Deepseek, an upstart Chinese company, is leaving American AI companies like OpenAI, Meta, and Google in the dust. This one-year-old startup revealed its latest R1 Large Language Model, which rivals high-end models by American competitors while costing just a fraction. According to company researchers, the model was built with only $5.6 million, compared to the billions that US companies have spent on their AI technologies.
Venture capitalist Marc Andreessen praised Deepseek, calling it “a profound gift to the world.” While this is a great technical achievement for the AI community, experts believe that it also marks the failure of the US’s ‘Small Yard, Large Fence’ policy against China.
US Losing Battle Against China
Since Donald Trump’s first presidency, the US has been using the ‘Small Yard, Large Fence’ policy to maintain its technological supremacy over China. Under this policy, the USA will have a ‘small yard’ or a limited area where the American and Chinese companies can make investments. It also establishes a ‘high fence’ or strong restrictions to prevent Chinese access to high-level tech.
These restrictions were mainly put in place to restrict the export of semiconductor chips and devices to China. It only restricted the export of high-end chips to China but general-purpose chips like the Nvidia H800 that was specifically designed for the Chinese and South Asian markets.
Semiconductor chips play a crucial role in AI. Deepseek built the R1 model using just 2,080 Nvidia H800 chips that they managed to acquire before the export restrictions. To put it into perspective, Meta uses more than 600,000 powerful H100 chips and still lags behind Deepseek in benchmarks.
Sanctions Catalyze Innovation
Experts believe that although sanctions do have a small impact on progress in the short term, they often lead to innovation in the long run. Deepseek is not the first to prove it, as Chinese smartphone manufacturer Huawei has been able to achieve breakthrough success in chip manufacturing despite heavy US sanctions.
Back in September 2023, Huawei launched its smartphone Mate 60 Pro with a Kirin 9000 chip. The chip has 5G capability, which is a big win for the local Chinese semiconductor market. It demonstrated significant technical progress in China’s semiconductor industry, as it achieved this without relying on the US export of EUV tools.
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