US Just Issued China An Unthinkable AI Threat

[00:00:00]All right guys, so the AI race is just getting genuinely desperate and it's getting very nasty. Now, this used to be Washington's last remaining Trump card against China, and China just took that card away completely last week. Now, one single Chinese AI model changed everything almost overnight. Kimi K3 from Moonshot has turned the entire US tech race completely upside down. Now, he has beaten every leading US frontier AI model available right now. And here's the really painful kicker for Washington. It's anywhere from 5 to 50% cheaper than its US competitors. Now, even mainstream US pundits are completely losing their minds over this development. Now, Jim Cramer is warning Washington not to let US companies use Chinese models at all. And his justification is that Chinese AI models are somehow run by the Chinese military, and it tells you exactly how panicked the establishment has become right here, right now.

[00:01:00]US companies today, they're facing a serious and growing AI adoption crisis on multiple fronts. Now, there's a very clear reason why even Microsoft is thinking about using Deep Seek to build their own solutions. It all comes down to cost and nothing else. Inflation is sky-high across the entire US economy.

[00:01:20]And that is pushing the operational cost of every single business expense dramatically upwards. This is why even American companies are now actively turning to cheaper Chinese AI models.

[00:01:33]Now, the amount of Chinese AI tokens being used by US firms have gone through the roof. It's absolutely mental. Market share has jumped from just 5% all the way to nearly 60% in just 18 months. If this trajectory continues, US AI companies will lose a lot of revenue to Chinese competitors. Plus, Chinese AI models are completely open source, and that's going to give users massive technical advantages. Now, we must genuinely appreciate what these open-source advantages actually mean in practice. With Chinese models, you can host everything on your own local infrastructure without any external oversight whatsoever. There are also zero recurring API fees to pay to anyone. You can process enormous quantities of data far more cheaply than any US alternative currently offers.

[00:02:25]The customization options available are effectively limitless for any company using them. You can fine-tune these powerful models on your own private data sets easily, and you can do all of this at a very big discount. And that combination is simply impossible for any US competitor to match right now.

[00:02:45]By 2033, the global AI market could hit anywhere from 2 to 5 trillion dollars in total size. Now, there is an enormous amount of commercial opportunity that US AI giants they are chasing. They are hoping to capture that.

[00:02:59]But if Chinese AI models are really taking over US companies, many global economies will also jump ship. kimi K3, Deep Seek, and other Chinese AI products they're going to dominate the global markets. Now, as we have been saying for over a year now, AI is going to become a commodity. And like any other commodity in history, it all comes down to finding the absolute lowest cost provider.

[00:03:27]Who can deliver the cheapest barrel of artificial intelligence to paying customers?

[00:03:32]And now that China is clearly the lowest cost provider, the entire paradigm, the competitive game, has shifted.

[00:03:40]>> Let's say a barrel of intelligence, which is a million tokens, okay? You can buy that barrel for 26 bucks from Anthropic's really good model. You can buy from OpenAI for 26 bucks. Elon is selling you a barrel of intelligence for a buck. Zuck is about to sell it to you for a buck 50. Demis and Sundar are trying to sell it to you for a dollar.

[00:04:00]The Chinese will sell it to you for 50 cents. So, this rationalization has to happen. We have the same input that has this crazy cost.

[00:04:08]>> And that is just from one single model right now, Moonshot AI, the creator of Kimik A3. They are also moving to raise even more capital before a major Hong Kong IPO.

[00:04:19]They are going to raise money at a staggering $50 company valuation.

[00:04:24]Business is so extraordinary that their daily sales, they have surged by at least six times since the K3 launched.

[00:04:31]Now, their annual recurring revenue could already be in the multiple billions of dollars right now. And money earned and spent inside China stretches dramatically further than the equivalent dollars spent in the United States. So, if you're in the US right now, you are genuinely stuck in a very very difficult position. China operates entirely out of US jurisdiction, and it cannot be forced to stop these new AI models. The only available options to punish Chinese AI companies financially is to cut off their US revenue streams. And that is exactly the direction Washington appears to be moving towards right now.

