Tag Archive for: US-China Relations

It’s time to imagine how China would act as regional hegemon

Regional hegemons come in different shapes and sizes. Australia needs to think about what kind of hegemon China would be, and become, should it succeed in displacing the United States in Asia.

It’s time to think about this awful prospect because under President Donald Trump the US’s commitment to alliances is suddenly looking shaky. And there’s also the risk that even a fully committed US could try and fail to restrain China militarily—for example, in the crucial scenario of defending Taiwan.

Regardless of whether overt military force had been needed to supplant the US in Asia, leaders of a newly hegemonic China would likely initially try to portray the country as a much less aggressive and far more tolerable alternative keeper of the regional peace than the sceptics had thought.

With the region cowered and everyone else anxiously looking on, it would make great sense for a triumphant and unchallenged China to project a strong but benign image of itself to the world. Such a phase could last years and even decades, but it would not last forever.

Ideally, China’s leaders want China to be a regional hegemon that has tremendous military capabilities that it rarely, if ever, needs to use to get what it wants, principally because it is unmatched.

The prospect of the use of overwhelming military force combined with the usual economic carrots and means of political and social control across the region would, they’d hope, ensure that a hegemonic China’s interests automatically featured in the decision making of all regional countries.

That would be plan A.

China’s problem and ours is that most regional countries and the people that live in them would eventually tire of that dynamic and start pushing back.

That is problematic mainly because deference lies at the heart of Beijing’s conceptions of the virtues of a historically China-led regional order, making anything short of absolute submission difficult to tolerate.

China’s leaders are not looking to break new ground by seeking regional hegemony. Rather, they are trying to return China to a position of dominance that enables it to control what those in its orbit think, say and do.

Many of China’s coercive and technological means and methods to secure that high degree of external influence and control are new. Its desire to have them is not.

Working from the assumption that China won’t compromise on the deference front, Canberra and other regional capitals need to think about how much direction from Beijing they could stomach and how push-back might manifest itself.

This is where it starts to get messy.

The less China is challenged by a regional peer competitor, the more unacceptable even the smallest external acts of defiance will seem to a domestic Chinese audience. This means that for reasons of domestic political legitimacy alone, leaders of a hegemonic China will want to deal with any afront in a way that is seen to effectively deter others.

With internal pressure to act like a proper hegemon and no credible external checks and balances on its behaviour, it is not hard to imagine China’s leaders pursuing increasingly overt and punitive methods to compel obedience and engineer thought beyond its borders.

It is also not difficult to imagine that effort backfiring on Beijing sooner than it expected, leaving it with no apparent choice other than to use military force to achieve outcomes.

A hegemonic China would eventually overstep, eliciting a collective regional reaction that from Beijing’s perspective will need to be quashed. This would provide a pretext for China to become the expansionist and authoritarian power that it would say it never intended to become but now must to preserve regional stability.

Thinking about how far the leaders of a hegemonic China would want to go to avoid reaching that conclusion, and exactly what they would do when they reach it is anxiety inducing and unpleasant.  But it’s a task policy planners need to take on instead of wilfully avoid.

China is clearly committed to its objective of kicking the US out of Asia and assuming what it feels is China’s rightful place in the region. But it is important to remember that China’s leaders too would be unsure and anxious about how an outcome in China’s favour would play out.

For us, facing the challenges posed by the potential emergence of a hegemonic China means thinking ahead and imagining ways to move forward in different circumstances without getting stuck.

Luck will play a role.

Economic security and geostrategic competition: fostering resilience and innovation

Australia and other democracies have once again turned to China to solve their economic problems, while the reliability of the United States as an alliance partner is, erroneously, being called into question.

We risk forgetting lessons of the past when we cling to the long-gone notion of the free market, which Beijing sees as democracies opening themselves to China’s unfair business practices. Economics and security are closely linked: we must build resilience and foster innovation to prevent economic dependencies that weaken our security.

We should be concerned when countries impose tariffs on friendly countries, as the US is doing. It erodes trust, weakens solidarity among like-minded democracies and dangerously risks a tit-for-tat approach of revenge tariffs that will leave us all poorer. This drives inflation while passing costs onto consumers.

But while we need to keep working for a different outcome—as the Australian government is doing—we mustn’t focus on spot fires when the forest is ablaze.

Almost a decade ago, Australia led the world by abandoning an outdated foreign policy of balancing economics and security. We recognised that trade interdependencies didn’t deter conflict and that short-term financial interests should never outweigh security concerns. Balance sounded good in theory but in practice meant trade-offs that left us unsafe.

It was China’s actions that forced the change: having become our largest trading partner, Beijing used our economic reliance as leverage to implement a systemic program of security breaches and threats against us, from cyber intrusions to foreign interference.

Unfortunately, recent trends reveal that security trade-offs weren’t abandoned so much as temporarily paused. Many democracies are responding to immediate cost of living pressures and hoping security threats can be kicked down the road. This is a policy of security crisis delay, not deterrence.

Economic prosperity is needed to pay for security, and security without prosperity leaves us vulnerable to decay. But as is the case for individuals and households alike, assurance comes at a cost. So, the key question that confronts is what is the short-term price—an insurance premium of sorts—that we are willing to pay for long-term confidence of our prosperity and security?

Western countries need to look beyond resilience and risk reduction to embrace a more comprehensive strategy—one equally focused on (shared) innovation and competitiveness, especially in those emerging technologies that will determine future prosperity and security.

