The launch of China’s DeepSeek R1 large language model at the beginning of the year prompted significant concern among U.S. policymakers, sparking debates over a potential “Sputnik moment” in artificial intelligence (AI). With capabilities that some experts believe rival those of U.S. leader OpenAI, DeepSeek demonstrated its prowess at a fraction of the cost and computational resources, intensifying the competitive landscape between the two nations.
The release of DeepSeek has not only raised alarms about U.S. technological supremacy but also about the effectiveness of current export controls imposed by the Biden administration on American chips. Initially reacting to the advancements from DeepSeek, the previous administration under Donald Trump tightened restrictions on the sale of Nvidia chips to China. In May, David Sacks, the White House AI and crypto czar, facilitated significant agreements to sell advanced chips to the Middle East, reflecting a strategic pivot in U.S. technological diplomacy.
However, by year-end, Trump’s administration shifted its stance, prioritizing U.S. business interests over restrictive sales to Beijing for national security reasons. This change came as the administration granted Nvidia permission to market its second-most-powerful chip to China, a move seen as a potential risk during a time of fierce AI competition.
The dramatic turnaround in Washington’s policy may have been influenced by emerging fears of an AI bubble. As of December, the so-called Magnificent Seven tech companies represented 37 percent of the S&P 500 index, and global spending on AI infrastructure is projected to reach $2.8 trillion by 2029, raising questions about the sustainability of such economic enthusiasm.
Despite the optimism among investors, 2025 marked a turning point as global consumers and governments began to push back against U.S. tech platforms. Trump’s “America First” initiative incited a wave of techno-nationalism, with countries seeking to distance themselves from reliance on either Washington or Beijing. Geopolitical analyst Bobby Ghosh encapsulated this sentiment, stating, “This is how soft power dies: not in dramatic confrontation, but in the accumulated weight of betrayed trust.”
This growing tension in the geopolitical landscape is reflected in several noteworthy analyses from the year. In an article by Rishi Iyengar and Lili Pike in May, the authors explored the effects of eight years of U.S. restrictions on Chinese technology and suggested that Washington’s approach may need to evolve toward collaboration rather than outright limitations. They warned that a lack of strategic planning for AI parity with China could undermine discussions on safety and governance.
In June, former Australian ambassador for cyber affairs Tobias Feakin and cybersecurity expert Adam Segal projected a future characterized by heightened competition and fragmentation among nations in the tech sector. They argued that while the U.S. might achieve short-term gains, it could struggle to maintain long-term leadership without a broad coalition of allies.
A subsequent piece by Sam Winter-Levy and Alasdair Phillips-Robins in July highlighted the implications of the Nvidia chip deal. They contended that the administration’s decision to allow the sale of critical AI chips to China could jeopardize the U.S.’s competitive edge. They stated, “Export controls—for all their flaws—were what helped the United States establish a significant edge in the computing power required to run and develop the world’s most powerful AI systems.”
In October, Bhaskar Chakravorti examined the obsession with powerful large language models, arguing that the stock market’s infatuation with AI may not yield rational investment decisions. He encouraged tech firms to focus on the developing world, where “good enough” AI could address immediate needs rather than pursuing high-cost innovations.
Finally, in December, Bobby Ghosh reflected on the waning influence of U.S. tech companies, which were once celebrated as disruptors reshaping political and economic landscapes. He noted that they now face a global backlash reminiscent of the challenges faced by Big Tobacco and Big Oil, signaling a significant decline in U.S. soft power.
As the dynamics of global AI competition evolve, the interplay between technological advancements and national interests will likely shape the future of international relations and economic policies, underscoring the need for reevaluated strategies on both sides of the Pacific.
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