MW Why DeepSeek is a Chinese shot across Trump's bow

By Chris MatthewsVictor Reklaitis

China is looking to convince Trump that export controls aren't hurting its AI industry

The release of Chinese AI app DeepSeek has spooked Wall Street as technology investors fear that American companies are falling behind in the race to develop super-intelligent computers.

Those fears have also reached Washington, D.C., where lawmakers of both parties have united around a policy of containing Chinese tech development. Trump administration officials said Monday that the U.S. is failing at that goal.

"DeepSeek R1 shows that the AI race will be very competitive," wrote David Sacks, the Trump administration's AI and crypto czar, on X on Monday.

Sacks attributed DeepSeek's success at nearly replicating the abilities of advanced American models like ChatGPT to failed policies of the Biden administration, which he said "hamstrung American AI companies." But experts told MarketWatch that the DeepSeek news is actually an endorsement of the Biden approach, which they expect Trump to continue in the years to come.

China "launched the public version of this model during Trump's first week in office and that's not an accident," said Gregory Allen, former director of strategy and policy at the Department of Defense and director of the Wadwani AI Center at the Center for Strategic and International Studies.

"The technological innovation is real. DeepSeek is doing legitimately impressive things, but the timing is political and strategic," he told MarketWatch. "They are trying to persuade the incoming Trump administration that export controls don't work."

Venture capitalist Marc Andreessen called DeepSeek the America AI industry's "Sputnik moment," analogizing its release to the Soviet Union's successful 1957 launch of the first artificial Earth satellite, which set off a space race that culminated in America's landing on the moon 12 years later.

Janet Egan, senior fellow with the technology and national security program at the Center for a New American Security, said in an interview that this analogy is flawed because, unlike Sputnik, the DeepSeek launch should indicate that the U.S. is on the right track with AI policy.

"It's really important not to react without understanding the deeper context of these things, because that's what China wants us to do," Egan said. "They're trying to move the new administration away from export controls to a much more favorable set of conditions for them."

The Biden administration instituted export controls that blocked the sale of some advanced microchips to China, in part using powers granted to the president under a law signed by Trump in 2018. The goal of those export controls was to maintain American technological leadership in artificial intelligence, especially when it comes to military applications of the technology.

Allen said that Monday's announcement that DeepSeek would temporarily suspend registrations for accounts outside of China shows that the company is struggling to scale up its operations without use of the sort of advanced microchips that export controls have blocked, but which are available to American AI developers.

"They are claiming that it's because of a malicious cyberattack, but I find that totally implausible," Allen said. "I think the far more likely situation is a computer chip shortage."

The U.S. House Select Committee on the Chinese Communist Party, a panel established two years ago that focuses on threats from China, has responded to DeepSeek concerns in part by reiterating its warning about loopholes in U.S. rules for chip exports.

The committee said in a social-media post over the weekend that it had cautioned the U.S. Commerce Department more than a month ago about "dangerous loopholes" that "could lead to events like this."

In addition, the House committee indicated it has concerns that DeepSeek says it's designed to follow China's laws and regulations, as well as socialist values.

"If Chinese AI becomes the model of choice for American researchers - don't be surprised if one day soon your chatbot starts to stay silent about what happened at Tiananmen Square," the panel said in a social-media post, referring to a deadly 1989 crackdown on protests by Chinese authorities. "This is a fight for the future of human civilization."

Terry Haines, a veteran analyst and founder of the forecasting firm Pangaea Policy, argued in a note Monday that the Trump administration will likely continue Biden-era export control policies, despite Sacks' criticisms.

The Trump administration is likely to respond to DeepSeek fears by doubling down "on its private-sector strategy" exemplified by the rollout of the Stargate initiative last week, he wrote.

Trump and executives from OpenAI, Oracle Corp. $(ORCL)$ and SoftBank Group Corp. (JP:9984) announced Stargate last Tuesday, saying it's a new American AI joint venture getting a $500 billion investment.

"Markets also should expect Trump to double down on shoring/reshoring U.S. manufacturing related to AI," Haines added. The analyst also wrote that Trump "might smell an opportunity to use tariffs to increase China economic pain and in the bargain slow down DeepSeek."

-Chris Matthews -Victor Reklaitis

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January 27, 2025 15:59 ET (20:59 GMT)

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