American Enterprise Institute analyzes US policy responses to China's DeepSeek AI breakthrough.

George Gilder, a long-time techno-capitalist thinker, argues in a Wall Street Journal op-ed that America's tech sanctions against China—particularly restrictions on high-end computer chips—may be doing more harm than good. He suggests that China's DeepSeek, with its cheap and clever approach to AI development, demonstrates how restrictions can spark rather than stifle innovation. The DeepSeek breakthrough has prompted references to both the Jevons Paradox, the concept that better resource efficiency boosts consumption as lower costs encourage greater use, and the related notion of "induced innovation"—where high costs of particular resources, such as the most sophisticated Nvidia GPUs, drive companies to innovate specifically around using that resource more efficiently or finding alternatives.

Gilder points to American firms like Cerebras and Tesla as pioneering wafer-scale integration, a revolutionary leap that squeezes an entire data center onto a single silicon wafer, promising computing power that could make today's chips look antiquated. Rather than building walls, Gilder contends that America might do better to embrace the borderless nature of innovation, stating: "Technology is the key adventure of human progress, and it is intrinsically global. The key test of the Trump administration will be whether it can come to terms with this fact of life and enterprise."

A reasonable baseline perspective emphasizes the role of trade in heightening competitive intensity and its impact on a country's innovative capacity. When faced with tough foreign competition—such as the DeepSeek breakthrough in generative AI development—many companies actually step up their innovation game. While sanctions may slow China's technological advances to some degree, it is more important that America push forward the technological frontier across AI, biotechnology, energy, and space.

In response to the DeepSeek advance, AEI nonresident fellow Klon Kitchen advocated a two-pronged strategy. First, Washington must remain vigilant in enforcing AI chip export controls and cracking down on illicit GPU smuggling, noting that these restrictions are working and that DeepSeek's workaround efforts prove it. Second, because China's military is increasingly integrating AI into its operations, from autonomous weapons to real-time battlefield intelligence, the US must significantly increase government and private-sector R&D investment to boost innovation-driven productivity and economic growth, with R&D currently at over three percent and room for substantial additional public and private investment.

As artificial intelligence begins to reshape the technological frontier and the American economy, historical lessons offer invaluable guidance for understanding both its trajectory and implications. Work provides not just income but also purpose, pride, social recognition, and a sense of contribution—considerations that should inform how America approaches its technological future and the policies that govern it.