The week’s big story has been about China’s DeepSeek low-cost AI model. Because DeepSeek requires fewer advanced chips, its advent has had a huge impact on the fortunes of US chip-making giant, Nvidia – which immediately lost $600 billion of its value, making that the biggest one day loss in the history of the US stock market.
Nvidia has since clawed back 5% of its prior value. Still, the advent of DeepSeek as a low cost market disruptor has been described by venture capitalist Mark Andreessen as “AI’s Sputnik moment” and if you don’t know what that means, ask your grandparents.
More to the point, DeepSeek is indicative of a wider trend. In everything from solar panels to electric vehicles to smartphone technology to social media apps to stealth fighter aircraft (hail the J-36!) to the global shipbuilding industry, China is either drawing level with the US in innovation, or is surpassing it. To date, the US – long accustomed to treating its supremacy as the norm – has been reluctant to accept the legitimacy of China’s advent as a rival superpower.
Rather than match China’s innovations, the US has acted to suppress the demand for them – either by invoking inflated security concerns (Huawei, TikTok) or by imposing trade tariffs to make Chinese products prohibitively expensive for US consumers. On both counts, these actions are hardly a vote of confidence in America’s ability to compete.
So far, these protectionist counter-measures are failing or (even worse) are providing China with an incentive to bypass them e.g. make advanced chips harder to access, and Beijing will make products like DeepSeek that require fewer of them. Belatedly, the US is now pouring $500 billion dollars into Stargate, a high tech research counter- initiative. This one-off investment fund is still significantly less than what the US spends annually on its military. (The Pentagon’s budget in 2024 was $824 billion.) The systemic problem for the US – and for New Zealand – is that decades of free market economics have gutted local manufacturing, government programmes and scientific research, while fostering a reliance on foreign imports, and on the outsourcing of well-paying jobs to cheap foreign labour. This kind of “efficiency” can come back to bite you.
In the second season of The Wire, the union boss Frank Sobotka put his finger on the basic problem:
https://www.youtube.com/watch?v=hup6e23tIPA
Making connections
By contrast, China is proving that you need to pursue a fully integrated economy in order to be creative and successful on a variety of fronts i.e. ensure that manufacturing is working in symbiosis with tech innovation and services, alongside serious funding by central government and with all of the above being guided by a sense of national purpose. (It was a similar combination of collective purpose, extensive government subsidies and shared gains that made America great in the first place.)
In sharp contrast, the neo-liberal model has set out to demonise collective action and the role of government, in order to achieve short term private gains. The outcome has been bad for all but a shrinking number of individuals. It has also been terrible for a country’s long term socio-economic interests. In effect, the MAGA backlash in the US has emerged from the ruins of neo-liberalism’s social failures. Yet like the one-trick pony he is, PM Christopher Luxon is promising more of the same.
Obviously, no one should try to glamourise China’s repressive domestic policies. By the same token, no one should try to sugar-coat how America came to be a global superpower in the first place, either. New Zealanders like to think we can continue to strike a canny balance between relying on China for trade, and on the US for defence and security. Dream on. In the Pacific region in particular, that juggling act is unlikely to survive another round of Trump-led US isolationism.
As America withdraws, the price tab for relying on the traditional US-led defence alliance is bound to increase – both in terms of us (a) having to spend significantly more on defence, and on (b) meeting Washington’s related demands that we reduce our trade ties with Beijing. Neither step would be in our own long term interests. China is now a global power, and its presence in the Pacific – and elsewhere in the world – should be treated by New Zealand as being just as legitimate as the US global presence.
Moreover, it will soon be impossible to cut back on our trade ties with Beijing, given that – as the DeepSeek episode indicates – China is coming to the fore in so many areas of global commerce. Have a quick look at a few (among many) selected spheres of business activity:
Solar panels
As the world heads into the post- fossil fuels era, China – by some estimates – currently produces, exports and controls some 80% of the global market in solar panels. (It also has about 50% of the US market, although that may change after higher US tariffs kick in.) China has achieved this dominance on the back of its low pricing model, via cheap labour costs and significant government subsidies. On the upside, the volume of solar panels that China produces has depressed global prices, and thus made the switch to solar energy more affordable.
