realpolitik.

Here, the philosophical underpinning of this shift is key. Realpolitik operates as a collapse of the is-ought distinction. In David Hume’s terms, the is-ought problem asserts that one cannot derive prescriptive statements (what ought to be) from descriptive facts (what is) without an explicit normative bridge. Yet realpolitik, whether it’s Kissinger’s cold equilibrium or Bismarck’s tactical alliances, treats “ought” as emergent from “is”. If survival requires allying with a dictator, then it follows: we ought to do so. Realpolitik smuggles in a moral claim by treating power, sovereignty, and national interest as axiomatic goods. In doing so, it functions as a kind of implicit ethical system, in which the telos (ultimate aim) is preservation of the state, and the highest good is leverage.

This philosophical collapse has practical consequences. It reframes entire startup categories in terms of what is strategically necessary rather than what is ethically laudable. The venture landscape becomes a function not of addressable markets but of geopolitical alignment. Capital flows to what preserves sovereignty; narrative flows to what protects control. Realpolitik becomes not just the operating system of the state but of venture capital itself.

Consider the likely contours of a tariff-driven recession. Trump has proposed tariffs on every trading partner of the United States, potentially triggering a retaliatory cycle with the EU, Mexico, and South Korea, among others. The result would be a cascade of inflationary pressure, fractured supply chains, and a reversion to domestic sourcing, however inefficient. But the deeper effect is epistemic: globalization, once the unquestioned substrate of the tech economy, would be re-coded as a vulnerability. This worldview doesn’t just change where goods are made. It changes who is allowed to innovate, what kinds of innovation are favored, and which ventures are seen as strategic versus superfluous.

In this context, AI infrastructure becomes the new oil. Startups that operate at the foundational layers of the stack, including compute optimization, sovereign LLMs, chip design, and data pipelines, will become not just attractive but essential. Companies like Rescale, which accelerates high-performance simulations for defense and aerospace, or Groq, which designs low-latency inference chips, are no longer niche. They are the Lockheeds and Raytheons of the AI era. VCs who understand this will not just make money. They will wield geopolitical influence.

This shift demands a new type of founder. Tech entrepreneurs are, almost by definition, driven by optimism. They are Popperian in epistemology, and Deutschian in vision. The very notion of a startup is embedded with an implicit “ought”: that the world should be better, more efficient, more connected. But realpolitik militates against this. In a world where total addressable market is politically gated, capital is ideologically surveilled, and narrative is a national security asset, the optimistic founder becomes a liability unless they evolve.

Strategic optimism is the adaptation of classical techno-optimism to a realpolitik world. It is the belief that progress is possible, but only through systems resilient to power asymmetries. This is not hope through sentiment. It is hope through engineering.

This is how techno-optimism must mutate to survive. The open-ended, Enlightenment-infused vision of progress must now harden into a kind of structural realism: hope engineered through constraint, not sentiment. Venture capital, once the province of futurists, now becomes an extension of statecraft. State-aligned venture acceleration is the emerging model: capital formation and startup growth guided by national priorities, with government as both backer and beneficiary. The LP isn’t just a pension fund. It’s a sovereign interest. The term sheet isn’t just a commercial agreement. It’s a national alignment document. Government involvement may come through DARPA-style programs, sovereign wealth funds, or embedded GPs within strategic VC arms of defense contractors. New startup archetypes will be co-developed with national labs and receive privileged access to compute, restricted datasets, and regulatory exemptions.

The enthusiasm around Mistral AI is instructive. An open-source-first European model company with a $2 billion valuation, Mistral represents a geopolitical hedge. It’s not just a model lab. It’s a statement: Europe will not be fully dependent on OpenAI or Anthropic. In the US, a similar ethos is driving the rise of startups building compact, fine-tuned models that can run on local hardware with known data provenance and auditable behavior. The trend toward sovereign AI stacks is not a passing fashion. It is a response to a world where model weights, training data, and inference paths are now classified as strategic assets.

This is not merely a hardware renaissance. The real-world application layer, where AI interfaces with infrastructure, manufacturing, logistics, and energy, is also poised to benefit. Companies like Chef Robotics, which uses AI for food prep automation, or KONUX, which applies AI to railway maintenance, represent a new class of startup: post-consumer, post-cloud, materially embedded. These firms are recession-resilient because they solve physical problems with tangible ROI in sectors that governments cannot afford to let collapse. When you decouple from China, you must reindustrialize. And when you reindustrialize, you need intelligent machines.

