I'm not sure how much of it is subsidies. If the open weight models are anything to judge by, China is taking price performance seriously, and the US model vendors are looking for performance at any cost. Like any other Pareto optimization, we end up paying 10x more for the last few percent improvement on benchmark scores.

Of course, like literally every other time this has played out in computing history, the companies focused on price performance will end up with more economic resources, and get to turn the upgrade crank more often and for longer.

Also, of course, China's way ahead of the US on things like renewables, batteries, and electrification of their economy. All of that feeds into cheaper power to run the models, but I suspect it's a second order effect vs. "improve the software".

> China may be subsidizing this for now in a way that US companies can't or won't

They're subsidizing this in many ways - Huawei chips, new DDR5 memory fabs, etc.

Ultimately, DeepSeek's architecture is significantly more cost effective than anything from Google, OpenAI, or Anthropic.

Presumably, they'll incorporate DeepSeek's MLA* architecture to get all the benefits for next year's releases (if not this year's upcoming releases) which will bring down their costs...

They need to actually make money, though, so that might still not give them enough room to make enough money.

Ultimately, hardware depreciation is like 80% of total spending. So power is not as big of a deal in cost. The bigger problem is if you can get the power at all, not how expensive it is.

If you want to bring down inference costs, using less hardware is far more effective than getting cheaper electricity.

Google is in a sweet spot, because they aren't paying 80% margins to nVidia for hardware. So they're probably paying half as much deprecation as everyone else is (or maybe 1/4th for inference - which is now the biggest percentage overall).

It feels like the US for years has operated under the assumption that homeostasis for the global economy would always be “designed in California, assembled in China.”

Like there was something in the American DNA that was lacking in China and innovation would always need to happen here.

But China it seems doesn’t need the US to produce great cars, devices, robotics, or AI. We absolutely need China to help us build all of the above.

Put another way: if the average US citizen doesn't subsidize the costs of these trillion dollar companies, China is gonna come get you. Funny that you talk about being afraid of your own shadow.

I have some exposure to utility regulation and from what I can tell some of the AI companies are "good actors" and willing to shoulder some of the burden. But others are pretty adversarial and want a free lunch.

I believe you are right. These models are at worst a 6 month lag to the costly frontier models, but the ability to scale energy production is years ahead of where the US is. That advantage is often under appreciated

Their cost of energy is what matters vs the US as much as speed buildout.

It's not really a bottleneck. US capital is building data centers in South Asia, MENA and SEA. Many of these countries offer tax breaks because they want US data centers, and they have abundant equatorial land for solar.

You might say that US would prefer sovereignty but that's a separate argument vis-a-vis strategic competition with China in particular.

That is the talking point of OpenAI and a16z's super PAC:

https://www.wired.com/story/super-pac-backed-by-openai-and-p...

"Build American AI, a nonprofit linked to a super PAC bankrolled by executives at OpenAI and Andreessen Horowitz, is funding a campaign to spread pro-AI messaging and stoke fears about China."

In reality Xi has warned of AI bubbles. If China was really pushing it they'd be equal or ahead because so many researchers are Chinese anyway. Instead, China is building real stuff instead of focusing on hot air like a16z ("crypto", "AI", you name it). Maybe China should sponsor that PAC to accelerate the demise of the West.

> then it will no longer require subsidy from them

Is there actually a huge Chinese consumer market for these products? If not then I'm not sure how you ever actually achieve this endpoint. Chinese wages and American wages are not nearly the same thing yet.

> It will simply be absolutely cheaper (including profit margin) to serve tokens in China.

It will simply create more pollution and environmental destruction too.

> China is building for the future

That's the plan. Whether that's true requires an honest analysis.

> while Western Democracies are afraid of the future

Developed nations take fewer risks than undeveloped ones. Do you assume this pitched dichotomy will naturally sustain itself?

> and of their own shadow.

Yea, it's funny what having open and fair elections can do for a country.

> while Western Democracies are afraid of the future, and of their own shadow.

Well, yeah. This is a technology that has the potential to make large chunks of the population unemployed.

Chunks of the population that took on debts prior to late 2022 with the understanding that there would be a way to pay those debts back with their labor.

"China is building for the future, "

Meanwhile, the USA is paying for its past excesses, with interest on its debt being the number two most expensive line item in the budget.

https://fiscaldata.treasury.gov/americas-finance-guide/feder...

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What the fuck are you talking about - have you seen what data centres are doing in the West? Do you want more of that?