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DeepSeek and the End of American Hegemony
The dawn of DeepSeek, China’s Artificial Intelligence System, has proven once again the limits of sanctions and Washington’s total inability to maintain exclusive dominance of AI, compromising its self-arrogating claims about world leadership.
Deepseek took the US by storm
The arrival of DeepSeek caused a US$590 decline in the market value of Nvidia, a US-based tech company that claims to be the “world leader in Artificial Intelligence Computing”. Clearly, DeepSeek – which is a massive model that can supply information at a much lower cost than its competitors – has upended this claim. Overall, Deepseek wiped US$1 trillion off the US stocks. This is in addition to the fact that DeepSeek topped the Apple app store in the West over the last weekend, indicating its rapid acceptance and a mass shift away from US-based AI sources to China-based AI sources.
Elsewhere in Europe, the pan-European Stoxx 600 fell on Monday, and major European technology stocks were down. The Dutch chipmaker ASML slid by 7%, while Germany’s Siemens Energy, which provides hardware for AI infrastructure, was down nearly 20%, and France’s digital automation company Schneider Electric fell by 9.5%. The meltdown was not at all surprising.
A report in The Guardian noted in August how US tech companies were investing too much in AI but yielding too little benefit from it. But China outsmarts the scale of investment in the US by far. This is despite the many sanctions the US imposed on China’s access to technology. In May 2019, for instance, the Trump administration signed an executive order. This order was meant to block China’s access. It said that “foreign adversaries are increasingly creating and exploiting vulnerabilities in information and communications technology and services, which store and communicate vast amounts of sensitive information, facilitate the digital economy, and support critical infrastructure and vital emergency services, in order to commit malicious cyber-enabled actions, including economic and industrial espionage against the United States and its people”. Several similar steps followed in subsequent years, but DeepSeek is an undeniable proof of their collective failure.
For instance, Nvidia’s most advanced chips, H100s, have been banned from export to China since September 2022 by US sanctions. Nvidia then developed the less powerful H800 chips for the Chinese market, although they were also banned from export to China last October. DeepSeek’s success at building an advanced AI model without access to the most cutting-edge US technology has raised concerns about the efficacy of Washington’s attempts to stymie China’s hi-tech sector
How China Pulled It Off
Ironically, US sanctions to limit China’s access to technology pushed Beijing to go for self-sufficiency. This is not to suggest that China began to push for self-sufficiency due to US sanctions. In fact, Beijing understood the importance of self-sufficiency in this crucial field. Since 2015, it has been seeking to increase self-reliance from 10 per cent to 75 per cent by 2030. DeepSeek’s success is evidence of rapidly increasing self-sufficiency. Outsmarting another economy globally, China has invested US$150 billion in its domestic semiconductor industry. Rare earth minerals that are crucial to the development of this technology also have a huge Chinese footprint. Beijing controls 80 per cent of the worldwide refining capacity of these minerals.
With China, there is no dearth of technical expertise – something that no sanction’s regime can block. China trains four million engineering graduates annually. This is more than the rest of the world combined. Thanks to its centralised planned economy, Beijing is able to quickly invest in critical areas that require immediate attention. It is not necessarily troubled by considerations of increasing financial returns that US-based companies like Nvidia, Microsoft, Apple, Meta, etc. must pay attention to stay relevant and competitive. Even though the US government began its own investment programme in 2022 through the CHIPS Act, it allocated only US$53 billion in federal incentives, which is still far less than what China has already invested. Given the low cost of production, China, unlike the US, has already achieved economies of scale in producing AI.
Future of US Hegemony
Besides the shock to the US economy and tech industry, the success of DeepSeek has raised very serious questions about the US ability to ‘lead’ the world in a politico-military sense as well. It has put US President Trump into a very difficult situation. His ambition to ‘Make America Great Again’ has become much more difficult than it otherwise was without DeepSeek.
With China becoming the newest centre of technological development, questions about where the centre of global military power lies are also arising. Can the US, without its technological dominance, outsmart its rivals? Can the US, without this ability, necessarily impose unilateral policies worldwide?
There is also a natural attraction for countries worldwide to look upto the ‘Chinese model’ rather than the US model of technology, with the number of students/engineers seeking to study in Chinese Universities also expected to rise in the near future.
The rise of DeepSeek has proven US policies wrong. But this is also an opportunity for Washington to reflect deeply on its policies. The more it tries to restrict the flow of technology, the freer it will become. In an interview with Chinese media, DeepSeek’s Liang said, “AI should be affordable and accessible to everyone”. This is ironic from the US/Western perspective. The West has always claimed to be a democracy and China to be an ‘authoritarian’ system. Yet, it is China leading the process of democratising technology.
Salman Rafi Sheikh, research analyst of International Relations and Pakistan’s foreign and domestic affairs.
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