Brad Glosserman correctly argues that, in response, the US and its allies have been ‘doing economic security wrong’ by focusing almost exclusively on resilience and risk reduction. This has meant overlooking deterrence, and not prioritising future competitiveness. Partners and allies must define key industries and sectors, and stop choosing cheapest associated supply chain.

They must strengthen resilience by establishing frameworks to protect critical and emerging technologies from intellectual property theft and economic coercion by China. And, as Raquel Garbers argues, enhanced deterrence requires education on what economic warfare is and how it works, and with tools that disincentivise economic activities with hostile states.

Glosserman correctly emphasises the importance of supporting innovation and ‘unlocking innovative potential’. Resilience requires us to move beyond traditional notions of just protecting the economy to an approach that prioritises innovation and technological leadership.

To establish an effective strategy, we must understand what specific policies governments can implement to foster a innovation in critical and emerging technologies. This also requires increased collaboration between the US and its allies, particularly in areas where China has a strong lead.

We need to leverage the strengths of countries such as India, which ASPI’s Critical Technology Tracker has identified as an emerging centre of research excellence, to diversify research partnerships and build a more resilient global innovation network. We must also be wary of the short-term focus of shareholder capitalism and its negative impact on long-term economic security.

We should consider how can we rebalance the capitalist model to prioritise, incentivise and reward long-term investments in innovation and resilience. The prosperity and economic growth needed to best provide national security won’t result from protectionism, but from a long-term strategic approach to emerging technologies.

Doing so, however, will still require us to remember you get what you pay for. Any savings we gain from prioritising cheap supply chains in the present will ultimately be outweighed by higher security costs in the future.

We need to remember that short-term disagreements with friends will pass as they have before. National interests may on occasion come into sharp contest, but strategic alignment will persist. It is systemic and malign challenges that require our collective focus and investment.

Economic security and geostrategic competition: tariffs don’t equal coercion

The Trump administration’s decision to impose tariffs on Australian aluminium and steel has surprised the country. This has caused some to question the logic of the Australia-United States alliance and risks legitimising China’s economic coercion.

Australia must be level-headed and see the alliance as greater than the sum of its parts. It must be clear-eyed about the reasoning behind US decision-making and  remain sophisticated in its responses. Australia must also focus on the real threat of economic coercion from China.

Aluminium and steel make up just 0.2 percent of Australian exports to the US, and their value of $1 billion is a tiny fraction of Australia’s total global exports of $660 billion in the past financial year. Aluminium and steel producers will just redirect exports to other markets or shift production to their US-based manufacturers. The tariffs are more political than economic: they are less about Australia and more about the US resetting its ledger with the world and delivering on its national interests.

As Australian Ambassador to the US Kevin Rudd said, the US will be ‘hardline and transactional in its approach, even to long-standing friends, partners and allies’.

So, Australia must respond to the causes, not the symptoms. As with any competition, being beaten by a better rival is not unfair. But, having held up the international free trade system since its inception, the US is increasingly concerned about being cheated or taken for a ride. This includes the correct assessment China is not playing by the rules the rest of us have been following.

Australia must avoid drawing a false equivalence between the Trump administration’s tariffs and China’s economic warfare. The US is seeking to rebuild domestic production and level bilateral trade—albeit by wringing concessions, even from friends, partners and allies. But China’s objective is to recast the international system in its favour.

Since World War II, the global order has, for the most part, benefited from economic liberalism and free market incentivisation. But while the West granted the free market free rein, the Chinese Communist Party used controlled industrial policy to achieve rapid economic growth. It did two things at once: exploiting the open global market and combining it with a form of domestic industrial policy. The CCP has prioritised sectors defined as most relevant to manifesting national strength using subsidies, investment, and theft of intellectual property to drive Chinese innovation and companies. This has occurred most sharply under Xi Jinping.

Through its investments in manufacturing under its Made in China 2025 plan, Beijing showed a willingness to lose money to make the world dependent on Chinese support. It has used predatory pricing as a deliberate strategic ploy, selling low and bankrupting competitors to create a monopoly. We’ve seen that across multiple fields, including commercial drones and batteries in electric vehicles.

While many governments use economic incentives to support local industry, most generally maintain a market-driven approach to technology sectors. While such governments may provide research funding, tax incentives or targeted subsidies, their efforts are typically more transparent, limited in scope and not directly tied to state intelligence objectives such as creating levers of coercion or military modernisation programs.

That distinction highlights the unique risks posed by China’s approach. China combines aggressive state-backed industrial policies with a lack of separation between private enterprise and government control.

As a result, this supports Beijing’s regional and global agenda to supplant the US and its allies across critical technology sectors relevant to future economic prosperity and national security. In these fields, Beijing has simultaneously increased foreign dependence on China and reduced China’s dependence on the rest of the world.

This doesn’t just boost China’s own prosperity; it also deters democracies from standing up for their own security by making countering Beijing’s malign actions not just challenging, but impossible.

ASPI’s Critical Technology Tracker shows China’s significant lead in areas such as advanced sensors, AI and advanced materials. This diagnostic tool shows governments where to direct their efforts to maximise innovation and competitiveness.

China has acted in this way—wanting the global market open but its domestic one closed—because it sees industrial policy as a means to achieve its strategic ambitions and dominate globally. In comparison, Western governments narrowly view industrial policy as a domestic policy.

