DeepSeek Doesn’t Signal an AI Space Race

[IMPORTANT: Make this 4 times longer with much more detail]

China Brief A weekly digest of the stories you should be following in China, plus exclusive analysis. Delivered Tuesday. Sign Up By submitting your email, you agree to the Privacy Policy and Terms of Use and to receive email correspondence from us. You may opt out at any time. Enter your email Sign Up ✓ Signed Up DeepSeek Doesn’t Signal an AI Space Race The Chinese firm’s success might not be a case for massive government investment in the sector. Palmer-James-foreign-policy-columnist20 James Palmer By James Palmer , a deputy editor at Foreign Policy . A woman looks at her phone while standing in front of a screen bearing the logo of Chinese AI firm DeepSeek. A woman looks at her phone while standing in front of a screen bearing the logo of Chinese AI firm DeepSeek. Patrick Pleul/picture alliance via Getty Images My FP: Follow topics and authors to get straight to what you like. Exclusively for FP subscribers. Subscribe Now | Log In Politics Science and Technology United States China James Palmer January 28, 2025, 4:30 PM Comment icon View Comments ( 1 ) Welcome to Foreign Policy ’s China Brief. The highlights this week: Chinese AI start-up DeepSeek disrupts U.S. markets with a new large language model, U.S. President Donald Trump threatens major tariffs on Taiwanese semiconductors , and senior doctors in China raise the alarm about the efficacy of Chinese generic drugs . Welcome to Foreign Policy ’s China Brief. The highlights this week: Chinese AI start-up DeepSeek disrupts U.S. markets with a new large language model, U.S. President Donald Trump threatens major tariffs on Taiwanese semiconductors , and senior doctors in China raise the alarm about the efficacy of Chinese generic drugs . Trending Articles Israel Blasts Hamas for Chaotic Release of Hostages in Gaza The Israeli prime minister threatened to delay the return of Palestinian prisoners if Hamas could not guarantee the… Powered By Advertisement Israel Blasts Hamas for Chaotic Release of Hostages in Gaza X Sign up to receive China Brief in your inbox every Tuesday. Sign up to receive China Brief in your inbox every Tuesday. Sign Up By submitting your email, you agree to the Privacy Policy and Terms of Use and to receive email correspondence from us. You may opt out at any time. Enter your email Sign Up ✓ Signed Up What to Make of DeepSeek’s Success On Monday, the news of a powerful large language model created by Chinese artificial intelligence firm DeepSeek wiped $1 trillion off the U.S. Nasdaq 100 index in a single day , reversing weeks of gains in a heated market driven by belief in an AI-dominated future. Chipmaker Nvidia was the worst off, losing nearly $600 billion in value on Monday. DeepSeek’s model was reportedly trained on Nvidia’s cheaper, older chips and not its cutting-edge products, which are sanctioned in China. Chinese stock markets are closed for Lunar New Year but will likely see a rally upon reopening this week—though DeepSeek isn’t publicly traded. Some of the U.S. media discussion around DeepSeek is overblown , such as the claim that its AI model only cost $5.5 million to develop. As DeepSeek’s own statements make clear , that was the cost of the model’s final training run—not including the research, equipment, salaries, and other costs involved. The rush by analysts to declare that chip sanctions aren’t working is also misplaced. DeepSeek was trained on Nvidia’s H800 chips, which, as a savvy ChinaTalk article points out , were designed to evade the U.S. chip sanctions put in place in October 2022. The newest round of U.S. sanctions only kicked in at the end of 2023—too late to affect DeepSeek’s model. Nevertheless, U.S. officials and AI analysts will likely use DeepSeek to justify expanding sanctions, with Nvidia’s H200—which is very popular with Chinese buyers —a likely target. Of course, DeepSeek operates with extensive censorship , which is to be expected in China. For now, one can witness the large language model starting to generate an answer and then censor itself on sensitive topics such as the 1989 Tiananmen Square massacre or evade the restrictions with clever wording. With DeepSeek now in the spotlight, this censorship will probably become tighter. DeepSeek’s effect on the AI industry in the United States is still remarkable. Markets always depend in part on storytelling, and two stories drove the AI boom. The first was that AI will radically transform the economy; the jury is still out . The second was that developments in AI would require ever bigger investments, which would open a gap that smaller competitors couldn’t close. DeepSeek just blew a hole in that idea. All of this means that AI boosters in the United States need a new story for investors, and it’s clear what they want that narrative to be: that AI is the new space race between the United States and China—and that DeepSeek is, in the words of Sen. Chuck Schumer, a “ Sputnik moment .” This would make giving AI firms a lot of money a patriotic priority—so, as U.S. President Donald Trump said, they can be “ laser-focused ” on winning. That was exemplified by the $500 billion Stargate Project that Trump endorsed last week, even as his administration took a wrecking ball to science funding. The problem with this narrative is that DeepSeek’s success isn’t a product of the Chinese government. There is plenty of Chinese government funding promised to the AI sector, such as the 1 trillion yuan pledged by the Bank of China. But DeepSeek was developed essentially as a blue-sky research project by hedge fund manager Liang Wenfeng on an entirely open-source, noncommercial model with his own funding. However, now that DeepSeek is successful, the Chinese government is likely to take a more direct hand. Liang already attended an important meeting with Chinese Premier Li Qiang last week. China has a record of making national champions out of firms that emerge