China, facing US export controls on advanced semiconductors, has achieved significant technological self-sufficiency and algorithmic innovation, particularly in AI. In January 2025, DeepSeek V3 released an open-source AI model trained for less than $6 million, outperforming American systems and causing a $600 billion drop in Nvidia's market cap. By April 2026, DeepSeek V4, partly trained on Huawei’s domestically produced Ascend processors made by SMIC, performed near leading American models at a tenth of the cost. This demonstrates how US restrictions inadvertently accelerated China's vertical integration across its technology stack, from chips to AI. Furthermore, China's dominance in manufacturing, exemplified by BYD and CATL in EVs and batteries, and its control over critical minerals like gallium and rare earths, has created strategic leverage. Beijing has weaponized this by imposing export controls on key minerals, impacting US defense supply chains for systems like the F-35 and Tomahawk missile, highlighting the military consequences of American deindustrialization and reliance on Chinese production.
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