By NS Ramnath and G Venkat Raman
The third of four briefings to set context for the Masterclass series on The World in 2025, scheduled for Friday, 31st January 2025, 6:30 pm and Friday, 7th February 2025, 6:30 pm. Read Briefing #1 and #2 here.
As you read this, DeepSeek, an AI company spun out of a hedge fund, is making waves in the tech world. It has built AI models that match its rivals OpenAI, Google and Anthropic, at a fraction of the cost. While its rivals poured hundreds of millions of dollars into developing their products, DeepSeek developed its model with computing power that cost the company a mere $5.6 million. On Sunday, it launched its app. On Monday, the Nasdaq shivered. The Nasdaq Composite Index dropped by 3%. The shares of Nvidia, whose chips power the computers that train AI models, lost $590 billion in value. The key thing to note about DeepSeek is that it's a Chinese company. And the splash it made in the market is seen as a splash made by China. In his Substack newsletter, Gary Marcus, a top researcher in neuroscience and AI, declared, "The race for “AI Supremacy” is over, at least for now, and the U.S. didn't win.”
The technological rivalry between the US and China has outsized ideological meaning. The US has for long believed that innovation thrives best in a liberal democracy. China’s progress not only in AI but also in other technologies, from green energy and electric vehicles to fintech and telecommunications, has challenged the American idea and ideology. In response, the US has tried to curb Chinese technology, restricting access, banning exports, and forcing Chinese companies to sell their US assets to American companies. The US believed it would slow China down. Instead, China innovated, found more efficient ways to build AI models, demonstrated it performed better than US-made products, and launched them in the US. What's more? DeepSeek, unlike ChatGPT or Claude, is open source and has its following in the US. (That came to DeepSeek's rescue when, for example, venture capitalist Bill Ackman raised concerns about it sending data back to China. Check out this thread.)
The drama around the launch of DeepSeek is also an example of how the complicated relationship between the two countries in geopolitics referred to in the first briefing extends to technology too.
Here are the six industries to watch out for.
Semiconductors
The role semiconductors play in the US-China tech rivalry is nothing new. Chris Muller, who detailed it in his book Chip War, won the FT Best Business Book award in 2022. The US implemented export controls and a $50 billion CHIPS Act to limit China's access to advanced chips while building its own domestic manufacturing capacity. China has responded by heavily investing in its semiconductor industry, pursuing self-sufficiency (here’s a recent example) and developing ways to produce advanced chips with older equipment, while also restricting exports of chipmaking materials.
TSMC, the Taiwanese giant, is a key focal point in the conflict. As TSMC expands to Arizona with US support, it continues to produce most high-end chips in Taiwan. Other countries including Japan, Germany, and India are increasing domestic production investments as the tech war pushes governments worldwide to strengthen their semiconductor supply chains.
What to watch out for: US adding more high-end chips as well as relatively lower end chips such as H800 Nvidia to its ban list.
Renewable energy & EVs
For a long time China has had a reputation for damaging the environment. While that reputation has continued, it has also become a dominant force in the renewable energy sector, establishing a robust green supply chain that spans from raw material refinement to the manufacturing of finished goods. Chinese companies like BYD and CATL have achieved significant economies of scale and are outpacing global competitors in the production of electric vehicles and batteries. A combination of government support, technological innovation, and intense domestic competition helped. The country is also a major market for these technologies, with a large share of global sales of EVs occurring within China. It raises an interesting question about Elon Musk, who has interests in China both as a market and manufacturing hub.
In the recent past, under the Biden administration, the US responded by implementing policies like the Inflation Reduction Act (IRA), which provides subsidies and incentives to boost domestic manufacturing of renewable energy technologies. Despite these efforts, China continues to expand its influence in green technology, with companies like BYD establishing production facilities in other countries, such as Brazil and Hungary, to serve global markets.
What to watch out for: Intensifying trade tensions as the US and Europe try to limit imports of Chinese-made EVs and green tech, while China seeks to expand its global market share through exports and overseas manufacturing.
AI regulations
The fight between AI companies—such as DeepSeek and OpenAI—is only one part of the AI story. The other part is about AI regulations.
The US initially favoured self-regulation and voluntary commitments from AI firms. It is now considering stricter export controls and licensing requirements for advanced AI technology, seeking to maintain its lead and restrict China’s access. The EU, in contrast, has taken a more proactive stance, introducing the AI Act to regulate AI applications based on risk and is exploring oversight of the models themselves. China, which also has its own AI laws, is promoting its own vision of AI governance that prioritises state sovereignty and its own national interests.
This divergence in regulatory approaches could result in a fractured global landscape, with countries potentially aligning with either the US or Chinese model of AI governance.
What to watch out for: Global standards war, and debates on open source AI. Expect the investigations - like the one initiated by Microsoft on DeepSeek - to intensify.
5G
Huawei might not be hitting the headlines these days but will be a focal point, along with other telecom companies, as the US sees them as a potential security risk due to its close ties with the Chinese government and military.
This concern stems from the potential for the Chinese government to use Huawei's technology for espionage, data collection, political meddling, or even wartime sabotage. The US has taken steps to limit Huawei's access to the American market and has pressured other countries to exclude Huawei from their 5G networks, fearing that its infrastructure could be exploited by China for military purposes. Additionally, there is concern that China could leverage 5G for MultiDomain Precision Warfare, using AI and big data to identify vulnerabilities in American military systems. The US government has also moved to restrict the sale of advanced chips and chipmaking equipment to China, which affects not only AI development but also the manufacturing of 5G equipment, further underscoring the tension between technological advancements and national security concerns.
What to watch out for: Western bans on tech, and Chinese countermeasures.
Critical minerals
China's control over critical minerals and rare earth elements is a key issue due to their essential role in high-tech manufacturing, giving China significant leverage in global supply chains. China produces over half of the world's rare earths and refines almost all of them, allowing it to exert economic pressure. More importantly, it has developed unique process technologies and manufacturing, which it has leveraged to gain dominance. This dominance enables China to influence prices, restrict exports, and use rare earths as a bargaining chip in tech battles with the West. The US and the West in general are concerned about this dependence, viewing it as a security risk. Efforts to diversify sources and establish alternative supply chains are underway but are proving difficult. China's dominance also extends to other critical minerals such as lithium, cobalt, and manganese.
What to watch out for: China’s willingness to further weaponise its dominance of critical mineral supplies, including rare earths, by restricting exports.
The tech war can no more be merely characterised as chip wars. It extends much far beyond and is characterised by some as a ‘civilisational war’.
Dig deeper
[Read] The race for "AI Supremacy" is over — at least for now. January 2025. Gary Marcus. Substack (Read time: 8 mins)
[Watch] China's DeepSeek triggers global tech sell-off, January 2025. CNBC (Play time: 8 mins)
[Read] Technology Policy and Trump 2.0: Where Are We Headed? December 2024. DGA Group. (Read time: 8 mins)
[Read] Unleashing “new quality productive forces”: China’s strategy for technology-led growth June 2024, Brookings (Read time: 10 mins)
[Watch] Huawei Redux: Understanding the World’s Most Infamous Company and Its Geopolitical Significance January 2025. CSIS. (Play time: 1 hour 8 mins)
[Read] State Vs Big Tech - a four-part series. September 2021. Founding Fuel
- The three drivers of Chinese techlash (Read time: 9 mins)
- The Brussels Effect (Read time: 8 mins)
- Taming the American giants (Read time: 6 mins)
- Splinternet and the geopolitics of tech regulation (Read time: 10 mins)