[00:05:13]There's significant speculation that the US might be considering to ban Chinese AI models outright. Now, this possibility was already being seriously discussed back in 2025. Now, when Deep Seek first launched, it shocked the world. The Commerce Department under Lighthizer tried to restrict it immediately. Now, they banned Deep Seek on all government devices and pushed even tighter chip export controls in response.

[00:05:38]Deep Seek is still available commercially inside the US for now, but there's always the very real worry that this could expand and cover Kimik 83 and other models next.

[00:05:50]Axios recently reported about big measures that were seriously considered back in 2025, and they could return in 2026. Now, this includes issuing formal advisories against using Chinese technology solutions for US companies.

[00:06:06]Basically, discourage them from doing so. It gets even more bizarre and concerning beyond that. The White House was apparently considering executive action targeting Chinese AI models entirely. The Commerce Department was also taking about hammering Chinese open-source models with restrictions.

[00:06:25]That is how far-reaching Washington's proposed measures could potentially become. This could all evolve into an outright ban.

[00:06:33]The AI race inside Washington has really gone bonkers at this point. Trump might redirect a massive $200 billion in research funding from US colleges directly towards fighting China in AI.

[00:06:47]But, is that really going to make any meaningful competitive difference at all? The core problem is how dramatically further Chinese investment money stretches compared to US spending.

[00:06:59]Now, China has an enormous and highly skilled army of tech engineers. They have a lot of data scientists available.

[00:07:05]They also have access to near limitless cheap power. And it is power that's cost anywhere from 40 to 60% cheaper than US electricity.

[00:07:15]Now, engineering salaries in China are also lower than US salaries across the board. A single dollar spent in the US might generate $2 in productive AI output, and that's if you're lucky. But, that same dollar spent inside China could generate five or even $10 in comparable output. That fundamental cost asymmetry is almost impossible for the US to come just through spending alone.

[00:07:42]Now, Bezin himself is extremely worried about the AI race with China. The US might lead in total global compute share for now at this specific moment, but sooner or later, China will become the dominant global provider of AI compute if the US fails to respond effectively.

[00:08:01]And Bezin clearly understands this reality very, very well.

[00:08:05]>> Probably used to have 50 or 60% of the compute power in the world, we'll probably soon be at 80, and that is an incredible national advantage.

[00:08:16]>> So, how exactly does the US try to constrain China's AI momentum? Well, you can ban their AI models to cut off their US revenue streams entirely.

[00:08:26]Or, you can threaten them directly with economic sanctions. And that is precisely what just happened in the most recent escalation between the US and China.

[00:08:37]Now, Bezin stated the US could potentially sanction China specifically over AI model theft allegations. Now, this is a dangerous and very, very slippery slope that's going to backfire badly. According to Bezin, American researchers found watermarks from US large language models embedded inside the Chinese models. And Washington is now considering taking direct and punitive action against Chinese AI companies over this.

[00:09:06]But his core justification is a slippery slope and has really no boundaries left.

[00:09:12]He specifically wants to target what is called AI distillation as the basis.

[00:09:18]This is where smaller and less capable AI models get built using outputs generated by existing stronger models.

[00:09:25]But this is exactly how knowledge transfer and tech advancement has always worked throughout human history.

[00:09:32]Distillation is a completely standard and widely accepted technique used by everyone globally.

[00:09:37]Where exactly do you draw the legal and the technical line between distillation and outright theft? That is the big problem. This approach is not going to just anger China, it will deeply spook every other country on Earth that currently uses or they're considering the use US AI models in any capacity.

[00:09:58]Now, China's immediate counter move will be simple and quite effective. They would just open up the already open source AI even further and more aggressively to the entire world.

[00:10:10]Now, while the US raises restrictions and barriers, building the castle walls higher, China will simply drop theirs even lower.

[00:10:18]They will invite every country on Earth to freely use their powerful models without any barriers whatsoever. Now, the majority of the world is already heavily using Chinese open source AI models right now. China's already captured at least 60% of global AI token market share.

