Since the beginning of the Ukraine war, the ineffectiveness of Western sanctions on Russia has become increasingly clear. The same is true of US sanctions against China — especially the Biden’s administration’s ban on high-performance semiconductors and, more recently, on graphics processing units (GPUs). The foreign policy community, illiterate in matters of economics and finance, massively overestimated the effect such sanctions would have, as the measures rely on the idea that China’s rise is based entirely on US technology.

The response to Chinese AI company DeepSeek and its destabilisation of US tech stocks in recent days demonstrates how this strategy has backfired. Advocates for sanctions still argue that they will have an effect, if only we wait long enough. Yet the very opposite is true. The longer that sanctions are applied, the more likely it is that countries will find ways to circumvent them — or in the case of DeepSeek, simply outsmart them.

Since at least the turn of the millennium, Beijing has been crowding in on the so-called Stem subjects (science, technology, engineering and mathematics), with American and British universities particularly popular among Chinese students. China has its own highly competitive university sector that is also heavily focused on these subjects — media studies seems to be of lesser interest.

The West maintains a few inherited advantages. Patented proprietary technologies exist to protect. But as the car industry has now found out, this works until it doesn’t. China was previously ineffective at producing semiconductors, as recounted by Chris Miller in his book Chip Wars. But this was only a snapshot, rather than a detail from which to extrapolate. Since the various restrictions imposed by the US on ASML, Europe’s most important tech company, China has been improving its production capacity. With talent, money and natural resources, why wouldn’t the country succeed eventually?

Sanctions are not only failing to accomplish their task: they are actively counterproductive. DeepSeek, as a product of a sanctions regime, needed to develop its own system — and choose a route that was more efficient and less costly than the one taken by the US. It is the unintended side effects of sanctions which should concern us. They caused economic shifts in Western countries for which those governments were unprepared. The Russia sanctions were a factor in the deindustrialisation of Germany and, by undermining Olaf Scholz’s governing coalition, in the rise of the AfD.

Perhaps the most disastrous geopolitical effect, though, is that they pulled China and Russia into a new anti-Western strategic alliance. America and Europe must now reckon with a coming multipolar order, in which global influence is spread more evenly beyond the old powers. The game, it would appear, is over.

This is an edited version of an article which originally appeared in the Eurointelligence newsletter.

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Wolfgang Munchau is the Director of Eurointelligence and an UnHerd columnist.

EuroBriefing

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China is trying to catch up with America on artificial intelligence. The Wall Street Journal has reported that Zhipu AI — one of China’s six “AI tiger” LLMs — has released a new model that can rival leading US systems, including Anthropic’s Mythos, in cybersecurity tasks such as pinpointing security bugs. While this marks a milestone in China’s drive to catch up with Western AI capabilities, strong performance on a single benchmark does not mean it has taken the lead. Chinese models still lag behind their Western counterparts in broader capabilities, such as autonomous operation. Skepticism is therefore warranted before resorting to hysterical conclusions, but complacency about the geopolitical implications of China’s AI advances would be an even greater mistake.

On the infrastructure side, Chinese AI is still constrained by access to advanced chips, with American labs way ahead in computing capacity as well as investment. Analysis from earlier this year suggests that Chinese models are likely to be at least a few months behind those in the US. But they are still continuing to make progress, or that the geopolitical importance of AI will be decided only by whose LLM has ventured deeper into the technological frontier. The practical applications of AI, countries’ to capture foreign markets, and the application of AI into the real economy will matter just as much.

Here, China may hold an advantage. As with its dominance across many critical supply chains, Beijing may not need to produce the most advanced AI systems — only those that are affordable and widely deployable. In doing so, it could consolidate global influence by supplying functional, low-cost AI at scale.

Beijing seems to be pursuing exactly that path, developing an AI “open-source” strategy that offers affordable, widely available AI models for companies and individuals to use and modify as they wish. The production of the DeepSeek AI model, which matched the performance of Silicon Valley tools such as ChatGPT at a fraction of the cost for users, created goodwill among Chinese models with developers.

The four most popular models on OpenRouter, an AI hardware platform for developers, are now all Chinese. The goal for China is not only to win the frontier-model race, but to make its systems the default layer of AI adoption across industries and global markets. For most economies, the choice is increasingly between an affordable tool they can deploy now and a more robust one that may be out of reach.

And while the countries adopting Chinese models may be exposed to political pressure and cyber threats from Beijing, safer and more capable alternatives matter little if they are unaffordable. American AI companies are already under pressure to monetize products whose operating costs are rising. If Chinese open-source models become the cheap default for startups, universities, governments and businesses across the developing world, then America’s AI lead will be eroded from below.

Perhaps more concerning for America in the long run is how AI can give Chinese manufacturing even more strength, through the ongoing integration of AI as a general-purpose technology. China’s new Five-Year Plan mentioned AI more than 50 times and includes an “AI+” action plan aimed at spreading AI across the economy.

Beijing has been pioneering automation of its critical infrastructure for years, with promising recent results in increasing warplane production capacity. In that regard, China’s open-model strategy and manufacturing dominance will reinforce each other. Cheap, adaptable models accelerate deployment across the real economy while those deployments generate real-world data and use cases that can feed back into further model improvement.

The United States should not dismiss the importance of its lead in the AI race. That lead worries Beijing, not least because a more automated Chinese economy would also become more vulnerable to AI-generated cyber threats. But nor should Washington assume that China cannot catch up with American capabilities over time.

This AI competition represents part of a broader struggle over tech supply chains and geopolitical influence. Decisions over whether to adopt US or Chinese models could produce a more fragmented global reality, with different regions relying on different cloud providers, chips and security structures. The result will likely be a global economy which is divided into competing spheres, rather than one which produces a single winner.

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Miquel Vila is a political and geopolitical risk consultant focusing on industrial strategy, critical infrastructure and global supply chains.

miquelvilam

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