The release of DeepSeek’s high-performance, affordable large language model (LLM) is likely to have significant long-term effects on technology, trade, and U.S.-China economic relations. Here are four predictions on how these changes could unfold:
1. Falling AI Costs
DeepSeek has accelerated the already dramatic reduction in AI costs, which have fallen 80% annually over the past two years. The 30x price difference between DeepSeek’s tokens and OpenAI’s reflects its algorithmic improvements and OpenAI’s aggressive pricing strategy. As competition grows, this deflationary trend in AI pricing is expected to continue, making AI more accessible to businesses and researchers.
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2. The AI Economic Pie Grows
As AI becomes cheaper, demand will expand in line with Jevons paradox, where increased efficiency leads to higher consumption. With foundational models becoming commoditized, the value creation will shift toward application-specific AI tasks. This will increase demand for custom-designed chips (XPUs) for specific tasks, rather than general-purpose GPUs. AI research, once limited to well-funded organizations, will likely spread to more areas, fostering broader innovation.
3. U.S. Chip Export Controls Reassessed
DeepSeek achieved its success using less advanced chips than its U.S. counterparts, demonstrating innovation even under constraints. While U.S. export controls may hinder DeepSeek temporarily, they are unlikely to halt its progress. These controls could isolate U.S. technologies from China’s market, which could be counterproductive for addressing trade imbalances. A reassessment of these restrictions could signal a shift in U.S.-China economic relations.
4. Potential Alignment Between U.S. And Chinese Tech Leaders
Although DeepSeek’s success initially caused concern among U.S. investors, many tech leaders are now embracing the development. Major cloud platforms like Microsoft and AWS are integrating DeepSeek’s models, anticipating growth in cloud services due to the demand for cheaper LLMs. This could lead to a productive collaboration between U.S. and Chinese tech companies, similar to past collaborations that boosted productivity, despite ongoing political tensions.
In conclusion, DeepSeek exemplifies how AI developments can reshape industries and geopolitical dynamics rapidly, suggesting a new era of cooperation or heightened competition.