There should be two options: hold Beijing to account for rule breaches or play the new game. While the Trump administration tries to do both, the rest of us appear to choose a third option. We are allowing China to play by its own rules while we remain committed to the old game and expect the US to do the same.

A loss in Europe is a loss in the Indo-Pacific

The United States shocked the world last week with President Donald Trump’s very public rift with Ukrainian President Volodymyr Zelenskyy. This was followed by a US pause on military aid and some intelligence sharing with Ukraine, all intended to push Ukraine to agree to a ceasefire on terms favourable to Russia. But Russia’s interests are also China’s. A bad peace in Europe may mean more bad behaviour in the Indo-Pacific.

Trump campaigned for the presidency in part on a commitment to end Russia’s war on Ukraine, without regard for who is the aggressor and who is the victim. He seems to want a legacy as the president who ended wars, contrasting with his predecessors, both Republican and Democrat. The overall direction of US foreign policy is now being shaped to fit within these constraints.

This has empowered voices within the Republican Party who see China, not Russia, as the pacing threat of our time. Key figures in the administration, such as nominee for Undersecretary of Defense for Policy Elbridge Colby, have for several years pushed the idea that to meet the threat posed by China, the US must direct resources away from Europe and the Middle East and towards the Indo-Pacific. That position has been widely, though not universally, adopted within the Republican Party.

There is certainly bipartisan agreement in the US that East Asia is now the key theatre for US grand strategy, and that China’s global ambitions and growing military prowess pose a pacing threat to the US and its democratic allies and partners.

In his Senate confirmation hearing this week, Colby said the US must focus on ‘denying China regional hegemony’ and that it ‘would be a disaster for American interests’ if Taiwan were to fall to China. But US aid to Ukraine and Israel has delayed arms shipments to Taiwan, and Colby has said the US simply doesn’t have the capacity to support conflicts in three regions. By his logic, and perhaps now that of the White House, the US must remove its support for Ukraine so it can concentrate its resources against China and in support of Taiwan.

But the reality is that the European and Indo-Pacific fronts are intricately linked as long as Russia and China support each other and their interests are aligned. Countering one adversary will require addressing the influence of the other.

The two countries declared a no-limits partnership just days before Russia invaded Ukraine in February 2022. Chinese President Xi Jinping reaffirmed that partnership last month on the three-year anniversary of the war. The partnership has been material and substantial: China has provided assistance to Russia’s war machine, geospatial intelligence for its military, markets for its natural resources and sanctioned companies, and backing at the United Nations.

Russia, meanwhile, is strengthening military cooperation with China, including in the Indo-Pacific. In 2024, the US intercepted Chinese and Russian bombers flying for the first time together near Alaska, and Russia joined China in military exercises in the Sea of Japan.

Both countries echo each other’s propaganda, and their massive media and covert disinformation apparatuses amplify each other’s messaging.

Why would China dedicate its resources and risk its reputation in Europe to support Russia in Ukraine if leaders in Beijing did not believe that a Russian win in Ukraine was vital to Chinese interests? Indeed, a Russian victory would be an immense victory for China as well. It would shatter the image of a strong and unified west, show NATO to be a paper tiger and sow doubt throughout the world about the value of US security guarantees. These are all goals that Beijing has pursued for decades, and that are key to the revisionist world order Beijing hopes to craft.

A Russian win in Ukraine, moreover, would create a clear precedent for one of Xi’s most important goals—taking Taiwan. That’s why the Taiwanese government, which has more to lose than anyone else in the Indo-Pacific region, has for three years loudly cheered US support for Ukraine. If Colby’s argument were correct—that is, if US military support for Ukraine ran counter to Taiwan’s interests—Taiwan would now be rejoicing. Instead, Taipei is filled with trepidation.

If the war in Ukraine ends on terms favourable to Russia, both China and Russia will be free to concentrate more of their joint efforts in the Indo-Pacific. Instead of a cautious China and a distracted Russia in the eastern theatre, the US will have to deal with an emboldened China and a vindicated Russia—even as US allies and partners in the region view the US with newfound skepticism. If the US at some point calls on Europe for assistance in East Asia, few would expect them to heed that call.

US cuts to science and technology could fast-track China’s tech dominance

Is the United States now trying to lose the technology race with China? It certainly seems to be.

The race is tight, and now the Trump administration is slashing funding for the three national institutions that have underpinned science and technology (S&T) and what advantage the US still has.

China is outpacing the US in the volume of high-impact research in 57 of the 64 critical technologies in ASPI’s Critical Technology Tracker. The US’s main remaining advantage is downstream in implementing technology, and even that’s at risk as China’s significant S&T investments pay off.

Now the US’s lead may disappear even faster following cuts to the National Institutes of Health (NIH), National Aeronautics and Space Agency (NASA) and National Science Foundation (NSF).

The NIH is the biggest public funder of biomedical research worldwide and impacts global health in ways often taken for granted. For example, it supported the foundational work that led to the Haemophilus influenzae type b vaccine which, by some estimates, prevented 1.2 million infant deaths between 2000 and 2015. NASA is a stalwart of space research and inadvertently has contributed to medical innovations as it has attended to the health of its astronauts, such as the ear thermometer. The NSF funds all non-medical scientific research (biology, quantum computing, artificial intelligence, space and advanced materials) in the US and manages major research facilities.

The NIH stands to lose $4 billion out of the $32 billion already allocated to US research grants in 2024. This $4 billion cut is not just 11.4 percent of the NIH’s research grants; it will also limit its ability to cover indirect costs associated with equipment, maintenance, safety and personnel—everything that keeps world-class research facilities ticking.

According to The New York Times, indirect costs make up 29 percent of grant funds on average. With only 85 out of 613 institutions having indirect costs below 15 percent, a decision to cap indirect costs at 15 percent will at least halve the funds for maintaining labs for most NIH grant recipients.

If you are a grand-slam-winning tennis champion, these indirect costs are akin to the payments for your team of coaches, strategists, medical entourage, all your equipment and access to training facilities. Without these, you won’t stay at number one. It’s the same in the critical technology race.

Typically, labs and other research facilities have state-of-the-art equipment, which have indirect costs commensurate with their level of sophistication. This means that high-level labs—where breakthroughs often happen—have more to lose when funding is cut for indirect costs.

The biggest losers in these cuts will be top US universities, medical schools and hospitals, many of which are among the top 10 institutions in the Tech Tracker for biotechnologies, including MD Anderson Cancer Center, Memorial Sloan Kettering and many teaching hospitals within the Harvard Medical School. The NIH not only provides research funding in the biomedical fields; it also has 27 biomedical research institutions. The NIH combined is currently ranked second for vaccines and medical countermeasures and eighth for genetic engineering in the Critical Technology Tracker, highlighting its global importance and competitiveness.

NIH-funded research has contributed to early detection and prevention of cancers, chemotherapy and immunotherapy. The NIH also helped develop vaccines for flu and RSV (Respiratory Syncytial Virus), as well as the mRNA Covid-19 vaccine. These are the very institutions that the US government will rely on to develop the future vaccines needed to protect Americans from the next global pandemic.

In addition, in early February, biomedical research was again in the firing line with termination letters sent to hundreds of employees at the Centers for Disease Control and Prevention, the Food and Drug Administration, and the NIH. More job cuts are expected to follow, further weakening the sector.

Around the same time, the NSF froze all grant review processes to comply with new directives to end all diversity, equity, and inclusion (DEI) programs. According to the Washington Post, NSF staff were tasked with scrutinising active research grants—preciously approved by peer review—with a list of keywords including ‘women’, ‘diverse’ and ‘institutional’ to reverse any grants remotely related to DEI initiatives.

On 18 February, the haemorrhage of US S&T talent continued with a 10 percent cut to the NSF workforce. Given the NSF’s annual budget of $9 billion, the effect of this cut will be felt across all technologies. The Computer Research Association, for example, predicts devastating consequences for scientific innovation and talent in AI technologies and high performance computing, as the NSF funds 80 percent of fundamental computing research at US institutions. The association credits foundational US technologies behind AI, cybersecurity and quantum technologies to NSF funding.

The Critical Technology Tracker ranks the US first in quantum computing, with seven of the top 10 institutions based in the US. However, quantum technologies are priority areas for China, which unveiled its most advanced quantum computer, a 504-Qubit Superconductor, in December 2024. In 2022, the NSF’s Directorate for Technology, Innovation and Partnerships was set up to accelerate the implementation of NSF-funded discoveries from research to new industries, especially in technologies where the US faced the greatest competition. According to Reuters, the directorate lost 20 percent of its staff last week.

Similarly, NASA, currently ranked first in space launch systems research in the Tech Tracker, may face a 10 percent cut to its specialised workforce. These massive cuts have been put on hold, but if they resume, the loss of talent would be a blow to an important component of the technological race, especially with a worldwide shortage of tech specialists. Historically, US space and satellite companies have benefited from NASA’s decades-long public investments in research and development.

The Economist reported that the scrutiny of DEI programs extended to keywords related to climate change. The National Oceanic and Atmospheric Administration (NOAA) and NASA are therefore expecting major job cuts for their work in climate science and extreme weather patterns. The NOAA plays an important role in weather prediction. Its research on space and sensors is visible in the Tech Tracker across the areas of small satellites, gravitational sensors, and sonar and acoustic sensors.

While the US is cutting its funding, China continues its systematic, long-term investment in critical technologies. Synthetic biology is a sector in which China has the largest lead in the Tech Tracker. Over the past 5 years, China has published 57.7 percent of high-impact research in the field, while the US has produced just 13.1 percent.

Synthetic biology is the design and building of new biological systems. It has applications in many areas, such as agriculture and medicine, which directly affect food security and health. Like quantum computing, synthetic biology is an emerging technology where scientific innovation and intellectual property ownership can determine future industry dominance. Since 2006, China has prioritised synthetic biology and built a tech ecosystem around this emerging technology, comprising research institutes and industry.

As Drew Endy, a synthetic biologist from Stanford University, pointed out, the research infrastructure that China has built to support its all-of-nation approach to emerging biotechnology is now the envy of the world. The contrast between China’s investment strategy and the cuts imposed on the NIH could not be starker.

If the US doesn’t want to lose the S&T race with China, it must review its funding cuts. Reducing the funding envelope to grants organisations that oversee scientific grants, such as the NIH and NSF, will stifle the scientific innovations and breakthroughs that have been central to the rise of the US as a technology superpower.

Countries that have long relied on US technological research may need to step up spending on scientific research, or they, too, will risk being left behind.

