China’s AI Advance—Hype or Bonanza?
Plus, a Mossad official explains the Hamas-Israel negotiations, and more
The market woke up today to the significance of DeepSeek, an artificial intelligence company based in China that recently released a new model.
A technology investor who is Jared Kushner’s brother, Joshua Kushner, posted skeptically about DeepSeek, portraying it as a security risk and as a setback for American dominance: “‘pro america’ technologists openly supporting a chinese model that was trained off of leading US frontier models, with chips that likely violate export controls, and — according to their own terms of service — take US customer data back to china.”
A fellow at Stanford’s Hoover Institution, “Grumpy Economist”
, says cheaper AI may be good news longer-term: “The winners will not be the producers of AI, which looks to become a marginal cost commodity with remarkable speed, but the users of AI. …The profit, and ultimate benefit, of railroads was not so much in the railroad itself, but in the wheat fields of Kansas.”Cochrane also writes, “imagine the world some of the ascendant right wants to take us to, in which anything “China” is banned from the US. We would not see DeepSeek. Competition is the main source of efficiency, and competition needs to be global in the world of 100 million dollar upfront costs.”
I’m all for competition. One of the ways American companies can compete against China is by making the case to Americans that, because the American companies aren’t subject to influence of or domination by the Chinese Communist Party, the American customers of those American companies therefore are free from having to worry about a sudden interruption of service in the event of a sudden escalation in U.S.-China tensions.
An example of this is hospital masks, gowns, and surgical gloves. If you are an American hospital that gets all its supplies from China, that works well enough, until March 2020. Then, suddenly China is using all those medical supply materials itself and not shipping any more of them to America. There’s a tradeoff between the cheaper prices of the Chinese products and the reliability of knowing that a supply chain that isn’t totally China-dependent is likely to be more reliable and resilient in a crisis that involves China. (That said, the price differences are vast. For example, here is a pair of made-in-China men’s shoes, available at Target, for $35. Here is a pair of made-in-America men’s shoes, for $706.)
There are also laws regulating competition, notably in the U.S. Constitution’s patent clause, which gives Congress the power “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” What qualifies as an inventors’ discovery is a question that provides plenty of lucrative work for patent lawyers; stealing an inventors’ discovery isn’t competition, it is theft.
Anyway, how you view news of the DeepSeek release depends on what storyline you primarily place it in.
Kushner sees it in the context of U.S.-China geopolitical competition.
Cochrane sees it in the context of productivity growth and technology-fueled dynamic prosperity. As Cochrane put it: “the stocks of companies that can potentially use cheap AI did not jump up. Maybe they will, once more people figure out how to use cheap AI to make profits for a while. Maybe those companies haven’t been founded yet. That is now the Wild West.” If you bought the Wild West when it was the Wild West, today you’d be sitting on a lot of nice real estate in the San Francisco Bay Area, Scottsdale, Beverly Hills, Santa Fe, Aspen, Telluride, and similar locations.
My own take is that it’s not an “either-or” but a “both-and.” We’re both in a period of conflict and potential conflict with Communist China and in a period of growth and potential growth of artificial intelligence. The China competition carries great risk of economic disruption or even chaos and war if mismanaged, but also the chance of growth and benefit if China moves in the direction of economic and political freedom and rule of law. Likewise, the AI revolution will bring disruption and also tremendous upside potential for efficiency and productivity in applications including pharmaceutical discovery, dynamic pricing, investment management, marketing and customer acquisition, and risk analysis.
The DeepSeek news is a plot point in both storylines simultaneously. If you just see the techno-optimism storyline, the Kushner China concern seems misplaced. And if you just see the China threat storyline, the Cochrane techno-efficiency storyline seems misplaced.
Transformative education: The dean of the Harvard Divinity School, Marla Frederick, sent an email to the community today announcing Diane Moore’s retirement as director of Religion and Public Life, David Holland’s appointment as interim director, and Terrence Johnson’s takeover as director on July 1, 2025. The email concluded, “as we move forward in service of our students, we are committed to continuing to deliver a transformative educational experience.”
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