Looks like China is winning.
I’m serious. Its not just Deepseek, or EVs. But these two examples are illustrative of the strategy that China is embarking upon in order to move its economy and people to the next level. In order for China to compete in high tech, in order for it to avoid the middle income trap, it is choosing to compete in areas that are still relatively open. The People’s Republic is also highly incentivized to create a native chip manufacturing industry that can churn out state of the art chips. However, I suspect that a native chip industry is more about securing supplies; being able to export a competitor product to TSMC would be gravy on top. That said, green tech and artificial intelligence are still relatively open areas with plenty of room for competitors to still innovate and create price-competitive plays. China keeps exporting EVs to the EU despite massive trade tariffs (a lot of hybrids, because the Europeans somehow left those out of the trade restrictions. Zut Alors!).
And then of course, there is Deepseek. I’m sort of tired of thinking about the details, and I don’t think we even know everything that would be great to know about how this AI model came into existence. But it appears, for now, that the Chinese have beat the likes of Sam Altman and Elon Musk and frankly the whole of the Silicon Valley establishment with a product that boasts both innovation and, um, cheapness? No, not like Temu cheap; like it was incredibly cheap to build. And this is a massive problem for Silicon Valley. Let’s be frank, Web 3.0 is a bit like “fetch:” they aren’t going to make it happen. After VR, and Crypto sort of faded into the dustbin, AI emerged as the next great play; an intelligence revolution set to rival the industrial revolution in sheer disruptivenessness. Its evangelists shout mantras from the San Francisco rooftops, and the desperate VC money flows forth.
By the hundreds of billions.
Yet Deepseek seems to suggest you can do this for a lot less, whatever “this” is. That still remains a bit hazy.
Now the VCs are asking questions. Sam Altman and (not so)OpenAI are trying to spin the news. And of course, Geopolitics has entered the chat.
Its possible that this is a perfectly reasonable thing for the government of the United States to do. Of course, its funny how quickly some of Deepseek’s assumed competitors also jumped on the national security bandwagon. Moreover, didn’t we just go through all this, with Tiktok? I’m still waiting for any actual evidence that anything is happening there that isn’t happening on every app that makes money off ads.
I mentioned a little bit above the really steep tariffs on Chinese made EVs. The case is much the same in the US, a tradition carried from Trump to Biden and now likely to continue under Trump Deux. In the case of TikTok, its basically being strong-armed into selling part of itself to an American firm in order to have continued access to the US market. China doesn’t even do that. Its more akin to La Cosa Nostra. And now we have Deepseek, who’s fate remains undetermined, but appears to now be under the kind of scrutiny that evokes vision of Red Scares and Yellow Hordes.
This is why China is winning. Its not that they are vastly more sophisticated or powerful or, like, big. Its not that. The fact is that the United States is still superior in important ways. Education, research, military strength, the dollar and the toolkit it brings. And importantly we are a hungry hungry consumer market. We have loads of advantages, even if they are in relative decline.
China is winning because we are trying to lock the gates and draw up the bridge to keep what advantages we have left. We are not really trying to “compete.” You could argue that protectionism is a form of competition, indeed it is leveraging some of those very advantages that I mentioned. But think about it. You are admitting defeat on the plain terms of the thing you are competing over. We don’t need to make a better social media platform, we will force you to sell us yours. We don’t need a cheap, clever AI model, we will simply accuse yours of spying. and ultimately Invoking “national security” at every turn just rings hollow. People aren’t stupid, we see that every time the Chinese – not even the CCP mind you – have a product that competes with the US, we invoke the specter of the Red Chinese Hordes. Nevermind that the US is PRECISELY showing itself to be a state-capitalist enterprise when it tries to thumb the markets with executive orders. And not just in China. Trump just announced his intention to slap tariffs on Taiwanese chip manufacturers unless they build factories in the US. We are not investing in creating a native talent pool or know-how, we are relying on mafioso tactics to offshore knowledge work within our own borders.
Its because we are spent. I am not one to indulge in boomer nostalgia, but when we beat the Russians to the moon, it was a bunch of guys and gals with relatively crude technology and an open horizon and a unifying mission. We just don’t have that now. Maybe the Chinese do. Maybe they haven’t succumbed to the perils of the high-income trap. Time will tell.