By Helen Christopher

The launch of the DeepSeek R1 Artificial Intelligence (AI) system in January this year exposed some important problems both of neo-liberal capitalism and of the failure of US attempts to strangle the Chinese tech industry via sanctions. It also offers an explanation as to why the tech giants have jumped into bed with Trump having previously been hugger mugger with the Democrats. Trump has indicated support for developing AI, crypto currencies and hi-tech weaponry notably his proposed “Iron Dome” missile “defence” system for the US. These advanced technologies are of strategic importance to the US and are more of a focus for Trump than reviving the traditional industries where his voters might have hoped for jobs. For example, despite being a massive economy and one dependent on trade and military might, America now builds only 0.1% of the world’s ships. (China builds over 50%, up from 5% in the late 90s.)

US MONOPOLY THREATENED

Trump’s hostility to China is well known, and the tech oligarchs want to preserve their lead over it, but they also have business interests there too and will want to influence the direction of travel by being close to Trump. That is, it is all about preserving their monopolistic control of the global market in hi-tech systems, which they dominate. But this lead is increasingly being undermined by China.

United States companies have led the way in key strategic technologies such as chips and computing systems, including AI. It seemed that few could compete with them so there was shock when it was revealed that DeepSeek had created an AI application rivalling and bettering existing market leaders such as OpenAI and its ChatGPT. By using a different, more efficient, approach to running systems it has been able to use less computing power and energy and use less advanced chips to obtain these results. One of the notable aspects of this achievement is that it did not tried to copy the existing AI models but took an innovative approach.

This runs counter to the US tech industry drive to continuously increase the complexity and cost of the chips it builds and uses which ensures a monopoly for manufacturers as they are increasingly difficult to replicate and has fuelled the rocketing share price of companies like Nvidia. So not just the technology, but the monopolistic business model of US firms is threatened. If a system can be run on less advanced chips, using innovative processes, then there is the opportunity for others to catch up.

DeepSeek’s approach threatens the tech companies’ monopoly in other ways as well. It has made data about how the model is constructed and trained open-source, giving comprehensive technical details enabling others to use it freely. OpenAI (contrary to what its name might suggest) keeps this information a closely guarded secret. DeepSeek also offers its products at much cheaper prices than competitors. The speed at which DeepSeek was adopted demonstrated its value to users, with over 10 million downloads in the first weeks after its launch. It is also being used within companies.

The threat to the US and its tech industry is twofold. It comes from the technical challenge of DeepSeek’s model and its cost-effectiveness, which is linked to the second and in some ways more profound challenge which is that by making the technology cheaply available and open-source Chinese companies and China gain markets and influence globally. Both these arenas are central to the United States continuing mission to maintain its world hegemony. It’s hegemonic strategy, however, has increasingly been predicated on forcing others to adopt its technology, just as coercion is increasing the only tool in its armoury to maintain its unipolar domination. Its mission is not to win allies but only compliance.

CHINA DEFIES SANCTIONS

China, as the US principal rival, has also been the main target for such coercion. The imposition of export bans and sanctions against China, initiated by Trump in his first Presidency, continued by Biden and carrying on in Trump’s second term, were aimed at preventing hi tech breakthroughs, yet as has been widely remarked on, including by Western commentators, sanctions and tariffs have had precisely the reverse effect. Although it should be acknowledged that DeepSeek has used US tech, including data and Nvidia chips, stockpiled before US bans on their export to China came into effect.

Having said that China’s chip industry is making progress. At first the sanctions regime looked as though it was having an impact. By 2020 a shortage of chips threatened the future of Huawei, a critically important Chinese tech company. However Huawei did not collapse but sought to solve the problems it faced and, along with a Chinese chip maker Semiconductor Manufacturing International Company, developed its own advanced chip. It was launched in Huawei’s Mate 60 series of smartphones in August 2023 and the two companies are continuing to work on creating new, more advanced chips, including graphics chips which will begin to challenge Nvidia’s. As with DeepSeek, Huawei’s success was greeted with exclamations of “surprise” in the West.

The shock which has greeted Chinese advances in AI and chip manufacture is an expression of the disbelief that US tech prowess and bullying of other countries can be successfully challenged. Though in theory neo-liberalism espouses free markets, we know that capitalist freedom is entirely freedom for those who own and control resources, those who do not are at the mercy of those who do. The other neo-liberal fiction is that US tech companies’ success is due to free market competition, when they have, since their inception, had a symbiotic relationship with the US government especially in military research and spending. This includes businesses belonging to the man currently in charge of slashing government spending – Elon Musk. Over the past decade SpaceX and Tesla received at least $18 billion in federal contracts, steadily rising from $0.6bn in 2015, to $3.6bn last year. It has also been pointed out that without critical support from the US government, Musk’s firms would not have been able be successful. We should not expect Musk’s DOGE chainsaw to cut into these tax-payer funded subsidies to his, and others, business interests. This is government by the oligarchs for the oligarchs.

The myth of free markets is also exposed by the way in which the hi-tech market is run by a cartel of monopolies which as well as forcing others to buy their products at enormous cost, has now been demonstrated to stifle innovation. This applies in other areas of industry. The US arms industry is now dominated by only five companies, accounting for 86% of government spending and are notorious for late delivery and overspend on projects, with innovative development hampered by the procurement process. At the end of the Cold War there were by contrast 51 top contractors.

The primary focus of US big tech is to extract as much profit as possible through having a monopolistic control of the technology. This drives those companies to double down on the technological models that they have created – albeit innovations at the time - with little incentive to explore cheaper, more efficient options like DeepSeek’s. This has remained the case even where there have been emerging problems questioning the longer term viability of the AI models that they have created. There are issues about getting enough high quality data to train the systems and problems of them reinforcing incorrect information and biases, there are physical problems in reducing the size of chips any further and problems with the vast amounts of energy it takes to run the systems and power data centres. Financial commentators have expressed concern that there is an AI bubble developing where the promise of the technology will not live up to the hype nor justify the amount of capital being poured into it. Indeed DeepSeek’s launch led to plunging share prices for US tech giants, especially Nvidia whose share price fell by 18%.

STATE INTERVENTION

DeepSeek, like Huawei, is a private company, but in China the state is much more interventionist in the economy, in ways that are strategic rather than simply subsidising key industries. The Chinese government formulates five year plans for economic development and steers priorities for the private sector to meet the needs of the country. It also provides financial support to achieve this which is viewed in the West as somehow unfair, despite the cash thrown at Musk et al.

Successive plans in recent years have emphasised the need to shift from low value industries to hi-tech development. Made in China 2025 (MIC 2025), is more ambitious and is a ten-year plan launched by the Chinese government in 2015, coming to fruition, therefore, this year. Made in China’s principal goal was to move from having predominantly low-tech assembly industries servicing foreign companies, to produce more domestically and develop key technologies and industries. It is estimated that the Chinese government has invested over $1.4 trillion dollars to support MIC 2025. The plan has been hugely successful as the Economist of 18/1/25 acknowledged. Referring to the benchmarks set out it said, “China appears to have exceeded most of these.” It aimed to develop 13 key sectors and has had major successes. To give a few examples, there was a target for Chinese companies to sell 3 million electric vehicles (EVs) by 2025 – last year it sold 10 million and BYD, China’s biggest EV maker, now out sells Tesla in battery only cars. China’s biggest drone maker, DJI, has a 90% share in the market for consumer drones. In 2015, when MIC 2025 was announced China produced 65% of the world’s solar panels – now it is 90% and it produces 70% of batteries – it was 47%.

As DeepSeek’s success shows China is continuing to make progress challenging US leadership in the tech industry. It is no wonder in this context that the tech oligarchs are cosying up the President Trump to attempt to ensure political and economic support for their ambitions to retain dominance in the field.

Hangzhou home of DeepSeek. Photo by MASANEMIYAPA

The shock which has greeted Chinese advances in AI and chip manufacture is an expression of the disbelief that US tech prowess and bullying of other countries can be successfully challenged. Though in theory neo-liberalism espouses free markets, we know that capitalist freedom is entirely freedom for those who own and control resources, those who do not are at the mercy of those who do.