In recent years, technology has not only evolved; it has evolved exponentially. And in the midst of this evolution, the US-China relationship has ceased to be a simple competition and has become a historic power shift.
DeepSeek was not just an AI model. It was the bell that signaled that the era of America designing and China building was over, and not in the way Washington expected!
Just last year, in January 2025, a Chinese company that few outside of China knew about presented an open-source artificial intelligence model, trained with less than six million dollars (!!!). As a direct result, in a single stock market session, Nvidia lost 600 billion dollars in capitalization!!!
The model was called DeepSeek V3, and its reasoning version, R1, matched or outperformed the best American systems. Sam Altman had said that training such a model cost “far more” than $100 million. But DeepSeek published a confirmation in Nature that R1 cost $294,000. The difference wasn’t just impressive; it was insulting to the American narrative.
Most panicked people at the time were talking about the “AI race” and whether American companies had burned through billions and whether export controls were working.
No one saw the big picture: DeepSeek’s engineers didn’t have access to Nvidia’s top-of-the-line chips. American restrictions had locked China out of the H100 and A100 since 2022. What emerged was not a delay, but a generation of engineers who learned to do wonders with second-rate hardware.
Jensen Huang admitted as much when DeepSeek V4, trained in part on Huawei’s Ascend processors, appeared: “The best AI researchers in the world, because they are limited in computing power, are developing extremely smart algorithms.” The day he had feared, the day when a top-of-the-line model would run first on Chinese hardware, had arrived.
Huawei’s chip was made by SMIC, with minerals that had been refined in China. Export controls that were supposed to slow Chinese progress ended up accelerating the vertical integration of the Chinese technology chain. Washington believed it held the levers of pressure. It was, after all, pushing China toward self-sufficiency.
American manufacturing had peaked in 1979 with nearly 20 million jobs. By 2023, there were about 13 million left, while its share of GDP had fallen from 25% to just over 10%.
For decades, the idea was that the real value was in design, not production. The factory was seen as a burden to be moved elsewhere.
NAFTA sent some to Mexico; China’s entry into the WTO in 2001 sent the rest. Between 1991 and 2007, Chinese imports to the United States increased by 1,156%. Economist David Autor has calculated that Chinese competition explains about 55% of the decline in American manufacturing employment. What was not accounted for was that a country that designs but does not produce depends on those that do produce. And when those countries learn to design for themselves, the advantage disappears.
China’s industrial rise was not limited to AI.
- BYD, which started as a battery company in 1995, was selling more electric vehicles than any other company in the world by 2024.
- CATL had reached a 37.9% share of the global EV battery market. Together they controlled more than half of the market. China produced more than 70% of the world’s electric vehicles.
- In solar panels, Chinese companies held more than 80% of the production capacity.
- DJI had about 70% of the drone market.
- Huawei supplied telecommunications infrastructure to more than 170 countries.
All of this was built on the same mechanism: protected domestic market, scale, cost reduction, exports, reinvestment. The factory doesn’t just produce products;
- it produces know-how,
- human capital, and
- supply chains that are not transferred by decree.
At the same time, the American logic for the “chip war” argued that export controls worked because China did not have access to ASML’s EUV machines. Technically correct, strategically naive. SMIC had already shown in 2022 that it could produce 7nm chips with older machines. In 2026, it had entered pilot production of 5nm. A prototype Chinese EUV machine, built without a Western supply chain, had appeared in a Shenzhen lab.
DeepSeek V4, running on Ascend processors, performed at levels close to the top American models, at a cost ten times lower. Export controls may have slowed China down, but they did nothing to stop it.
At the same time, the American defense industry depended on minerals that China refined almost exclusively.
98.8% of the world’s gallium was refined in China.
- The F-35,
- the Virginia submarines,
- the Tomahawks
all relied on supply chains that passed through Chinese refineries. Beijing exploited this position by imposing successive restrictions on exports of critical minerals. American stockpiles were measured in months.
Despite American assurances that the level of design remains the last insurmountable advantage, it is steadily eroding.
Empyrean is building a Chinese EDA ecosystem. SMIC is moving forward. DeepSeek runs on Chinese silicon. Chinese manufacturing reached $4.66 trillion in 2023, more than the US, Japan and Germany combined. Every year that China invests such a large share of its GDP in its industrial base, the gap narrows.
The US CHIPS bill provides $52 billion for semiconductors. China’s Big Fund has already surpassed $50 billion. TSMC in Arizona posted losses in its first year of operation. The ecosystem that makes Hsinchu a global semiconductor hub is not transferred by presidential decree.
The lesson that Washington has yet to learn is the same one that DeepSeek showed: when you impose restrictions on a country that has factories, you force it to develop what you are denying it.
Chinese engineers, deprived of the best chips, optimized algorithms to do more with less. The same happened with rare earths: American weaknesses were only revealed when China restricted exports. The factory the US abandoned has now become a weapon. The design advantage it held is now a target.
The question of the decade is whether a country can rebuild in five years what it abandoned in fifty, before the country that kept the factory has completed its ability to design what it manufactures.
None of the above was affected by Trump’s visit to China, along with the businessmen. The American mission, despite what is written in the mainstream media, did not touch the problem.
In any case, the US does not seem capable of designing anything more than a policy of bombing…
