Lutnick: DeepSeek Stole US IP to Make 'Dirt Cheap AI'

Commerce Secretary nominee Lutnick has made it clear that the United States needs to take a more aggressive stance on AI-related trade policy, particularly against China. In his latest comments, Lutnick highlighted that China’s DeepSeek was able to develop an artificial intelligence model at a fraction of the cost typically required, largely by leveraging technology taken from the United States. These remarks suggest that the Biden administration, or a future Trump administration, may push for stricter measures to safeguard American AI innovations.

Lutnick’s comments signal a potential shift in the United States’ broader trade policy approach, with a move toward comprehensive tariffs and export controls not just against China but also against U.S. allies. If implemented, these policies could have wide-ranging consequences for AI development, semiconductor firms, and global trade dynamics.

The DeepSeek Factor and Its Impact on AI Competition

DeepSeek’s recent AI breakthrough has shaken the technology industry, particularly in the U.S., where companies like OpenAI, Microsoft, and Google have led the AI race. What makes DeepSeek’s success particularly significant is the claim that it developed a competitive AI model at a fraction of the cost of its Western counterparts.

Lutnick argues that this was made possible through unauthorized use of American intellectual property. While concerns over intellectual property theft are nothing new in U.S.-China relations, the rapid and cost-effective development of DeepSeek’s AI model is raising fresh alarms over the extent to which China has relied on U.S. technology.

If DeepSeek’s advancements were indeed based on unauthorized access to American research, this could set the stage for even stricter U.S. technology export controls and heightened scrutiny of Chinese AI firms.

Tariffs and Export Controls A Shift Toward a More Aggressive Trade Policy

Lutnick made it clear that the current export control framework, which seeks to prevent China from acquiring cutting-edge U.S. technology, is insufficient on its own. He likened it to a whack-a-mole strategy, implying that China finds ways to circumvent restrictions, whether through third-party countries, gray market transactions, or outright technology theft.

To address this, Lutnick advocates for significantly higher tariffs on Chinese goods, particularly those tied to AI, semiconductors, and advanced computing. He also made an unexpected policy suggestion imposing tariffs on allies to ensure that they do not facilitate technology transfers to China.

While the idea of tariffs on allies might be politically contentious, it reflects growing concerns in Washington that U.S. trade partners may be inadvertently helping China gain access to restricted technologies. Countries with strong semiconductor and AI industries, such as Taiwan, South Korea, Japan, and European nations, could find themselves facing new trade barriers if Lutnick’s approach is adopted.

Potential Market Implications

1. Increased Pressure on Semiconductor and AI Companies. If U.S. policymakers enact broader restrictions on China’s access to AI-related technology, semiconductor firms such as NVIDIA, AMD, and Intel may face additional hurdles in conducting business with Chinese clients. Companies that have relied on China as a major revenue source, such as Applied Materials and ASML, could also feel the impact of more stringent export controls.

2. Escalation in U.S.-China Trade Tensions. China is unlikely to remain passive in response to heightened trade restrictions. Beijing may retaliate by restricting exports of rare earth metals, critical components in semiconductor manufacturing, or by imposing regulatory hurdles on American tech firms operating in China. The potential for trade conflicts could lead to volatility in global markets, particularly in technology and industrial sectors.

3. Implications for AI Development and Investment. If the U.S. tightens its grip on AI-related technology exports, it could alter the landscape for AI research and investment. While it may slow down China’s progress, it could also prompt Chinese firms to accelerate their domestic research efforts to achieve self-sufficiency. At the same time, American firms may benefit from a more protected market, but they could face higher costs if global supply chains become more fragmented.

Looking Ahead A More Restrictive Global Trade Environment

Lutnick’s policy approach suggests that the U.S. may be moving toward a much more restrictive global trade environment, particularly when it comes to advanced technologies. The key questions going forward include

- Will the U.S. move beyond existing export controls and impose broader technology restrictions

- How will China respond to potential new tariffs and trade barriers

- Will U.S. allies push back against any proposed tariffs targeting them

The long-term consequences of these policies will depend on how aggressively the U.S. implements them and whether global tech companies find ways to adapt. However, one thing is clear the competition for AI dominance is escalating, and trade policy will play a crucial role in shaping the future of the global technology landscape.