Dear Focus Reader,

Trade relations between the United States and China took a notable turn this week as President Donald Trump confirmed plans to impose his previously announced tariffs, effective on Saturday, February 1. These tariffs are part of the president's broader strategy to address illegal fentanyl trafficking and trade imbalances, with a 25% duty imposed on Canada and Mexico, and a 10% levy on Chinese goods. While the new tariffs are aimed at curbing the import of goods that pose potential risks to U.S. interests, economists warn that they could lead to higher prices for American consumers, particularly if they lead to retaliatory tariffs or supply chain disruptions.

The move comes amid growing concerns in Washington about Chinese AI firm DeepSeek, which garnered global attention this week with the release of a large language model that rivals U.S. technologies, including OpenAI's GPT-4, but at a much lower cost to develop. DeepSeek's ability to train models efficiently could disrupt the global AI landscape, shifting the competitive balance between China and the U.S.

DeepSeek utilized U.S. tech giant Nvidia's semiconductor chips in the development of its model, leading to a significant drop in Nvidia's stock with the breakthrough. However, analysts have noted that Deepsake's success also exposes a critical limitation in China's AI progress: the country's ongoing reliance on advanced U.S. semiconductors. Despite its achievements, China cannot fully secure its position in the AI race until it develops its own high-performance chips.

The rise of DeepSeek is now also fueling debates in Washington about the effectiveness of export controls aimed at restricting China's access to technology, with the Trump administration considering further tightening restrictions. Meanwhile, Nvidia CEO Jensen Huang is set to meet with Trump today to discuss AI policy and potential controls.

Learn more on international relations by catching up on our latest Focus content, including topics on U.S.-China engagement, the South China Sea, and security.

And from all of us at the China-United States Exchange Foundation (CUSEF), we wish you a safe and prosperous Year of the Snake!