Geopolitical Report ISSN 2785-2598 Volume 51 Issue 1
SpecialEurasia OSINT Unit
Executive Summary
Generative artificial intelligence (AI) is reshaping global power dynamics, triggering a digital arms race among leading nations. The United States, European Union, and China’ regulatory frameworks differ significantly, reflecting unique strategic objectives and underlying ideologies.
China’s DeepSeek and similar companies challenge Western AI dominance, proving that cheaper, open-source AI models can shake up the market. However, these developments have increased geopolitical tensions, particularly between Washington and Beijing, with escalating AI export controls and trade restrictions. Navigating fragmented regulations, vulnerable supply chains, and escalating tech rivalry are crucial for policymakers and corporate leaders.
This report analyses how the global AI race, specifically China’s DeepSeek, affects international relations, regulations, and strategic choices for policymakers, businesses, and security professionals.
Background Information
Artificial intelligence has long been a focal point of geopolitical competition, but the advent of generative AI has significantly accelerated the stakes. The United States has maintained a market-driven approach, fostering an environment where private enterprises lead innovation with limited regulatory intervention. In contrast, the European Union has prioritised ethical AI governance through structured regulatory frameworks such as the AI Act. China, driven by a strategy of digital sovereignty, has imposed stringent oversight to align AI development with state objectives.
The global AI race is also shaping digital ecosystems. We are seeing the rise of a fractured digital world for AI, shaped by distinct regulatory and technological realms. Washington enforces strict export controls on AI chips, while Beijing mandates data localisation and algorithm registration. Multinational corporations face increased compliance burdens and operational risks because of this two different approaches, forcing them to adopt region-specific AI strategies.
Key Developments
Recent advancements in China’s AI sector, particularly the rise of DeepSeek, mark a significant shift in global technological competition. DeepSeek’s decision to develop open-source AI models has undermined the dominance of closed, high-cost models supported by Western tech giants. The company’s R1 and V3 models have rapidly acquired traction, surpassing OpenAI’s ChatGPT as the most downloaded application in various countries.
The success of DeepSeek challenges the prevailing assumption that large-scale AI models require substantial financial and computational resources. In contrast to Western AI companies’ multi-billion dollar spending, the company says its V3 model cost around $5.6 million to develop using older Nvidia H800 GPUs. While some scepticism surrounds these figures, DeepSeek’s cost-effective approach has demonstrated that AI innovation is no longer monopolised by the West.
DeepSeek’s achievements have increased Beijing’s confidence in its AI capabilities. Within China’s startup ecosystem, competition is intensifying, with major players like Alibaba’s Qwen team following DeepSeek’s lead by releasing their own open-source models. This development signals a shift towards decentralised AI accessibility, empowering a wider range of global stakeholders. However, this development also sparks U.S. concerns, potentially leading to stricter sanctions designed to restrain the Chinese technological advancement.
Analysis and Implications
The rise of DeepSeek underscores a critical inflection point in AI geopolitics. China’s development of competitive AI models, despite U.S. chip export restrictions, showcases the resilience and adaptability of its tech sector. Continued Chinese innovation despite resource constraints could undermine U.S. sanctions and spur greater AI investment from Beijing.
DeepSeek’s rise and its effects on Nvidia company poses a potential threat to the U.S.’s strategic AI leadership. Washington has already implemented export controls on AI-related technologies, but DeepSeek’s success may prompt additional restrictions, such as further limiting access to semiconductor technology or tightening regulations on AI collaborations involving Chinese entities. Tighter restrictions may deepen technological separation, potentially prompting China to build independent AI supply chains and lessen its dependence on Western technologies.
From a corporate perspective, the geopolitical fragmentation of AI presents both challenges and opportunities. AI-focused multinational corporations must manage a complicated, varied global regulatory environment. U.S. companies partnering with Chinese AI firms could face increased oversight, whereas European entities need to adhere to the EU’s robust AI regulations. Companies may need to invest in localised AI models tailored to specific regulatory environments to ensure market access.
The broader implications of AI’s geopolitical fragmentation extend beyond regulatory concerns. The emergence of open-source AI models, as demonstrated by DeepSeek, challenges the conventional paradigm of proprietary AI dominance. This trend, if it accelerates, might shift AI capabilities, letting smaller players join the tech competition. Although this increases AI accessibility, it also raises security concerns about the potential misuse of generative AI for disinformation, cyber warfare, or other malicious purposes.
Conclusion and Recommendations
The global AI race is entering a transformative phase, with China’s DeepSeek disrupting traditional power structures in the technology sector. This development has far-reaching consequences for policymakers, corporations, and security experts. The U.S. government needs to evaluate how well its AI sanctions are working and think about whether more restrictions might unintentionally help China become technologically independent faster. To stay competitive, the EU needs to keep adjusting its AI rules to encourage innovation while upholding ethical standards in this fast-changing world.
For businesses, developing a geopolitical AI strategy is essential to mitigate risks associated with regulatory fragmentation and trade restrictions. Businesses must prioritise compliance systems, explore localised AI, and collaborate internationally within legal frameworks. Policymakers and corporate leaders must also advocate for international AI governance frameworks that promote interoperability while addressing ethical and security concerns.
Understanding these geopolitical shifts and their implications is critical for informed decision-making. To develop the necessary expertise, consider enrolling in SpecialEurasia’s Online Course in Geopolitical Intelligence Analysis on Saturday, 15 February 2025, from 09:00 AM to 13:00 PM (Online). This course provides a hands-on approach to mastering the skills needed to track, interpret, and predict global developments with precision. Whether you are a seasoned professional or a newcomer, this training equips you with practical tools to produce impactful reports and contribute effectively to strategic decisions within your organisation.
The trajectory of AI development will define the geopolitical landscape for years to come. Strategic decision-making in the coming months will determine whether AI remains a tool for competition and division or develops into a technology that fosters global cooperation and inclusive progress.
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