Trump’s Tariffs Backfire: How China’s AI Win Will Impact Australia
A major breakthrough by Chinese artificial intelligence startup DeepSeek has cast doubt on the effectiveness of US trade tariffs, exposing weaknesses in Washington’s strategy to curb China’s technological rise. For Australian businesses, this development signals critical shifts in global trade dynamics, supply chains, and currency markets that could impact future economic strategies.
DeepSeek has successfully developed a cost-effective AI model that operates on less-advanced chips, proving that innovation can outmanoeuvre trade restrictions. The Trump administration’s tariffs and technology bans were designed to limit Beijing’s progress in key industries such as semiconductors and AI. However, DeepSeek’s success suggests these measures are losing their potency.
Nigel Green, CEO of global financial advisory and asset management giant deVere Group, highlights the implications: “This is a wake-up call for markets. The assumption that tariffs could contain China’s technological ambitions is being dismantled in real time. DeepSeek’s breakthrough is proof that innovation will always find a way forward, regardless of economic barriers.”
For Australia, which relies heavily on trade with China, this shift is significant. China remains the country’s largest trading partner, accounting for around 30% of total exports. If Beijing becomes increasingly self-sufficient in AI and semiconductor technology, Australian businesses may face both opportunities and risks.
On the one hand, reduced reliance on US technology could see China investing more in domestic supply chains, including Australian raw materials such as lithium and rare earth elements—key components in semiconductor and AI development. On the other hand, heightened US-China tensions could lead to further geopolitical uncertainty, impacting Australian businesses with exposure to both markets.
“Rather than being crippled by US sanctions, Beijing has cultivated AI models that require significantly less computing power, diminishing its reliance on American technology and eroding US leverage over global supply chains,” says Green.
Financial markets are already reacting. US semiconductor stocks have come under pressure as investors consider a future where demand for high-end American chips may decline. European tech stocks are also sliding, while the Nasdaq 100 has been hit by fears that trade policies may be accelerating China’s push towards self-sufficiency.
For the Australian dollar (AUD), the implications are twofold. First, if China’s technology sector strengthens, Australia’s resource exports could benefit, providing support for the AUD. However, if US-China tensions escalate further—particularly if Trump returns to the White House and introduces new tariffs—global market instability could trigger risk-off sentiment, leading to AUD volatility.
As Green notes: “Investors should be paying close attention to this shift. If China’s AI firms no longer require cutting-edge US chips, a core pillar of Washington’s strategy crumbles. The market response we’re seeing is just the beginning of what could be a larger recalibration of AI investment flows.”
With Trump’s campaign rhetoric continuing to emphasise economic nationalism, there is a strong likelihood of fresh tariffs on China should he regain power. However, DeepSeek’s breakthrough raises urgent questions about whether such measures will be effective in a world where technological agility increasingly outpaces economic restrictions.
“For US policymakers, this moment demands a reassessment,” says Green. “Tariffs once served as a blunt instrument to enforce trade priorities, but their effectiveness is waning. If China can continue to develop advanced AI capabilities without access to cutting-edge US semiconductors, Washington’s economic arsenal will look increasingly outdated.”
For Australian businesses, the key takeaway is clear: the global trade landscape is shifting, and companies must remain agile. With China proving its ability to circumvent US restrictions, Australian exporters, tech firms, and investors should prepare for a world where innovation, rather than trade barriers, determines economic power.
As Green concludes: “DeepSeek’s rise is not just a milestone for China—it is a warning for the US. Tariffs may have worked in an earlier era, but in today’s world, economic power is determined by who innovates the fastest. If Washington keeps relying on restrictions instead of pushing ahead at home, it risks being left behind.”
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