- DeepSeek rattled tech and financial industries with the unexpected power of its AI model.
- The Chinese-based startup upended expectations that AI development requires significant investment.
- DeepSeek launched its ChatGPT competitor at a reported fraction of OpenAI's cost.
China's DeepSeek AI model rattled Wall Street and shocked Silicon Valley.
How Washington will respond remains uncertain, but early indications are that the groundbreaking news will not dramatically shift US policy.
"Hopefully, the release of DeepSeek AI from a Chinese company should be a wake-up call for our industries that we need to be laser-focused on competing to win because we have the greatest scientists in the world," Trump said during a speech before House Republicans at their policy planning retreat.
Financial industry analysts and technology experts point to Trump's previous trade policy announcement, which laid out a plan for heightened export controls in an event like DeepSeek's rollout.
Trump's first term accelerated the rise of China hawks in the nation's capital. His administration went hard after Chinese tech companies like Huawei and laid the groundwork for a potential ban on TikTok, though he has waffled on the latter. President Joe Biden expanded those efforts.
TikTok wasn't the first showdown between the world's two largest economies over the future of technology. Here's how Deepseek will fit into the larger US-China fight.
What sets Deepseek apart from TikTok or even Huawei?
Both Trump and Xi view AI development as seminal to their nations' futures. In announcing a $500 billion AI project known as "Stargate" last week, Trump said the goal was for the US to continue to lead AI.
Gregory C. Allen, director of Wadhwani AI Center at the Center for Strategic and International Studies, said Xi has long focused on tech development. He cited some of the specific benchmarks laid out in his "Made in China 2025" plan, which was announced a decade ago. Two years later, China released its AI strategic plan, which called for Beijing to dominate the world in AI by 2030.
"The leaders in both the United States and China are convinced that leadership in artificial intelligence is foundational to the future of military and economic power," Allen told Business Insider. "And they're right."
How has the US responded to Chinese AI advances?
The first Trump administration imposed export controls on software and technology on Chinese telecom giant Huawei. Just before Trump left office in 2020, Secretary of State Mike Pompeo pressured the Dutch government to block a company from making a semiconductor deal with China. In 2022, the Biden administration imposed export controls on advanced chips such as Nivida's H100 used to train AI models. In December, Biden expanded those limitations.
It remains to be seen what Trump will do. Allen and financial analysts have pointed to Trump's trade policy, which tasked the Secretary of State and Secretary of Commerce to lead a review of US export controls "in light of developments involving strategic adversaries or geopolitical rivals."
Have US control efforts failed?
The current debate in Washington will likely focus on whether Biden-era export controls failed. If that's the case, then perhaps a debate will ensue over whether those limitations really matter.
Allen said this misses the point since export limitations are a lagging indicator. He added that the first round of Biden policies also allowed China to obtain more advanced chips than the White House may have anticipated.
"When you refuse to sell something to China in the future, it doesn't magically destroy everything that you sent to China in the past," he said.
Allen added that the Biden 2022 export controls still allowed Nivida to sell H800 chips legally, which meant China obtained crucial technology that had only degraded performance by a fraction of what the US intended. The exact chips, Allen said, DeepSeek claimed it used to train its R1 model.
"We are currently living through the poor design of the first package of AI chip export controls that the Biden administration launched in October 2022," he said. "But will soon be living through the lagging impact of the successful controls designed in October 2023."
Ed Mills, a Raymond James policy analyst, wrote in a research note that while there may be initial talk of easing control policies, the Trump administration will likely double down.
"While we expect to see a narrative emerge that DeepSeek proves the ineffectiveness of current export controls, it will most likely be interpreted by the Trump administration as a reason to tighten controls and further limit and track who has access to leading-edge technology," Mills wrote.
How has Beijing responded to US actions?
Chinese government officials repeatedly threatened to retaliate in the lead-up to the passage of the potential TikTok ban. Last March, a government official called efforts to force the social media app to sever ties "an act of bullying." It remains to be seen how Beijing will respond if a US-approved buyer is found.
In the past, Chinese media has pushed for tougher responses when the US and other Western nations moved to limit companies like Huawei.
Allen said the timing of the Deepseek announcement also fits within a larger theme of the China seeking to embarrass US leaders at critical times.
"I don't think it's a surprise that the model itself was released during the first week of the Trump administration," Allen said. "This was an attempt to have an impact on the US media discourse, the global media discourse and that's exactly what's happening."
What else has the US done about Chinese tech companies?
Under Trump and Biden, the federal government has taken multiple actions to curtail some of China's largest tech companies.
The first Trump administration moved to block Huawei from working with US companies. In 2022, the FCC banned US sales of new Huawei and ZTE-made devices, China's two largest telecommunications equipment manufacturers. Huawei does little business in the US now.
Rubio, a longtime Huawei critic, pushed Latin American countries to follow the US' lead in banning the telecom giant from shaping the future of 5G.
Trump also kick started the discussion over banning TikTok. While little information is public, lawmakers have cited national security concerns related to TikTok's parent company, ByteDance.
As a 2024 presidential hopeful, Trump backed away from his previous support for banning TikTok if ByteDance failed to sever ties to Beijing. In one of his final acts in office, Biden declined to enforce the ban after TikTok failed to convince the US Supreme Court to delay its implementation. Trump has since granted an additional 75-day reprieve, though it is outside the law.
What effect will this have on the AI race?
In the near term, DeepSeek's success has undermined the belief that bigger is always better for AI development. The Chinese-based startup developed its R1 model at roughly $5.6 million, a drop in the bucket compared to what OpenAI, Meta, and other companies are spending.
"I think policymakers need to ask a lot of questions about what is happening," Darrell West, a senior fellow in the Center for Technology Innovation at Brookings, told BI. "They need to understand how this company seemed to have made so much progress without spending a lot of money."
Marc Andreessen, the cofounder of Silicon Valley venture capital firm Andreessen Horowitz, wrote on X that is is AI's "Sputnik moment," a reference to the then-Soviet Union's early success in launching a satellite in 1957.
The Cold War advancement shocked the US, jump-starting the Space Race, which the Americans ultimately won by landing on the Moon just over a decade later.