Ramifications of China’s DeepSeek Moment, Part 1: AI, Technological Supremacy and National Security
Special Three-Part Series: Ramifications of China’s DeepSeek Moment. Read part II and part III.
Chinese artificial intelligence (AI) developer DeepSeek sent shockwaves through tech markets and political circles with the launch of its open-source “R1” AI model on Jan. 20. R1 competes favorably with leading U.S.-made models from OpenAI, Google, Anthropic, and Meta at a fraction of the cost (although the numbers are debated). One week after the launch, U.S. stocks lost a staggering $1 trillion of market value—with NVIDIA alone suffering an incredible $589 billion loss. Some market watchers attribute these losses to the R1 debut.
From a business and technical perspective, this episode demonstrates the remarkable volatility of the current AI ecosystem, where technology giants’ market-leading positions can be disrupted seemingly overnight. It has left investors and market-watchers wondering what the future holds for America’s leading AI innovators with Chinese rivals rapidly catching up. DeepSeek even overtook OpenAI’s ChatGPT as the Apple App Store’s top free app. Chinese media called it “a historic moment” to surpass ChatGPT in the United States and boasted of experts saying China “has caught up with the United States.”
While the market ramifications of DeepSeek’s ascendancy are still under debate, the policy ramifications are clearer. Given that many experts are referring to DeepSeek’s R1 launch as a modern “Sputnik moment” for America, the success of this important new AI model is showing policymakers that China does indeed represent a formidable challenge to America’s geopolitical competitiveness and security—and the United States will need to adjust its policies to reflect that reality.
This three-part series will consider some of the broader ramifications of this development along with possible policy responses. This opening essay considers the impact of the DeepSeek moment on global competitiveness and national security considerations.
Technological Advantage as a Source of National Strength and Security
President Donald J. Trump referred to the release of R1 as “a wake-up call for our industries that we should be laser focused on competing to win,” and Senate Majority Leader John Thune (R-S.D.) likewise noted it was “a wake-up call for us that we’ve got to step up our game.” David Sacks, the White House’s “AI and crypto czar,” argued that “DeepSeek R1 shows that the AI race will be very competitive” and said this development made Trump’s repeal of President Joe Biden’s earlier AI executive order (EO) more important because the order “hamstrung American AI companies without asking whether China would do the same.”
Signed by Trump on Jan. 23, the new AI EO aims to “solidify our position as the global leader in AI … to sustain and enhance America’s global AI dominance in order to promote human flourishing, economic competitiveness, and national security.”
These statements and the new EO signal an increased appreciation for the important relationship between a nation’s technological capabilities, global competitiveness, and geopolitical strength and security. This relationship has been elevated in importance with the rise of AI, which scholars tend to agree is the most significant “general-purpose technology” (GPT) of our era.
GPTs are important because they intertwine with almost every other sector of the economy and are used ubiquitously throughout society. A recent book titled Technology and the Rise of Great Powers explains the crucial role that GPT diffusion plays in fueling economic growth, productivity, and national power. Many GPTs like electricity, motors, automobiles, electronics, and computers are also dual-use technologies with both peaceful and militaristic uses, making them even more important.
AI and high-powered computational systems can have profound ramifications for national security in both direct and indirect ways. These technologies have an obvious direct bearing on the sophistication of a nation’s algorithmic or autonomous systems, which can be used to bolster offensive or defensive capabilities. Indirectly, a strong technology base allows a nation’s policies, institutions, and values to have greater influence on global affairs. Part II of this series will discuss the importance of that indirect relationship.
The Race Against China
It is essential that the United States be a leader in AI to counter autocratic nations looking to lead in next-generation computational systems in this new “era of great power competition.” Russian President Vladimir Putin said in 2017 that “whoever reaches a breakthrough in developing artificial intelligence will come to dominate the world,” while Chinese President Xi Jinping declared in 2021 that “technological innovation has become the main battleground of the global playing field, and competition for tech dominance will grow unprecedentedly fierce.”
With China and the United States engaged in what scholars call “the great tech rivalry” of our time, many have increasingly worried that “China will soon lead the U.S. in tech.” The National Security Commission on Artificial Intelligence produced a major 2021 report concluding that “America is not prepared to defend or compete in the AI era.”
The author of the 2018 book AI Superpowers: China, Silicon Valley, and the New World Order predicted that “[t]he winner in this race will likely depend on whether the final bottleneck is about core technology or implementation details. If the bottleneck is technical—major improvements for core algorithms—then the U.S. has an advantage. If the bottleneck is about implementation—smart infrastructure or policy adaptation—then advantage China.”This exact issue played out last week with technologists and AI market analysts wondering whether the DeepSeek moment signified that Chinese AI developers had indeed figured out how to do more with less by developing state-of-the-art models without the same compute capacity U.S. firms enjoyed. It remains too early to answer that question definitively; however, as some scholars have pointed out, “[America’s] current lead is not as stable as many presume and should not be relied on as the basis of a long-term, sustainable competitive advantage.”
China made AI supremacy a national goal in its 2017 New Generation Artificial Intelligence Development Plan, which proposed to “achieve a world-leading level and AI becomes the main driving force for China’s industrial upgrading and economic transformation” by 2025. By 2030, the country expects its AI systems to “achieve world-leading levels, making China the world’s primary AI innovation center,” on its way to “becoming a leading innovation-style nation and an economic power.”
The DeepSeek moment and other recent Chinese developments make it clear that the United States must take these efforts seriously and recognize that the Chinese Communist Party (CCP) will take major steps to accomplish its goals. Beyond the various industrial policy efforts the CCP pursues to promote its national technology champions, China continues to engage in more aggressive forms of “innovation mercantilism,” including intellectual property theft and industrial espionage.
Some analysts speak of a growing “technology Cold War,” and now an AI Cold War is happening between the United States and China because of China’s mercantilist practices and the U.S. government’s response to them. A December 2023 report from the bipartisan House Select Committee on the Strategic Competition between the United States and the Chinese Communist Party highlighted how “the CCP has pursued a multidecade campaign of economic aggression against the United States and its allies.” It also stressed the need for the United States to “invest in technological leadership and build collective economic resilience in concert with its allies.”
Conclusion
As a leading AI policy scholar observes, we live in a world of “tech-enabled states,” where governments seek to “leverage their domestic tech industries to influence and design emerging global norms” and “reshape global power dynamics.” The national security and geopolitical stability ramifications are profound, leading another scholar to conclude that “the United States needs to develop an overall AI strategy that aims not just at countering China’s moves in AI but advancing American AI supremacy.” These scholars identify why public policy regarding AI and advanced computational systems is so vital. Not only could wise policy choices help strengthen our economy and provide better services and jobs, but they could also bolster national security and allow our values to shape information technology platforms and markets globally. A 2020 Lexington Institute report notes that “[t]echnology is thus a critical driver of national security, because it is the variable that determines the significance of all the other factors.” Part 3 of this series will discuss some of the specific policy steps needed to ensure a positive outcome in this regard.