Trump’s trade war is about more than trade

The opening salvos of US President Donald Trump’s trade war have sent shockwaves around the world. Over the past three weeks, his administration has broken with decades of free-trade orthodoxy, threatening to impose tariffs not only on strategic adversaries such as China but also on longstanding allies such as Canada and Mexico. Even Denmark—a NATO member and steadfast US ally during and after the Cold War—has found itself in Trump’s crosshairs.

Trump’s actions have made many in the United States and around the world wonder: what exactly are tariffs, and how do they affect global trade? Simply put, tariffs are taxes on imported goods. If a Chinese manufacturer wants to sell shoes in the US, the American government can impose a tariff. If a US retailer pays $100 for a pair, then a 10 percent tariff, like the one that Trump recently imposed on goods from China, means that the retailer must pay the US government $10.

Those $100 shoes now cost $110. Who pays the extra $10? When Trump raised tariffs on Chinese imports during his first term, US importers bore most of the cost, particularly when they could not find alternative suppliers. Consequently, retail prices remained relatively stable, at least in the first year.

But the picture becomes more complicated when tariffs remain in place for an extended period. US importers cannot absorb the added costs indefinitely and may go out of business unless they find new suppliers or pass those costs to consumers, who may then need to cut back on spending.

When one country uses tariffs or other sanctions to damage another country’s economy, the result is often retaliation and trade war. China, for example, responded to Trump’s tariffs by imposing its own tariffs on US imports. Yet, although Chinese and US tariffs are based on similar reasoning, their impact will not necessarily be the same.

During the first US-China trade war, most of the burden of China’s retaliatory tariffs was borne by American exporters rather than Chinese importers. This was because China quickly found alternative suppliers for the goods it had previously sourced from the US. Oil and food—two of the top US exports to China—were readily supplied by Russia and other countries. Meanwhile, the US struggled to replace Chinese imports, forcing US businesses and consumers to bear the brunt of Trump’s tariffs.

These consequences have not gone unnoticed. Under both Trump and former President Joe Biden, the US has taken steps to incentivise domestic production and encourage firms to reduce their dependence on Chinese supply chains. But the extent to which such efforts will enable the US to shift more of the tariff burden onto China remains unclear.

To be sure, the vast size of the US market gives it a significant advantage. While Chinese importers can find alternative suppliers, Chinese exporters will have a hard time finding a market that can fully replace the US. The combined GDP of Russia, India, Africa and South America amounts to $13 trillion—just over one-third of US GDP, which is projected to rise to $30 trillion in 2025. And if the US convinces its Organisation for Economic Co-operation and Development allies to join the trade war, China could face tariffs from countries representing 46 percent of the global economy.

The Trump administration is betting that because the US is the world’s largest economy, China and other foreign exporters will struggle to find viable alternatives. This, in turn, would give the US decisive leverage in the trade war between the two countries. Early signs suggest that Trump’s strategy may deliver at least symbolic victories, with Mexico and Canada seemingly acquiescing to his demands by promising to do what they were already doing.

That said, tariffs are often a double-edged sword. On one hand, winning the trade war with China would allow the US to negotiate better trade terms. But US households could pay a heavy price. Fewer goods would be produced and sold to US consumers. While reduced imports could boost the competitiveness of domestic manufacturers, higher production costs and the absence of foreign alternatives would likely drive up consumer prices.

The potential geopolitical benefits of Trump’s trade war are less ambiguous, as his administration has decided to use economic pressure to achieve broader strategic objectives. It seeks to pressure Mexico and Central American countries to stem the flow of migrants to the US southern border and accept deported immigrants, and to counter China’s growing influence in the Asia-Pacific region and rein in Chinese expansionism, especially in the South China Sea. Moreover, Trump has vowed to take back the Panama Canal, and he seems serious about buying Greenland for its strategic location and natural resources—a US ambition going back to 1868.

Consumers and manufacturers in the US, China and beyond must brace for price increases and escalating geopolitical tensions. If Democrats regain control of Congress in the 2026 midterm elections, in which one-third of the US Senate and the entire House of Representatives will be on the ballot, they could curb Trump’s ability to impose tariffs. This gives Trump two years to win his trade war with China and the rest of the world—or at least convince Americans it was worth the cost.

Will DeepSeek upend US tech dominance?

In 1957, the Soviet Union launched the world’s first artificial satellite into orbit, sparking fears in the United States that, unless it took radical action to accelerate innovation, its Cold War adversary would leave it in the technological dust. Now, the Chinese startup DeepSeek has built an artificial intelligence model that it claims can outperform industry-leading US competitors, at a fraction of the cost, leading some commentators to proclaim that another ‘Sputnik moment’ has arrived.

But the focus on the US-China geopolitical rivalry misses the point. Rather than viewing DeepSeek as a stand-in for China, and established industry leaders (such as OpenAI, Meta and Anthropic) as representatives of the US, we should see this as a case of an ingenious startup emerging to challenge oligopolistic incumbents—a dynamic that is typically welcomed in open markets.

DeepSeek has proved that software ingenuity can compensate, at least partly, for hardware deficiencies. Its achievement raises an uncomfortable question: why haven’t leading US industry leaders achieved similar breakthroughs? Nobel laureate economist Daron Acemoglu points the finger at groupthink, which he says prevented Silicon Valley incumbents from adequately considering alternative approaches. He might have a point, but it is only half the story.

