USA: According to people familiar with the matter, US officials are investigating whether Chinese AI startup DeepSeek purchased advanced Nvidia Corp. semiconductors through third parties in Singapore to bypass US restrictions on artificial intelligence chips, according to a Bloomberg report.
DeepSeek’s recently launched chatbot, R1, has raised concerns that China may be further ahead in AI development than previously thought. Some engineers have praised R1’s capabilities, and DeepSeek has promoted its low cost and efficiency, leading to speculation by rival companies that it may have been built using Western technology.
DeepSeek ‘found their way around’ US controls
As Bloomberg reported, Howard Lutnick, Trump’s nominee for Commerce Secretary, suggested that DeepSeek had circumvented US export controls. This prompted an investigation to determine whether the AI company had bypassed specific international regulations.
“Nvidia’s chips, which they bought tons of, and they found their ways around it, drive their DeepSeek model,” Lutnick told senators during his confirmation hearing. “It’s got to end. If they are going to compete with us, let them compete, but stop using our tools to compete with us. So I’m going to be very strong on that.”
Officials from the White House and FBI are also examining whether DeepSeek used third parties in Singapore to acquire Nvidia chips that the US has banned from sale to China, the sources said.
An Nvidia spokesperson stated, “We insist that our partners comply with all applicable laws, and if we receive any information to the contrary, act accordingly.” The company issued a statement earlier this week indicating that DeepSeek did not violate US restrictions.
DeepSeek’s R1 chatbot sparks global AI competition
DeepSeek’s R1, released earlier this month, mimics human reasoning and could challenge OpenAI and other US competitors, contributing to a $1 trillion (S$1.35 trillion) market loss. The development has sparked debate over the effectiveness of US efforts to limit China’s access to advanced technology.
These restrictions target a range of semiconductors and manufacturing tools to slow China’s chip industry growth and prevent Beijing from obtaining AI that could offer advantages. They are part of broader efforts to maintain technological supremacy and safeguard national security interests.
In October 2023, the US banned the sale of H800 and other Nvidia chips to China, prompting Nvidia to create a less advanced model, the H20, for the Chinese market. Trump administration officials are now discussing whether to restrict H20 sales as well.
Expanding US chip restrictions
Alongside expanding restrictions on which chips can be sold to China, the US has also broadened the list of countries subject to these trade rules. In 2023, the Biden administration imposed chip export restrictions on over 40 countries suspected of serving as intermediaries for China, including most of the Middle East and parts of Southeast Asia. However, Singapore was not among these restrictions.
The administration further tightened these regulations, leaving only a handful of US allies exempt. Large shipments to Singapore now require a licence, though shipments under 1,700 chips only require notification.
These strengthening restrictions will likely help stifle the increasing market competition in the semiconductor business. As China’s technology advances, its AI tools will likely challenge tools that have dominated the market previously due to decreased cost and improved efficiency.
Nvidia, however, vehemently denies these allegations. A spokesperson stated that Singapore-related revenue does not necessarily indicate chip diversion to China. “Our public filings report ‘bill to’ not ‘ship to’ locations of our customers,” they said. “Many of our customers have business entities in Singapore and use those entities for products destined for the US and the West.”
Calls for stricter licensing rules and their implications
The top Democrat and Republican on a China-focused US House panel referenced Nvidia’s Singapore revenue in a letter to National Security Advisor Mike Waltz on Wednesday. “Countries like Singapore should be subject to strict licensing requirements absent a willingness to crack down” on shipments to China, Representatives John Moolenaar and Raja Krishnamoorthi wrote.
These increased restrictions can significantly affect a product since these requirements have compliance costs, which can have a significant economic impact. Additionally, this can act as a barrier to entry, reducing market competition. They may also have legal and regulatory consequences since these types of increased licensing rules can also be vulnerable to corruption.
An increasingly globalized economy
The ongoing investigation into DeepSeek’s potential circumvention of US chip export controls underscores the challenges of enforcing technology restrictions in an increasingly interconnected global economy. While US officials seek to limit China’s access to advanced AI hardware, companies may still find ways to procure restricted technology through intermediaries, raising concerns about the effectiveness of current regulations.
Calls for stricter licensing rules, particularly regarding semiconductor exports, highlight broader economic and regulatory implications. While these measures may help protect US technological leadership, they also risk increasing compliance costs, reducing market competition, and potentially fostering corruption in global trade. As the US expands its chip restrictions and considers further limitations on sales to Singapore and other intermediaries, the long-term impact on AI development and the semiconductor industry remains uncertain.
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