Operation Contain China, Status Failure

Biden handed China the AI keys...

AMERICAN A.I. companies are feeling the heat over the past month, writes Adam Sharp for Addison Wiggin's Daily Reckoning.



China is catching up. In some areas, they are even surpassing the US in artificial intelligence. It may seem hard to believe, but it's true.



Chinese companies DeepSeek and ByteDance recently released models which are on par with the best models from top US companies OpenAI, Google, and Anthropic.



Here's what legendary venture capitalist and tech entrepreneur Marc Andreessen had to say about DeepSeek's new R1 reasoning model:



"Deepseek R1 is one of the most amazing and impressive breakthroughs I've ever seen - and as open source, a profound gift to the world."



This Chinese model is "open source" meaning anyone can freely use it in their own applications. And it costs 1/10th to 1/30th as much as the equivalent US models.



Yes, that's right. China is now "dumping" cheap, high-quality AI access on the world, as they have similarly done with steel, cars, rare metals, and thousands of other products.



On top of all this, these new models are about 95% cheaper to build compared with top American models.



The implications are massive. In the long run, this could threaten not just American AI software companies, but also NVIDIA. If cutting-edge models can be trained with 5% of the previous hardware requirements, what does that mean for GPU sales going forward?



How did we get here?



Two words: Joe Biden.



The damage his administration caused to American AI efforts will echo for the next decade. President Trump is already working to reverse the damage, but this will take time.



The first thing the Biden admin did was attempt to strangle America's AI industry. Marc Andreessen has said that in a meeting on the AI industry, Biden officials told his venture capital firm the following:



"Don't fund AI startups. That's not something that we're gonna allow to happen...



"AI is going to be a game of 2 or 3 big companies working closely with the government...We're going to protect them from competition, control them, and dictate what they do."



Biden (or his handlers) wanted an AI industry they could control completely. The admin issued AI "safety" executive orders designed to limit competition. Fortunately, Trump has already repealed these EOs, but they set us back for 2+ years.



In a 2022 effort to contain China's AI advancement, Biden cut off the country's access to high-end NVIDIA GPUs, which are (were) the only suitable hardware to build and run AI applications with.



These tech sanctions have backfired spectacularly. We cornered China and gave them only one way out: innovation. It appears they have met the challenge.



They learned to build cutting-edge AI applications without high-end NVIDIA GPUs. As a result, they can now build models for a tiny fraction of the cost we do.



Fortunately the bulk of their breakthroughs are "open source", meaning we can learn from and incorporate the designs into future work.



But if we had simply let China have access to top NVIDIA chips, these breakthroughs probably wouldn't have happened for years. They wouldn't have needed to. And NVIDIA would have sold a LOT more chips. Now China has its own competing chips, and is making the most of its hardware by maximizing efficiency.



Necessity breeds innovation, and Biden gave China all the necessity it needed. This proves, yet again, that sanctions on big developed countries almost always backfire.



Now we find ourselves in a difficult spot. As I mentioned, Trump is already working to address these challenges, and I believe he will eventually find success.



But we can no longer pretend that China is behind on AI. That era is over. The project to contain their development has failed. It's time to strike a deal with China, and I continue to believe it will be one of Trump's top priorities.



In response to these Chinese breakthroughs, Trump is launching the $500B StarGate project with OpenAI, Oracle, Softbank, and others.



Hopefully this project will take the lessons from Biden's China mistakes to heart. We need to be more efficient with our chips. We can no longer rely on brute force to dominate artificial intelligence.



The wakeup call has arrived. We can no longer underestimate China's AI sector. American companies will have to step up, and release new cutting-edge products (even if they are unsure about issues like safety).



Things are about to get very interesting.