[00:10:36]Imagine how much that number could climb if Beason actually follows through and punishes China in front of the world.

[00:10:44]The second enormous problem is what Beason's threatened sanctions actually mean in concrete practice. Is he going to completely outright ban US companies from utilizing Chinese AI models?

[00:10:55]Because if that actually happens, US companies get immediately forced onto dramatically more expensive US only options. And the cost increase could seriously their budgets of all these American businesses overnight.

[00:11:11]Now, the cheapest available Chinese models can deliver 60 to 70% of frontier AI performance today, and many companies are happy to do it. You don't need to create the most powerful AI solution for them to use, and these Chinese alternatives can do it at 95 to 99% cheaper than US companies. Now, Deep Seek V4 Pro alone is over 60 times cheaper per token than Claude V5. And that means you can literally run 63 separate tasks on Deep Seek for the same cost as one task on Claude V8. And that price differential is simply impossible to rationalize away by any US business leader. US companies outside of Big Tech, they're going to fall dramatically behind in AI adoption if they are forced to use only the expensive US models.

[00:12:04]This is what we have to understand. We could then watch the rest of the world completely leapfrog the US in real-world AI applications. Now, they will really adopt dramatically cheaper and more efficient Chinese models for their everyday work. While American companies, they're going to pay premium prices for AI made in the US.

[00:12:26]And the next and more painful blowback that's going to happen is something that Trump has to consider.

[00:12:33]Now, the US is completely obsessed with getting AI chips and advanced semiconductors manufactured domestically inside America. We know that since the start of 2025. Now, Lael Brainard just announced that TSMC is committing another $100 billion in new US manufacturing investment. And the total TSMC commitment to US manufacturing is now hitting above $260 billion total.

[00:13:01]Lael Brainard is also betting heavily on more memory chip manufacturing. He wants more factories, more capacity to be built inside the United States. Micron is planning a massive $3 billion investment in US chip supply chains right now. They're going to build an enormous new chip manufacturing facility or mega fab in central New York. Lael Brainard is hyping all of this as a massive win for US manufacturing and economic independence, as well as to create a ton of jobs.

[00:13:32]>> You've got Micron pouring it in, right?

[00:13:35]This just one mega fab is going to be a mile long, and there's going to be four of them. Tens of thousands of jobs.

[00:13:43]Micron is going to do 100,000 jobs. Then you've got >> But just think carefully for one moment.

[00:13:49]What do you need to make all these advanced semiconductors and AI chips?

[00:13:53]What do they require?

[00:13:55]You need enormous quantities of reliable energy, that's one. You also need a lot of cheap critical mineral inputs, that's two. You specifically need rare earth materials throughout the entire supply chain. And who controls the majority of global rare earth supply and production right now? It is China, completely and absolutely China controls all the supply chains that the US depends on entirely.

[00:14:23]And this is precisely how dangerous Biden's AI sanctions actually is. If you ban or you aggressively hammer Chinese AI models, Beijing, they're going to twist the screws. They're going to cut off rare earth supply.

[00:14:36]Now, that single move will completely the entire US chip manufacturing ambition. The majority of US supply chains in critical minerals are deeply embedded in Chinese supply chains right now.

[00:14:49]Major semiconductor materials, including gallium, germanium, and tellurium, all come from China. Without those materials, no amount of TSMC investment in Arizona or New York kind of matters.

[00:15:03]And maybe that's why the US is scrambling urgently to open dialogue with China. They want to talk about AI cooperation. Now, high-level talks are scheduled to happen in September between the two sides, but those talks are going to be very brutal and difficult for the US. China absolutely will not budge from a position of strength, and the US is going to get very, very desperate. But as always, let me know what you think.

[00:15:27]Will the US actually follow through and ban Chinese AI models? And how exactly will China choose to retaliate against all these threats of sanctions? Let me know what you think. Stay safe. Smash the like button and subscribe as we navigate through these crazy times.