DeepSeek’s success sparks a new chapter in U.S.-China AI rivalry
DeepSeek’s success sparks a new chapter in U.S.-China AI rivalry
How Chinese engineers turned sanctions into an opportunity for global disruption.
Sanctions don’t really achieve their intended goals, they only push their targets to innovate and adapt. History has demonstrated this repeatedly: in the most recent case, heavy sanctions on Russia failed to stop the war in Ukraine but instead spurred the development of methods to circumvent them. Similarly, in the late 1930s, deep sanctions on Japan fueled the chain of events leading to the devastating attack on Pearl Harbor. Now, American restrictions on chip exports seem to have had a similar unintended consequence—prompting Chinese engineers to innovate and develop a language model (LLM) that competes with U.S. tech giants at a fraction of the cost.
Ironically, the trade war with China, particularly regarding semiconductors, is one of the few issues where Democrats and Republicans in the U.S. find common ground. Both parties recognize that technological supremacy hinges on advancements in chips and have implemented policies to restrict exports to China. For instance, Nvidia was prohibited from supplying its advanced H100 chips to Chinese companies. However, according to the founder of DeepSeek, the company was able to achieve its goals using the less advanced H800 chips—and in a remarkably short period. Other reports suggest that DeepSeek may have stockpiled H100 chips before the restrictions took effect. A third possibility, consistent with historical precedent, is that China found ways to bypass the sanctions through third-party channels.
Adding insult to injury, the Chinese have released their new application as open source. This strategic move enables anyone to develop artificial intelligence applications with relative ease, potentially amplifying threats to U.S. dominance in the AI sector. Even if the timing of the model's release was coincidental, it’s hard to ignore that it comes just days after Donald Trump’s high-profile announcement of a $500 billion plan to strengthen AI infrastructure in the United States.
While chip stocks bore the brunt of the market’s reaction to this news, the broader concern may lie in escalating geopolitical tensions. Trump’s reputation for volatility and unpredictability has left analysts unsure about how he will respond—whether by escalating the trade war with China or exploring alternative approaches. On one hand, his close ties to Big Tech leaders—Sundar Pichai of Google, Jeff Bezos of Amazon, and Mark Zuckerberg of Meta—all of whom have vested interests in preserving U.S. dominance, could sway him toward harsher measures. Banning DeepSeek from operating in the U.S., similar to the TikTok ban, might appear to be a straightforward solution. However, complicating matters is Elon Musk, Trump’s newly favored ally, whose complex business ties with China could influence the administration’s policy decisions.