DeepSeek’s success didn’t happen overnight. In May 2024, the firm launched its V2 model, which boasted an exceptional cost-to-performance ratio and sparked a fierce price war among Chinese AI providers. Moreover, over the last year or so, Chinese firms—both giants (including Alibaba, Tencent and ByteDance) and startups (such as Moonshot AI, Zhipu AI, Baichuan AI, MiniMax and 01.AI)—have all developed cutting-edge AI models with remarkable cost efficiency.

Even within the US, researchers have long explored ways to improve the efficiency—and thus lower the costs—of AI training. For example, in 2022, former Meta researcher Tim Dettmers, now at the Allen Institute for Artificial Intelligence, and his co-authors published research on optimising AI models to run on less computing power. DeepSeek cited their research in the technical paper it released along with its V3 model.

Put simply, it would have been impossible for any AI firm—especially an industry leader—not to realise that lower-cost models were feasible. But US AI developers showed much less interest than their Chinese counterparts in pursuing this line of innovation. This was not a matter only of insularity or hubris; it appears to be a deliberate business choice.

AI development has so far been defined by the scaling law, which predicts that more computing power leads to more powerful models. This has fuelled demand for high-performance semiconductor chips, with more than 80 percent of the funds raised by many AI companies going toward computing resources.

That is why the biggest winner has been the advanced chipmaker Nvidia, which claimed 90 percent of the market for AI graphics processing units by the end of last year. Thanks to this virtual monopoly in the hardware layer, Nvidia could control the foundations of generative AI. The cloud-computing sector, which provides the on-demand computing power AI models require, is similarly concentrated, with Amazon, Google and Microsoft dominating the market.

But these upstream players aren’t just passive suppliers. They have strategically positioned themselves across the AI value chain by acquiring, investing in, or forming alliances with leading AI model developers. Nvidia has invested in OpenAI, Mistral, Perplexity and others. Google not only develops its own AI models, but also holds a stake in Anthropic, OpenAI’s main competitor. And Microsoft, an early OpenAI investor, recently backed Inflection AI in the US and expanded overseas, with investments in France’s Mistral and the United Arab Emirates’ G42.

Taking this approach has ensured that the entire AI industry depends on a few giant firms and entrenched a dynamic whereby rising demand for computing power across the sector increases these firms’ profits. As dominant players, they had less incentive to improve cost efficiency downstream, which could cut into their upstream profits.

Chinese AI firms have been operating within an entirely different reality, as US-led trade restrictions have prevented them from purchasing the most advanced chips. The goal of US export controls has always been to cripple China’s AI sector. But, as DeepSeek has shown, they have had the opposite effect, spurring precisely the innovations that will enable Chinese firms to challenge American AI oligopolies. Already, DeepSeek’s rise triggered a stock-market selloff of AI-related US companies, not least Nvidia.

This is surely unwelcome news for US President Donald Trump’s administration. Trump has made no secret of his determination to contain China, including by fulfilling his promise to impose a 10 percent across-the-board import tariff on Chinese goods. And he has heavily courted Silicon Valley bosses—once aligned with the Democratic Party—who have eagerly embraced the prospect of lax regulation.

But that does not mean that DeepSeek’s rise is bad news for the US or the AI industry more broadly. Over the past five years, calls to rein in the US’s tech giants have been growing louder. Despite the best efforts of former President Joe Biden’s administration, however, the US Congress has failed to introduce any meaningful legislation on this front. Ironically, thanks to US policies designed to constrain China’s AI ambitions, the US AI sector seems set to get some of the market competition that it so badly needs.

Geopolitics might have contributed to DeepSeek’s rise. But the firm’s disruption of the AI industry is about market—not great-power—competition.

Democracies should learn the TikTok lesson and restrict risky apps from day one

With its recent halt on implementing a legally mandated ban on TikTok, the United States is learning the hard way that when it comes to Chinese technology, an ounce of prevention is worth a pound of cure.

The US and like-minded democracies should no longer permit any social media platforms with direct ties to authoritarian governments with political censorship regimes to operate without restriction.

For years, technology and national security analysts have sketched out scenarios of what might happen if a democratic population were to become dependent on a Chinese-owned technology. Once such a technology becomes embedded in people’s daily lives and livelihoods, removing it stirs up a host of domestic political controversies, making it politically untenable to mitigate the national security risks.

That is exactly what has happened with TikTok. Around 170 million Americans—about half the country’s population and an even higher percentage of those using social media—use the short video app, owned by Chinese tech giant ByteDance. Millions of Americans have become dependent on their TikTok followings, built up over years, for their income or to promote their businesses. Tens of millions more use TikTok as a key source of information, community, and entertainment.

In classic American fashion, those users have refused to go gentle into that good night. As a law banning TikTok was set to go into effect on 19 January, many users downloaded the Chinese social media app RedNote, which isn’t just Chinese-owned—it is Chinese itself, based in Shanghai and subject to all Chinese national security and intelligence laws. Self-styled ‘TikTok refugees’ said they moved to RedNote to express their disregard for US government concern about the risks presented by Chinese companies. Overnight, RedNote, which presents even clearer security risks than TikTok, became the top download on the Apple app store in the US.

TikTok called on US President Donald Trump to offer a reprieve, and he did. On his first day in office, Trump signed an executive order authorising a 75-day extension on the law taking effect.