Now consider the inverse. Consumer AI startups, especially those built on top of third-party APIs, or those reliant on cheap offshore labor and data flows, will find themselves on a fast track to obsolescence. The illusion of scalability via abstraction will be shattered. Humane AI’s implosion is a canary in the coal mine. Despite the hype, the product was not durable, and the market punished it ruthlessly. The lesson is clear: there is no longer room for AI as a lifestyle accessory. In a world of strategic scarcity, compute and attention are allocated to systems that defend the state, feed the population, and reinforce core infrastructure. Viral novelty has no place in a wartime economy.

The next tier of losers are startups whose ethics frameworks are misaligned with the new industrial paradigm. While well-meaning, many of these ventures operate under the assumption of liberal internationalism and moral universality. This is a mismatch with an era governed by national survival, energy realism, and defense primacy. Ethical AI will still exist, but it will be subsumed into the broader rubric of safety, sovereignty, and control. The Overton window is already moving: open-source is now framed as a security feature, not an accelerant of chaos. The AI alignment discourse will increasingly be captured by state actors, defense contractors, and institutional power centers. Startups that treat alignment as a moral mission will be eaten by those who treat it as a systems engineering challenge with geopolitical implications.

China, too, will play a pivotal role in this bifurcation. Startups like DeepSeek, a Chinese open-source LLM competitor, are technically impressive but politically radioactive. Their very existence justifies further decoupling, export controls, and IP militarization in Western policy circles. This creates a chilling effect for any US startup with Chinese investors, co-founders, or compute dependencies. In the Trump 2.0 world, the question will not be “Does your product work?” but “Who touched your weights?” The diligence stack for AI startups will now include FARA compliance, national security background checks, and supply chain traceability. Venture law will mutate into a national defense practice.

Labor and talent flows will also invert. The open borders assumption that powered Silicon Valley for decades will be replaced by talent protectionism. AI engineers from adversarial countries will find themselves denied visas or forced to renounce citizenship to work on sensitive systems. The US will poach aggressively from allies while restricting access to high-trust environments. This creates both scarcity and opportunity. Domestic talent will command extraordinary premiums. New institutions will emerge to train AI engineers with clearances, aligned incentives, and embedded loyalties. The age of the cosmopolitan, stateless coder is ending.

The capital markets will reflect these changes with brutal clarity. Mega-rounds for consumer AI apps will disappear, while sovereign-aligned ventures will receive outsized valuations and bespoke regulatory support. Expect to see the rise of a new VC class. Call them Defense VCs, or Industrial AI VCs, who operate not as tourists in the policy world but as embedded actors. These are funds like DCVC, Lux, Founders Fund, and 8VC. But we will also see the emergence of new GP structures co-designed with national labs, defense contractors, and intelligence-adjacent institutions. A startup that aligns with these actors will have access to non-market advantages: government compute credits, access to restricted datasets, and exemptions from export controls.

Allies like Europe, Japan, and India will not remain neutral. Europe, already wary of US cloud hegemony, is likely to double down on sovereign models and data localization. Japan may leverage its manufacturing strength to integrate AI into energy and logistics. India, with its talent base and geopolitical balancing act, could emerge as a third pol, offering aligned but non-US-centric infrastructure.

To be clear: there may be counterforces. Legal challenges, multinational pushback, and bottom-up innovation could all slow or reshape this trajectory. But these are headwinds against a gale. The bifurcation is already underway. It is not just economic. It is epistemic, architectural, and political. One ecosystem is collapsing under the weight of abstraction, consumerism, and global dependency. The other is rising on the back of necessity, sovereignty, and real-world friction.

So what does this mean for founders? It means stop chasing virality and start chasing sovereignty. If your startup is dependent on third-party APIs, foreign compute, or unvetted training data, your TAM is shrinking by the day. If your company doesn’t know how to talk to a regulator, a procurement officer, or a defense integrator, you are in the wrong market. Conversely, if you can build AI systems that solve real problems for supply chain resilience, national energy independence, or tactical battlefield decisions, the world will beat a path to your door.

The future of AI will not be evenly distributed. It will be strategically allocated.

If you are building for the old world, stop. If you are building for the new one, accelerate.

Because in this coming era, AI won’t just be a technology. It will be a border. And every startup will be judged by which side of that border it stands on.

Tactical Playbook: From Tourist to Citizen in the Sovereign AI Regime

• Replace offshore compute dependencies with domestic alternatives

• Conduct a supply chain audit for training data provenance and model weights

• Hire or retain someone fluent in defense procurement and compliance frameworks

• Build direct relationships with federal agencies, not just VCs

• Align your narrative with sovereign capability: resilience, control, auditability

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