A groundbreaking AI model developed by Chinese startup DeepSeek, called DeepSeek-R1, has sent shockwaves across the US tech and political landscape by achieving performance comparable to leading American AI models at lower costs and computational resources. In response, the US is preparing to escalate restrictions on China's access to advanced semiconductors, including further curbs on Nvidia's chip sales to China.
According to Bloomberg, the Trump administration is considering expanding the restrictions on Nvidia's China-specific AI chip, the H20. This chip has already been modified to comply with existing US export controls by downgrading its performance, but US officials are looking to impose even stricter limits.
Deepening US-China AI Tensions
US officials are reportedly in the early stages of policy discussions, with a long timeline expected before any decisions are finalized due to staffing changes under the Trump administration. If the restrictions are tightened, it could further exacerbate US-China tensions.
Since 2022, Nvidia's sales to China have been constrained by US regulations. Any extension of these measures would reduce Nvidia's revenue in China, the world's largest semiconductor market. Nvidia has argued that such restrictions only strengthen China's resolve to achieve technological self-reliance, undermining the goals of US trade policy.
Accusations of Technology Theft and Government Responses
US Commerce Secretary nominee Howard Lutnick declared during a Senate hearing that he supports a strict stance on chip export controls to China. He accused DeepSeek of stealing US technology and advocated for tariff policies targeting China. Lutnik emphasized the need for higher tariffs on China and other adversarial nations, arguing that tariffs could ensure a fair and reciprocal trade environment.
Meanwhile, the White House announced it investigates DeepSeek's potential impact on national security. White House spokesperson Levitt stated that the National Security Council has begun an assessment of DeepSeek's implications, though no specific actions have been outlined yet. President Trump has described DeepSeek as a warning to the US AI industry, underscoring the administration's commitment to maintaining leadership in AI.
Military and Corporate Responses
The US Navy has instructed its personnel to avoid using DeepSeek's AI technology, citing concerns over "potential security and ethical issues" related to the model's origin and usage. An internal email explicitly prohibited downloading, installing, or using any form of DeepSeek's AI tools.
On the corporate side, Microsoft and OpenAI are reportedly investigating whether DeepSeek gained unauthorized access to OpenAI's proprietary data. Bloomberg reported that Microsoft observed suspicious activity last fall, where individuals allegedly linked to DeepSeek used OpenAI's API to extract data on a large scale. OpenAI also suspects that DeepSeek employed "distillation" techniques, which involve using outputs from larger AI models to train smaller, cost-efficient models. While distillation is a common practice in AI development, OpenAI claims that DeepSeek's actions may have violated its service terms, prohibiting using outputs to build competing models.
Industry Reactions to DeepSeek's Innovation
Despite the controversies, some US tech leaders have acknowledged DeepSeek's innovation. Microsoft CEO Satya Nadella remarked that DeepSeek demonstrates "genuine innovation" and highlighted the trend of decreasing AI costs. Meta CEO Mark Zuckerberg also commented on the importance of open-source AI and revealed that Meta is considering adopting some of DeepSeek's strengths in its own models.
However, concerns over intellectual property theft remain high. The US "AI Czar" and head of artificial intelligence and cryptocurrency policy, Max Sachs, noted that there is credible evidence that DeepSeek used distillation to replicate OpenAI's outputs. Sachs warned that leading US AI companies are likely to implement measures to prevent distillation in the coming months, which could slow down the progress of competing models.
Market Impacts and US Tech Performance
Meanwhile, US tech companies are experiencing mixed results. Microsoft reported better-than-expected quarterly earnings, with revenue growing 12% to $69.6 billion and profits rising 10% to $24.1 billion. However, its cloud services revenue, which benefits directly from AI applications, fell short of expectations.
Similarly, Meta surpassed earnings forecasts, with profits surging 49% to $20.8 billion and revenue rising 21% to $48.4 billion. Zuckerberg emphasized the importance of capitalizing on the AI boom and indicated that Meta would continue investing in AI development while assessing innovative approaches like DeepSeek's.
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