By MIKE MAGEE
Last week, following a visit to the White House, Jensen Huang instigated a wholesale reversal of policy from Trump who was blocking Nvidia sales of its H20 chip to China. What did Jensen say?
We can only guess of course. But he likely shared the results of a proprietary report from noted AI researchers at Digital Science that suggested an immediate policy course correction was critical. Beyond the fact that over 50% of all AI researchers are currently based in China, their study documented that “In 2000, China-based scholars produced just 671 AI papers, but in 2024 their 23,695 AI-related publications topped the combined output of the United States (6378), the United Kingdom (2747), and the European Union (10,055).”
David Hook, CEO of Digital Science was declarative in the opening of the report, stating “U.S. influence in AI research is declining, with China now dominating.”
China now supports about 30,000 AI researchers compared to only 10,000 in the US. And that number is shrinking thanks to US tariff and visa shenanigans, and overt attacks by the administration on our premier academic institutions.
Economics professors David Autor (MIT) and Gordon Hanson (Harvard), known for “their research into how globalization, and especially the rise of China, reshaped the American labor market,” famously described the elements of “China Shock 1.0.” in 2013. It was “a singular process—China’s late-1970s transition from Maoist central planning to a market economy, which rapidly moved the country’s labor and capital from collective rural farms to capitalist urban factories.”
As a result, a quarter of all US manufacturing jobs disappeared between 1999 and 2007. Today China’s manufacturing work force tops 100 million, dwarfing the US manufacturing job count of 13 million. Those numbers peaked a decade ago when China’s supply of low cost labor peaked. But these days China is clearly looking forward while this administration and its advisers are being left behind in the rear view mirror.
Welcome to “China Shock 2.0” wrote Autor and Hanson in a recent New York Times editorial. But this time, their leaders are focusing on “key technologies of the 21st century…(and it) will last for as long as China has the resources, patience and discipline to compete fiercely.”
The highly respected Australian Strategic Policy Institute, funded by their Defense Department, has been tracking the volume of published innovative technology research in the US and China for over a quarter century. They see this as a measure of experts opinion where the greatest innovations are originating. In 2007, we led China in the prior four years in 60 of 64 “frontier technologies.”
Two decades later, the table has flipped, with China well ahead of the US in 57 of 64 categories measured.
In AI algorithm research, China had 29% of papers to our 12%. In high performance computing, they had 36% to our 13%. And in machine learning, they tipped the scale at 40% compared to our 11%.
According to Autor and Hanson, China is the “apex predator” in a battle that marries “economic Darwinism to Chinese industrial policy.” As Musk was dismantling our national planning and funding apparatus, China’s government has been targeting our most innovative sectors including “aviation, AI, telecommunications, microprocessors, robotics, nuclear and fusion power, quantum computing, biotech and pharma, solar, and batteries.”
The warnings may sound shrill, but this is a misread of historic proportions. And it all comes down to one word. Tariffs. And when it comes to the Trump Tariffs, no country has been treated with greater hostility than China, drawing this rebuke of intentional US isolationism in January, 2025 by the Harvard Business Review: “Even with data privacy and security concerns — American LLMs will ignore the Chinese LLM disruption threat at their own peril.”
In the paper, Harvard Business School professor, Raj Choudhury teamed up with Syracuse University Business Management professor Natarajan Balasubramanian and Tsinghua University economist Mingtao Xu to answer the timely question “Why DeepSeek Shouldn’t Have Been a Surprise.”
For those unfamiliar with the controversy, US generative AI superegos had been running in overdrive of late, with enormous back patting and philosophizing (in between rocket trips and musings of Mars), when a little known Chinese upstart, DeepSeek, upset the apple cart with their Open Source release of a “smaller, more efficient, and much, much cheaper LLM.”
The timing could not have been more awkward for our technocratic elites – the drivers of Anthropic’s Claude, Google’s Gemini, Open AI’s ChatGPT, Microsoft Copilot, Musk’s x.AI, and MetaAI.
These proprietary, self-proclaimed techno-geniuses are fully committed to knocking each other off. But that doesn’t keep them from embracing the vibe of Open AI’s Sam Altman who recently penned an op-ed titled “The Intelligence Age” in which he explained, “Technology brought us from the Stone Age to the Agricultural Age and then to the Industrial Age. From here, the path to the (AI enabled) Intelligence Age is paved with compute, energy, and human will.”
And these US billionaires have put their money where their mouth is, burning through enormous amounts of capital as they build out a whole new, fully funded industry – the creation of generative AI factories that require so much energy that investment in our once nascent nuclear power industry has now gone through the roof, and Musk has officially registered a new city for himself and his AI followers, Starbase, TX.
Meanwhile, RAND researchers like Kyle Chan, were reporting out that “China is applying state support across their entire A.I. tech stack, from chips and data centers down to energy.” The China government’s strategy focuses on three coordinate building blocks: 1) computing capacity, 2) vertical integrated and accessible Chinese data, and 3) skilled engineers.
At the same time, the government has been financing networks of private labs committed to public/private partnering, and incentivizing local government leaders in cities throughout the country to support hundreds of A.I. research start-ups. One city in south China, Hangzhou, which already housed giant Alibaba, created a section of the town, called Dream Town, now the birthplace and permanent residence of DeepSeek.
RAND’s Kyle Chan recently flagged the fact that China has turned adversity (Trump’s tariffs) into a motivational tool. By keeping their LLM discoveries Open Source (as US firms are leaning toward proprietary controls to enhance future profitability), authoritarian China, which is supposed to be opposed to transparency and accessibility, has managed, according to The Atlantic, to move “exactly in the opposite direction of where the American tech industry is heading.”
Why DeepSeek now? Management experts say this is just “classic disruption theory in play.” Case in point was what happened to the steel industry decades ago when integrated steel plants serving high end customers of high-end sheet steel were overtaking less efficient electric arc furnaces. In response the older plants, with inferior technology, customized and specialized on addressing low end tasks like creating steel rebar for reinforcing concrete construction. The incumbent was then forced “to cede market share to the disrupter.”
In this case DeepSeek may be inferior technology to the next greatest version of ChatGPT, but it appears to be good enough to offer “industry-specific applications powered by their LLMs that are deeply integrated into China’s digital ecosystems.” Chinese LLM’s are more specific and less general-purpose. They require less computing power and are priced at the lower end.
How low? For software developers around the globe, DeepSeek-R1 is 95% cheaper than using Open AI’s o1 product, and as effective. Satya Nadella, CEO of Microsoft, says that kind of pricing will cause AI to “skyrocket, turning it into a commodity we just can’t get enough of.”
Bottom line? Under America’s nose, China has gone “democratic” by open sourcing their code, engaging global software developers and users, and placing America’s top competitor (at least for the moment) in the driver’s seat.
Mike Magee MD is a Medical Historian and regular correspondent at THCB. He is the author of CODE BLUE, Inside America’s Medical Industrial Complex. (Grove/2020).
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