Electric Vehicles
Only a couple of years ago, Tesla dominated the global take-up of EVs. Yet in 2024, Tesla’s market share slipped, partly because (a) the company has been slow to bring new models to market (b) partly because of a fall in annual deliveries of Teslas to dealers, and (c) partly because the company has placed undue reliance on its problem-plagued and objectively ugly Cybertruck. Little wonder that Musk has been wanting of late to “reposition” Tesla as an “AI and robotics” company.
Here’s an extensive comparative analysis of the relative position of Tesla and the Chinese firm BYD, and the different research directions both firms are taking. Plainly, Tesla is being less innovative:
BYD’s advancements in Lithium Iron Phosphate (LFP) battery technology have positioned it as a leader in cost-effective, safe, and long-lasting battery solutions. The LFP batteries are generally more affordable to produce than traditional nickel-based chemistries, offering a longer lifespan and enhanced safety. BYD’s Blade Battery, a structural LFP pack, is noted for its higher safety and better energy density, contributing to the overall performance and efficiency of its vehicles.
Tesla’s battery technology, while advanced, faces competition from BYD’s innovative solutions. Tesla’s vehicles, such as the Model 3, use both LFP and nickel-based batteries, offering a range of up to 390 miles [628 kilometres] In comparison, BYD’s Seal EV, with its LFP Blade Battery, offers a range of up to 404 miles [650 kilometres] positioning it as a competitive alternative to Tesla’s offerings.
The latest figures on comparative global market share can be found here, with BYD and Tesla each reportedly controlling roughly a third, although BYD is on the rise. Other EV makers (foreign and American) are also eating into Tesla’s market.
Shipbuilding
According to a recent report by the US Trade Representative, the US commercial shipbuilding sector is now building fewer than five ships a year, down from 70 in 1975, while China now builds 1,700 ships annually. It does so by extensively subsidising its domestic industry, and by restricting foreign competition. This approach “displaces foreign firms, deprives market-oriented businesses and their workers of commercial opportunities, and lessens competition and creates dependencies on the PRC, increasing risk and reducing supply chain resilience.” the USTR report found.
That last bit about “reducing supply chain resilience” should be of interest to New Zealand. One of the key arguments for joining AUKUS is the allegedly existential threat that we face as a trading nation on our trade routes through the South China Sea. Lets set aside for moment the fact that China, too, is a non self-reliant trading nation dependent on imports (including oil) to survive, such that China choking off the South China Sea trade routes would be an act of serious economic self-sabotage.
Point being, if we are so truly, deeply worried about our dependence on ship-borne trade through the South China Sea, shouldn’t we be concerned that the very country that is taking over an increasing share of global ship-building is also the intended target of AUKUS? This supply chain vulnerability has just been heightened by the fact that Finance Minister Nicola Willis has seriously alienated South Korea – China’s rival in global shipbuilding – by cancelling the ferries contract for those two fit-for-purpose ferries meant to service our main domestic trade and tourism link.
In 2021, this fascinating article on the imperial importance of sea-power by the right wing National Review pointed out that some 80% of global trade by volume – and 70% by value – still gets to market by sea.
Additionally, some 95 percent of the global economy’s data travel between continents through undersea cables, and a growing portion of energy and raw-resource drilling and mining rises from the bottom of the oceans.
Yet as the USTR report concluded, this maritime international trade is now being “carried out on vessels made in China, financed by state-owned Chinese institutions, owned by Chinese shipping companies, and reliant on a global maritime and logistics infrastructure increasingly dominated by China.”
How did the West get itself into this fix? Well, in line with the neo-liberal policies of the Reagan administration – policies that are still being imitated here by the ACT Party – Reagan chose to kill a US federal government programme (dating back to 1936) that had promoted and subsidised the US domestic shipbuilding industry via the Maritime Administration at the Commerce Department. When WWII broke out, this US Merchant Service became an invaluable part of the war effort.
In line with this column’s earlier point that there needs to be a symbiotic relationship in an integrated economy between manufacturing and other sectors, the American Prospect recently pointed out that “Shipyards also drove other portions of the economy. For every shipyard blue-collar job, five to seven well-paying positions were created in upstream parts and component suppliers.” Exactly.
The neo-liberal zealots of the 1980s didn’t recognise those links. Today’s free market zealots however, have no excuse at all for repeating their mistakes. New Zealand needs to plan where it wants to be as a Pacific nation in ten, or 20 years time, vis a vis China. Nervously trying to comply with the whims of the erratic autocrat currently in the White House really isn’t a sustainable option even now, much less a plan for the future.
Shipbuilding?
Say the word, and this track immediately comes to mind: