What DeepSeek taught us about the gaps in US tech strategy

The US has been in a technological contest with China for the past decade and has deployed a "small yard, high fence" strategy, imposing aggressive protections, such as export controls, on a targeted set of priority technologies to restrict major Chinese technological breakthroughs based on cutting-edge Western chips, hardware, and software. The goal has been to impede Beijing's progress in critical technology sectors at a critical moment in geopolitical competition to sustain America's technological supremacy.

However, DeepSeek's "Sputnik moment" makes it clear that Washington's tech denial strategy is neither preventing China's advance nor protecting US technological advantage. Tech denial has pushed Chinese companies to take alternative approaches to hardware and architecture that use more legacy, and therefore cost-effective, technologies. The emergence of DeepSeek is not an isolated case, but the latest in a string of Chinese breakthroughs in critical sectors that skirt restricted technologies and, in doing so, empower cost-effective approaches. These cases indicate that, in today’s geopolitical and technological environment, not even the highest fences can protect American "crown jewels" or keep America ahead in frontier fields like AI. And doing so might not be what actually matters.

The US has relied on export controls as a core tool in its effort to impede China’s technological progress, but the real strategic contest may not be around which player develops a capability first, but around which player can apply that capability at scale. Export controls have not materially slowed China's ability to develop, scale, and profit from cost-cutting innovation, even in the fields that the US has prioritized most aggressively, including AI. Modern technology is increasingly defined by bits rather than atoms, making it more difficult to control. In an information technology competition, a nation that allocates its resources toward industrial capacity and applications of proven technologies may have an advantage.

Tech denial remains a valid element of a "protect" playbook in technological competition. It can impose costs on rivals seeking to catch up in critical fields with national security implications. But it cannot be the sole basis of an effective strategy. There are indications that a rethinking is underway in Washington, with an increased emphasis on the upstream segments of technology value chains, including energy and infrastructure, on the private sector as a key agent in the process, and on protecting the US market rather than US technology.

Secretary of the Interior Doug Burgum's comment about the AI arms race with China came in the context of electricity, explaining that the US should increase its domestic supply of energy to power AI. Just five days after Burgum’s confirmation hearing, President Trump announced that OpenAI, SoftBank, and Oracle were planning a joint venture dubbed Stargate that would invest some US$500 billion in developing the data center infrastructure for AI. Washington seems to be in the process of reassessing its assumptions about technological competition – what it is, what advantage it entails, how government can contribute to market interactions, and how to ultimately win against an adversary focused on unseating America’s incumbency. Such a rethinking, if translated into government action and guidance, stands to transform the US and global markets, patterns of trade and investment, and America’s relationship with both with its allies and competitors.

Technology matters for contemporary economic development and security and plays a significant role in the US-China contest. In a May 2021 speech at a National Congress of the China Association of Science and Technology, President Xi Jinping declared that “science and technology have become the main battlefield of the international strategic game…The competition around the commanding heights of science and technology is unprecedentedly fierce.” United States leaders are equally explicit. Senate Minority Leader Chuck Schumer has argued that "whoever wins the race to the technologies of the future is going to be the global economic leader."

But while Beijing and Washington may have diagnosed the same overarching competitive reality, they have engaged with it in very different ways. China has prioritized applied science and technology and the industrial capacity and infrastructure behind it, moving up the value chain only once it has established sufficient control over core technologies and their inputs. Beijing has generally sought to be a fast follower and to control the techno-industrial foundation in priority sectors.

By contrast, the US government has overwhelmingly prioritized developing early-stage research and development and then protecting, or denying, China's access to it. This approach was particularly evident during the Biden administration, which saw unprecedented government investment in cutting-edge semiconductor research and development and the use of tech denial as a suite of first resort.

This emphasis on tech denial and upstream investment stems from a fundamental US assumption about the competition underway. The US tends to interpret technology competition through the framework of an "innovation race," and to assume that leadership in cutting-edge technology bestows geopolitical advantage, and that the first mover in a given field is best positioned to own that field's development and returns over time. The United States also tends to assume that American innovation will always mean global leadership in tech deployment. But the success of DeepSeek clearly shows this is not what happened.

For Beijing, DeepSeek appears to validate a deliberate, different, asymmetric approach to technology competition. This is evident in policy: the National Medium and Long-Term Science and Technology Development Plan (2006-2020) called for the "digestion, absorption, and re-innovation of imported technologies"; a 2019 article in a journal published by the Chinese Academy of Sciences, explains that while today’s great power competition is about science and technology, it revolves not around innovation but around the "rapid application of the industrial chain." China does not intend to replicate the Western development path. It may well also find less – or at least a different kind of – value in the technological crown jewels that America has invested so heavily in protecting.

What might matter more in today’s technological competition is the ability to apply and to scale breakthroughs – and to protect not necessarily downstream technologies but the value chains supporting their production. Addressing that competitive space requires investment in industrial capacity, the energy behind it, and the requisite physical inputs, such as critical minerals. And considering resource constraints, the US will be most successful if it is able to leverage its allies and partners in making those investments and developing that industrial capacity.

A holistic American strategy that deprioritizes technology protection and instead pursues market protection as a line of first resort will place more pressure on US trading partners. It may also lead to a spiraling of barriers to trade and foreign investment. Traditional trading partners of the United States will have to adjust for a rapidly changing global economic system. Their options will include trying more aggressively to protect their own markets, to become more integrated into the protected US market, and to develop closer economic relations with China. Across the board, this necessitates a US strategy oriented around the promotion of industrial capacity, market norms, and technological deployment – strengths and resources that actually create advantage in today’s competition.

Download the full paper here.

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).