But it’s unclear what will happen next. We will need to see how a Trump administration navigates this issue. The law mandates either a forced divestiture or a ban. A previous US effort to force the sale of TikTok failed when the Chinese government issued new rules requiring Chinese companies to obtain a license for such a sale. Beijing did not grant ByteDance a license, effectively blocking the sale. Discussions are now reportedly underway for the sale of a 50 percent stake in TikTok to a US company, but that would not fulfill the law’s requirements.

This situation demonstrates the need to act early to inhibit the widespread adoption of social media platforms tied to authoritarian governments, such as Russia and China, that implement sweeping surveillance, censorship and manipulation of public opinion.

Western governments had all the information they needed about the risks of social media apps operating under authoritarian systems when TikTok took off in 2018—the year it became one of the world’s most downloaded apps. That was the time to act—the same time action was being taken to prevent Huawei from dominating the 5G telecommunications sector. The question now is whether we learn from our failures. While it’s too late to prevent TikTok from becoming a beloved American online space, it’s not too late to prevent the widespread adoption of similarly problematic apps. RedNote, for example, remains untouched, as do a host of other Chinese platforms.

The main argument against a sweeping ban on problematic foreign-owned apps is that this would infringe on free speech. But the opposite is true—as the US Court of Appeals essentially found. A social media platform under the sway of a foreign government obsessed with censorship and surveillance is an impediment to free speech. Democratic governments should act to preserve free speech by preventing these platforms from dominating online spaces.

Trade experts and economists understand that free markets don’t just happen naturally; creating and preserving a free market requires a strong government hand. There must be laws against unfair market behavior, mechanisms to bring cases against potential violators, means to investigate those claims, and strong enforcement. Sometimes the biggest violators are governments themselves.

In the same way, a free speech environment doesn’t happen naturally. There must be laws and practices in place to protect it. Put another way, it sometimes takes a strong government hand to create and preserve a free market for speech. As with free markets, sometimes the biggest violators of free speech are governments. And just as the public in a democracy has the ultimate power to vote out its own government for violating freedoms, protecting the public from foreign regimes and their intelligence services is the job of democratic governments.

The Chinese government has no right to censor or manipulate information on US soil. The Trump administration should act as soon as possible to ensure that no other social media companies linked to authoritarian governments can again play host to America’s virtual public square.

The TikTok boomerang

Few predicted that TikTok users in the United States would flock to the Chinese app RedNote (Xiaohongshu) in defiance of a US government ban. And yet in the space of just two days this week, RedNote became the most downloaded app in the US, gaining 700,000 users—most of them American TikTok refugees.

Since US data security was the rationale for the TikTok ban, American users’ migration to other Chinese apps only amplifies those concerns. Unlike TikTok—a platform that does not operate in China and is not subject to Chinese law—RedNote is a domestic Chinese app bound by strict Chinese regulations. Moreover, while TikTok says that it stores US user data exclusively within the US, with oversight by a US-led security team, RedNote stores its data entirely in China.

In recent years, China has introduced a series of data protection laws ostensibly aimed at safeguarding user information. But these regulations primarily target businesses, imposing far fewer constraints on government access to personal data. Chinese public authorities thus have wide discretion in requesting and accessing user data.

Beyond the issue of data privacy, US authorities also worry that TikTok might be used to influence public opinion in the US. But TikTok’s algorithms are closely monitored by Oracle, as part of a deal to address security concerns. In contrast, RedNote’s algorithms operate under the close scrutiny of the Chinese government, and the app is subject to China’s stringent content-moderation requirements, which could further shape the opinions of the TikTok refugees now flocking to the platform.

Given the rationale for the law banning TikTok, it is hard to imagine RedNote escaping similar scrutiny. Now that the US Supreme Court has upheld the TikTok law, the president will have the authority to designate RedNote as a national security threat, too. But this process may quickly descend into a game of Whac-a-Mole. As US users migrate from one Chinese platform to another, regulators will find themselves locked in an endless cycle of banning Chinese apps.

As the list of banned apps grows, the US risks constructing its own Great Firewall—a mirror to the censorship strategy long employed by China. Even if Chinese apps are removed from US app stores, tech-savvy users can easily bypass such restrictions with VPNs, just as Chinese users do to access foreign platforms. That means the US government will soon confront the limits of its ability to ban Chinese apps.

Moreover, each new restriction risks fueling defiance, driving even more users toward Chinese-controlled platforms. Instead of mitigating national security concerns, this strategy may inadvertently exacerbate them, introducing the kinds of vulnerabilities that the original ban was supposed to address.

The TikTok ban thus puts the US government in a near-untenable position, which may explain why Donald Trump is reportedly weighing options to spare TikTok (despite having initiated the ban during his first term).

Yet reversing the ban carries its own risks. As legislation passed by congress, it cannot be repealed by executive order. In theory, Trump could direct law enforcement agencies not to enforce the ban; but that would have far-reaching consequences, not least by calling into question America’s commitment to the rule of law (again mirroring a charge the US has long leveled against China).

An alternative to banning TikTok is a forced divestiture of the app’s US operations, but that solution hinges on one critical factor: China’s approval. In 2020, China implemented restrictions on the export of technologies such as recommendation algorithms—the core of TikTok’s operations—effectively giving the Chinese government veto power over any potential deal.

The TikTok dilemma thus now serves as a powerful bargaining chip for China’s leaders, granting them significant leverage in their dealings with Trump, who campaigned on a promise to impose higher import tariffs on Chinese goods. Not surprisingly, he turned to Chinese President Xi Jinping for help just hours before the Supreme Court was set to weigh in on the ban.

