What is the US-China DeepSeek row and why does it matter for AI and trade?

“We urge the US side to respect facts and market rules, immediately correct its wrong practices, stop its unreasonable suppression of Chinese companies, and revoke the relevant discriminatory restrictive measures,” the ministry said in an official statement. It added that Beijing would closely monitor developments and take “all necessary measures” to protect its legitimate rights and interests if the US actions caused substantial harm to Chinese interests.

Beijing strongly opposed the US decision, arguing that Washington had disregarded understandings reached between the two countries’ leaders. The dispute comes amid wider friction as the US and China compete for leadership in AI and other advanced technologies. What triggered China’s latest warning to US? The immediate trigger was a US government order targeting DeepSeek, one of China’s best-known AI companies.

The US Department of Homeland Security announced on Monday, October 19, that federal civilian agencies must remove DeepSeek products and third-party services that use its AI models from their information technology systems, reported Reuters. The order also bars these agencies from procuring DeepSeek products and services, including third-party services developed using the model. The restrictions apply to US federal civilian agencies and do not amount to a blanket ban on DeepSeek for all American businesses or individuals.

The push comes as the US-China AI competition expands beyond who can build the most powerful models. (AI-generated image) Washington has cited national security concerns to justify the move. US officials believe DeepSeek’s use could expose sensitive information to China. The Department of Homeland Security said the models present “multiple threat vectors”. Concerns include the location of DeepSeek’s servers in China and the possibility that Chinese authorities could gain access to sensitive government or company data through the technology.

The Associated Press (AP) reported that the US notice also raised concerns about potential access to private company infrastructure and sensitive information. DeepSeek had not immediately responded to AP’s request for comment. Beijing has rejected the restrictions, accusing Washington of using national security as a justification for discriminatory limits on Chinese AI companies. China’s Ministry of Commerce said the decision could harm Chinese firms’ lawful rights, undermine fair competition and disrupt commercial cooperation in AI.

5% in Q3: What drove growth and what remains a concern The ministry also accused Washington of turning trade and technology issues into political tools. It called on the US to honour understandings reached by the two countries’ leaders and manage differences through dialogue. China urged Washington to provide a fair business environment and use the existing China-US AI dialogue mechanism to build trust and support the development of the technology.

The disagreement extends beyond the latest DeepSeek order. Reuters and AP have reported that Washington has raised concerns about Chinese AI companies’ alleged use of a technique known as distillation to reproduce capabilities of advanced American AI models. Distillation involves using the outputs of a larger AI model to train a smaller one. The technique can help developers build capable systems at a lower cost.

US officials have accused Chinese companies of using it to extract capabilities from American models at scale, allegations Beijing has rejected. China’s Ministry of Commerce has previously opposed US threats to investigate or sanction Chinese AI firms over alleged intellectual property violations. In a statement published in July, the ministry said Washington had no factual or legal basis for its accusations and urged it to stop threatening Chinese companies with sanctions.

How could the dispute affect wider China-US trade war? The DeepSeek restrictions add to a broader contest over trade, technology and economic security. Although the latest order targets federal government systems, it shows the growing role of AI in the strategic competition between Washington and Beijing. The US has restricted China’s access to some advanced AI chips and the equipment used to manufacture them, arguing that the controls are necessary to protect national security and limit the use of sensitive technology in areas such as military development.

China has opposed several of these restrictions, saying Washington is using security concerns to constrain Chinese companies and limit their ability to compete in global markets. US-led restrictions continue to limit China’s access to advanced AI chips and chipmaking equipment, reported AP. Beijing, meanwhile, has proposed its own controls on exports of certain advanced AI technologies, signalling that both countries are prepared to use technology policy to protect their strategic interests.

Anthropic’s extreme AI scenario explained China announced plans last week to restrict or prohibit exports of 40 advanced technologies spanning AI, semiconductors, solar energy and biomedicine. The proposal included 23 AI technologies, reported AP. These proposed measures are separate from the DeepSeek dispute but reflect the wider competition over access to strategic technologies. The restrictions could affect companies that depend on cross-border research, software, chips and other technology services.

Businesses may need to review where they store data, which AI tools they use and whether their products or services fall under restrictions imposed by either government. The immediate impact of the DeepSeek order is narrower than a general trade ban. It requires US federal civilian agencies to remove specified products and bars them from procuring those services. However, the decision could also influence procurement and risk assessments among private companies, particularly those supplying software or technology services to government departments.

Further restrictions could create additional uncertainty for companies operating across both markets. If Washington and Beijing expand their use of sanctions, export controls or procurement bans, businesses could face greater challenges involving market access and supply chains. China’s warning signals that Beijing wants Washington to consider the consequences of targeting Chinese businesses. However, the Ministry of Commerce did not specify what countermeasures it might take in response to the latest order.

Its statement said China would monitor the situation and act if its interests suffered substantial harm. The warning should not be interpreted as confirmation that Beijing has already announced a new retaliatory measure against the DeepSeek restrictions. The dispute also poses a challenge to efforts to maintain cooperation between the two governments. The countries have made some progress on AI governance, including discussions about a possible system for notifying each other of AI incidents involving national security, reported AP.

However, they remain divided on several technology and security issues. Both sides have an interest in keeping communication channels open. AI systems affect businesses, public services and national security, while trade between the countries remains important to global supply chains. A prolonged dispute could complicate cooperation on technology standards and increase uncertainty for companies operating in both markets.

The next test will be whether the two governments can use existing dialogue mechanisms to prevent the disagreement from spreading. Beijing has called on Washington to reverse the restrictions and work with China, while the US maintains that the order addresses security risks.