Transcription
So can you describe the DeepSeek moment and, uh, DeepSeek as it represents what China's thinking about in the space of AI? And, uh, does China have a chance at outrunning us in the AI race?
DeepSeek was a surprise to the world, but I don't think it was that much of a surprise to the Chinese. Um, and remember that DeepSeek happened in times of crisis, urgency, not in times of comfort. A lot of these technological breakthroughs and leapfrogging happens in times of crisis. This is called crisis innovation. And you've got to thank the US for that, right? When the Chinese were comfortably importing chips from the US, the whole industry stalled for 20 years. I mean, why would you plow in billions, tens of billions, and even more when you can just import the best, right? You don't want to do your own innovation. It's because of these export controls, these sanctions on these companies that Chinese companies and the Chinese state felt an existential crisis a few years ago on being cut off from these critical components. And guess what happened in a short amount of time? The degree of domestic capacity ramping up and catch-up has been nothing short of remarkable, again thanks to, uh, US turbulence on technology.
Now, I'm sure there are many aspects of hyperbole related to DeepSeek, but it just shows you that the gap is much smaller between China and the US on leading-edge technologies than what was expected. That these export controls were not effective. They may have even backfired. And it shows you that China has this relentless focus on taking some of the existing technologies and using scale, um, and, um, the advantages to cut costs and to diffuse. And this is just the beginning. I think it will happen in many other industries as well, including in semiconductors. Um, and that's the Chinese approach.
Now, there's an interesting dilemma here, which is that this is happening at a time of extreme economic softness, slowdown, um, and mixed uncertainty, trade wars, uh, uh, a lack of confidence, slowdown in private investment and consumption, a withdrawal of foreign investment from China, especially the US venture, um, funding. Imagine what China would have been like, let's say, if the economy was doing better, right? But you could also argue that it's because people feel threatened that they make more leaps. Now, I wish the world was not, we don't have to, you know, drive each other to the corners to do something great. But that is the reality. And, uh, I don't think that there's an easy say between who wins because I think the winning idea is part of the old playbook, right? You're all kind of part of a network. Different countries, different players have different choke points on each other. I don't think it's just about the US and China. And what's more, you use your leverage once and that leverage has a half-life. It becomes a lot less effective the second time around because other countries, other companies are going to try to substitute it away. You know, if China uses the rare earth leverage, which I think it is now a little bit, um, there will be alternatives and substitutes. You've got to be very, very careful of what coercion leverage means. Same thing with the US, right? So I think this is all the old thinking of who wins, who dominates. I think we need a new playbook.
So, to you, maybe when you refer to Biden, President Trump, if it goes back to Biden, it would be the CHIPS Act. So the export controls created unintended, unexpected effects where it had the reverse geop was unintentional, otherwise, you'd be questioning the level of intelligence of the US administration, right? But, um, I think that the things they laid out did the opposite of what was intended. It sped up, um, domestic capacity. It, uh, uh, motivated the whole country to do this whole, uh, innovation program to go after technologies, kind of like the way they go after Olympics, right? Olympic gold medals. They wanted to maximize Olympic gold medals and they put the whole nation at work and all the resources, and that's what China did. Huawei, another example, they were sanctioned. Guess what? They have come back to life stronger than ever before. And this is not unique to this episode. If we look throughout history, these blockades don't work. The continental system actually indirectly led to the industrial revolution, uh, in the UK, uh, when the Spanish, uh, kind of blockaded the Portuguese, they came up with a very ferocious, forceful naval power, um, and you're talking about China here, they just don't lie down and lie flat and say, "Oh, we give up," right? They're more motivated than ever before.
So the lesson is, uh, don't force people or nations into a corner.
Yeah. You make them have a very comfortable situation, and they tend to become complacent, and, uh, and they, they stagnate.