At the same time, the TikTok saga has handed China yet another strategic gift. Friendly interaction between TikTok refugees and Chinese netizens on RedNote has created an unprecedented opportunity for cultural exchange, something China’s rulers have long aspired to but struggled to achieve.

For more than two decades, the Chinese government has aggressively tried to promote its culture and expand its influence in the US. But while it has purchased ads in Times Square and established Confucius Institutes on US university campuses, these efforts have largely failed to gain traction. Remarkably, what RedNote has achieved in just a few days seems to have eclipsed the cumulative impact of all these prior initiatives.

As I explored in my recent book, High Wire, centralised decision-making frequently results in fragile, rather than resilient, regulatory outcomes. The TikTok saga offers a stark reminder that an over-concentration of presidential power in shaping US foreign policy—particularly toward China—can lead to similar outcomes. With Trump expected to consolidate executive power, surround himself with loyalists and operate with fewer institutional constraints during his second term, this trend seems likely to intensify, generating vast unintended consequences.

From the bookshelf: ‘American Policy Discourses on China’

In her new book, Yan Chang Bennett explores historical US views of China. They have ranged from evangelical promises of redemption to hard-nosed capitalism exploiting vast opportunities. Bennett argues that these perspectives have shaped US foreign policy for centuries and often form the bases of China policy for new administrations.

Based on examination of recently declassified foreign-policy documents, Bennett guides readers through three centuries of United States-China relations focusing on three pivotal moments: president Richard Nixon’s rapprochement with China; Jimmy Carter’s normalising of US-China relations, and Bill Clinton’s advocacy of China’s World Trade Organization (WTO) accession.

Before Nixon’s presidency, China was viewed in the US as a communist foe. The administration reshaped policy and in doing so drew on 19th and early 20th century US views and sentiments. These included a mix of missionary impulse and the idea of China as an untapped economic opportunity. Nixon promoted the idea that China, if left in isolation, would be an aggrieved giant threatening global peace, whereas reintegrating it into the global community would bring advantages to the US and also to China.

Building on Nixon’s rapprochement policy, and in line with earlier notions that helping China was the US’s ‘special undertaking’, the Carter administration saw the country as a candidate for democratisation as well as a vast market for US goods. It believed that if China normalised relations with the US, its economy could move to free markets, and its system of government could become more like those of Western Europe and the US. Bennett’s historical analysis shows Carter could not have been more naive about these reform prospects when dealing with China’s then leader, Deng Xiaoping.

It was at that time the US acknowledged the Chinese position ‘that there is but one China and Taiwan is part of China’, declaring, however, that the US would ‘maintain cultural, commercial, and other unofficial relations with the people of Taiwan’ and that it would ‘continue to have an interest in the peaceful resolution of the Taiwan issue.’ The US opened official diplomatic relations with the People’s Republic of China on 1 January 1979.

Clinton’s presidency, in turn, built on the policy steps taken by Nixon and Carter by championing China’s accession to the WTO. He too was convinced this would lead to liberalisation and democratisation. Bennett argues this enduring belief reflects those long 19th century US attitudes. They were false. At the same time these US policies were being advanced, the Chinese government held its own shrewd and pragmatic perspectives about its relationship with the US, concerned about its interests and historical contexts.

US activities to assist China’s entry to the WTO, which Clinton predicted would enable almost unlimited access to the Chinese market, were flawed on many levels. Systematic misinterpretations came from US perceptions of China that were not rooted in reality.

China did not go for fundamental economic liberalisation, and Bennett says Clinton’s China hands should not have expected any such thing from China’s authoritarian government. For example, Beijing established tighter controls over its giant state-owned enterprises and pegged its currency to the dollar at artificially low levels, ‘bestowing significant competitive advantages to Chinese exporters’.

As Bennett says, it is now clear that WTO accession granted China entry into the world economy, fuelling its astounding economic growth. But what was also clear all along is that China acted in its own economic interest, exploiting Clinton’s vocal support. Not once in Clinton’s eight years in power from 1993 did China say it would become a democracy in the likeness of the US or would make economic reforms that would lead to political liberalisation.

With China rejecting Western ideologies, Bennett advocates a pragmatic reassessment of US policy. She argues it must avoid ‘emotional rhetoric, and idealised frameworks’, such as the belief in liberalisation and democratisation which drove support for China’s accession to the WTO, even though evidence for such hope was weak.

Bennett sees an enduring nature in 19th and early 20th century US perceptions of China, with their repetition in current US policy. Present narratives continue to emphasise China as ‘buried deeply in the past’. They extend to China’s leader, Xi Jinping, who is presented in media as a ‘timeless Confucian emperor’.  In fact, since his birth after the establishment of the People’s Republic, his entire education has been steeped in Marxist-Leninist principles of governance.

Using historical data, Bennett’s book offers insights for the incoming administration of Donald Trump. Her analysis matters in a world where China charts an independent path under Xi Jinping and where Trump’s agenda of making America great again aims to counter perceptions of US decline.

Since Trump’s 2024 victory, Bennett has separately proposed six ways for the US to counter China: modernising US military capabilities; prioritising the Indo-Pacific; strengthening economic leverage; sharing the burden of global leadership; investing in technology and innovation; and building energy independence and resilience.