DeepSeek: An AI Revolution and its Profound Impact on US-China Relations

DeepSeek: An AI Revolution and its Profound Impact on US-China RelationsNews broke on February 13th about DeepSeek, an AI startup that released a high-performance, low-cost large language model (LLM). While the seismic market fluctuations it initially triggered were short-lived, the model's potential impact on US-China technological, trade, and economic relations is profound and enduring

DeepSeek: An AI Revolution and its Profound Impact on US-China Relations

News broke on February 13th about DeepSeek, an AI startup that released a high-performance, low-cost large language model (LLM). While the seismic market fluctuations it initially triggered were short-lived, the model's potential impact on US-China technological, trade, and economic relations is profound and enduring. Its influence could even reshape the global tech landscape. This article will explore four potential impacts of DeepSeek.

1. The Continuing Sharp Decline in AI Costs: Accelerated Technological Transformation

All innovation follows a fundamental rule: producing more with fewer resources. The AI revolution is a perfect embodiment of this. Even before DeepSeek's breakthrough, the cost of mainstream AI models had been declining at roughly 80% annually for the past two years. DeepSeek has further accelerated this trend. Its token price (representing usage cost) is up to 30 times lower than market leader OpenAI's, clearly demonstrating algorithmic improvements and OpenAI's relatively aggressive pricing strategy. This isn't accidental; it's a natural consequence of technological advancement. DeepSeek's success isn't magic, but rather the result of an unwavering pursuit of algorithmic efficiency. As AI research deepens and more competitors emerge, the cost-reduction trend will continue, ultimately democratizing AI technology for a wider range of users and applications. This will significantly lower the barrier to entry, fueling the democratization of AI. Imagine AI technology, once expensive and inaccessible, becoming as ubiquitous as electricity fundamentally altering how we live and work. The scale and speed of this transformation will far exceed our expectations.

2. Expansion of the AI Economic "Pie" and Altered Distribution: The Rise of Application-Layer Value

As AI technology becomes cheaper and easier to use, its adoption will dramatically increase. Jevons Paradox aptly explains this phenomenon: improved resource efficiency can paradoxically lead to increased overall demand. This suggests the AI economic "pie" will grow larger. However, its distribution will fundamentally change. As foundational models become commoditized, value creation will shift from model training to the application layer. This means more resources will be invested in inference (applying AI to specific tasks) rather than training. This will spawn a plethora of AI applications, transforming how various industries operate. Concurrently, the demand for customized XPUs (application-specific integrated circuits) will surge, as these chips are more efficient for specific tasks than standard GPUs, which are better suited for training. Nvidia, a leader in AI chips, has already noted this shift. In May 2024, Nvidia stated that demand related to training is no longer keeping pace with inference-related demand, the latter now accounting for 40% of total demand. This confirms the rising value of the application layer. Importantly, the expansion of AI applications will open up opportunities for AI research beyond well-funded institutions, creating more space for innovation in academia and other sectors. DeepSeek's R-1 model has already spawned thousands of new open-source models based on its architecture a prime example. An open ecosystem will stimulate further innovation and accelerate AI progress.

3. Re-evaluation of US Chip Export Controls: The Failure of Technological Blockades

DeepSeek's technological breakthrough was achieved using significantly fewer and less advanced chips than its US counterparts, powerfully demonstrating that innovation can thrive even under constrained conditions. Therefore, while US export controls might temporarily hinder DeepSeek and other Chinese AI companies, these measures are unlikely to stop their progress and may even backfire. These restrictions are more likely to lead to a permanent decoupling of US technology from the Chinese market, a significant loss for the US. For a US government prioritizing addressing the structural trade imbalance with China, export controls seem counterproductive. As a Chinese ministerial-level official put it, "If we want to buy goods from the US, but they restrict exports how do they reduce the deficit?" In recent years, bipartisan calls in the US have favored strengthening, not relaxing, export controls on China. A decision to adjust chip export controls would mark a turning point in US-China economic relations, but such a decision would not be easily made and would face considerable political pressure. However, the current chip export control measures undoubtedly require re-evaluation of their effectiveness and long-term consequences. DeepSeek's success has provided a new perspective for this reassessment.

4. Convergence of Interests Among US and Chinese Tech Giants: Coexistence of Cooperation and Competition

DeepSeek's breakthrough and open-source model initially sparked concerns among US investors, yet many US tech leaders welcomed its technological advancements. Major cloud platforms like Microsoft, Amazon AWS, and Hugging Face have already integrated various models based on DeepSeek R-1. Many executives noted that the development of low-cost LLMs will stimulate demand for their cloud services, thus increasing revenue streams. In the long run, businesses will benefit from the productivity gains and cost savings resulting from widespread AI adoption, regardless of the technology's origin. This is particularly true in the US, given its higher wage levels compared to other parts of the world and a long-standing shortage of STEM (Science, Technology, Engineering, and Mathematics) talent. This echoes the friction between the US and Japan's automobile industries in the 1980s. Eventually, Japanese automakers introduced their innovative "lean manufacturing" methods to the US, significantly boosting the productivity of the American auto industry. The evolving AI landscape presents significant opportunities for cooperation between the two global superpowers, especially as the industry pursues the potentially world-altering mission of achieving Artificial General Intelligence (AGI). However, ongoing tensions between the US and China on trade, technology, and other issues could hinder such cooperation. Whether DeepSeek's rise marks the beginning of a new era of US-China tech cooperation or an escalation of global competition remains unclear, but in either case, it serves as a reminder that the pace of change in the AI era can be extraordinarily rapid. DeepSeeks emergence introduces a new variable into US-China relations, and its ultimate trajectory remains to be seen.