triumphant from the Darwinian jungle of the private economy. That will mean more money and attention—but also more interference by officials with a weak grasp of the technical details. Sign up for Editors’ Picks A curated selection of FP’s must-read stories. Sign Up By submitting your email, you agree to the Privacy Policy and Terms of Use and to receive email correspondence from us. You may opt out at any time. Enter your email Sign Up ✓ Signed Up You’re on the list! More ways to stay updated on global news: FP Live Enter your email Sign Up ✓ Signed Up World Brief Enter your email Sign Up ✓ Signed Up China Brief Enter your email Sign Up ✓ Signed Up South Asia Brief Enter your email Sign Up ✓ Signed Up Situation Report Enter your email Sign Up ✓ Signed Up View All Newsletters Beyond that, though, DeepSeek’s success might not be a case for massive government investment in the AI sector. It shows that this might be a technology with shallow economic moats , where new developments can come at relatively low costs from smaller players—and technical ingenuity could outweigh even the biggest backers. What We’re Following Trump’s threats to Taiwan. Trump’s order to halt foreign aid for 90 days for political review is a hit to U.S. soft power worldwide—and it appears to affect military support for Taiwan. Taipei hoped for a relatively supportive administration in its struggle against Beijing and has paid for plenty of Trump-friendly lobbyists. The current chaos may eventually give way to a more favorable U.S. policy toward Taiwan, but Trump on Monday also threatened enormous tariffs on Taiwanese semiconductors in a bid to bring manufacturing back to the United States. Building new chip factories, however, would take years and require technical expertise that the United States largely lacks. In the meantime, U.S. firms such as Nvidia and Apple—which Taiwan’s dominant firm, TSMC, supplies—would face massive costs, all in the service of inflicting economic pain on a U.S. ally. I suspect that this threat will be rescinded after pressure from Trump’s Big Tech allies, but who knows? China in Latin America. Trump’s repeated threats against Latin American countries including Brazil , Colombia , and Panama are opening up ample diplomatic space for China in the region. Honduras has made it clear that it’s ready to shift toward Beijing amid Trump’s executive orders on immigration, and others are likely ready to follow . China has pushed its Belt and Road Initiative in Latin America, and right now it looks like a more stable and nonthreatening partner than the United States. Trump’s dangling of sanctions against Colombia over a diplomatic spat also makes U.S. accusations of Chinese economic coercion—however true —seem purely hypocritical. Tech and Business Generic drugs scandal. Senior doctors in China raised public concerns last week that domestic generic drugs—promoted during the COVID-19 pandemic and its aftermath—are inferior to drugs made by major foreign pharmaceutical companies. Though the evidence so far is largely anecdotal, it includes accounts of ineffective anesthetics, poor-quality insulin, and other life-threatening failures. The doctors also highlighted the lack of channels to raise questions about the efficacy of generic drugs. The Chinese public is worried, and the central government is responding in its usual fashion: promising an inquiry while shutting down access to data and deleting social media posts. Vanke bailout. Property giant China Vanke was a rare stable spot in China’s crumbling real estate market—until it announced Monday that it estimated losses of $6.2 billion for 2024. But this came along with a notice of support from the city government of Shenzhen, where the firm is based; a resignation of top personnel and state-linked replacements ; and a big bailout package . China is signaling that it won’t let the real estate sector collapse, but it also might not be willing to let prices fall to the level needed for real stability. FP’s Most Read This Week The Misery of Trump’s Second State Department by David Milne How Denmark Can Hit Back Against Trump on Greenland by Elisabeth Braw This Could Be ‘Peak Trump’ by Stephen M. Walt A Bit of Culture The Tang dynasty poet and official Bai Juyi (772-846), also romanized as Po Chü-i, was known for combining plainspoken diction with sharp social commentary. The poem below, “Fine Furs, Sleek Steeds,” takes its title from the Analects of Confucius (6.4): “Confucius said: ‘When Chi traveled to Qi, he rode a sleek steed and wore fine light furs. As I learned it, the superior man attends to the needy; he does not enrich the wealthy.’”— Brendan O’Kane, translator “Fine Furs, Sleek Steeds” By Bai Juyi Full of pride they fill the road, Horses and saddles glittering through the dust. I stop to ask a passerby who they are; Someone says they’re from the imperial court: Vermillion tassels mean high ministers; the purple sashes, probably generals. Their horses streaming by like wind-borne clouds as they swagger toward the regimental feast. Goblets brim over with the finest wine, and the bounty of land and sea spreads over their tables: They split open Dongting tangerines, And slice up Tianchi fish for a cold appetizer, Without a care in the world as they stuff their bellies, Growing merrier as the wine goes to their heads— There was drought-famine south of the river this year, And in Quzhou the starving ate the dead. James Palmer is a deputy editor at Foreign Policy . X: @BeijingPalmer Read More On AI | China | Donald Trump | Politics | Science and Technology | United States Join the Conversation Commenting on this and other recent articles is just one benefit of a Foreign Policy subscription. Already a subscriber? Log In . Subscribe Subscribe View 1 Comments Join the Conversation Join the conversation on this and other recent Foreign Policy articles when you subscribe now. Subscribe Subscribe Not your account? 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