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A Dual Disruption and the Constant of Surprises
Photo: iLab/CSIS
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The biggest surprises are not in what happens, but in what we thought couldn’t happen.
A Dual Disruption and the Constant of Surprises
If ever we needed a reminder that surprises are a constant, the dual disruptions last week of Trump 2.0 actions and DeepSeek’s AI breakthrough did not disappoint. Whatever we had priced in prior to these events, many of us—technocrats, technologists, and investors alike—were left rethinking our assumptions.
The tsunami of presidential actions—surprising in scope and speed, even to Washington observers—can have far-reaching implications for the economy and society. Disbursements of Biden-era infrastructure and energy transition programs as well as other federal assistance programs were paused, until they were temporarily blocked by a federal judge and rescinded by President Trump.
Actions declared an energy emergency, sought to unleash American energy through regulatory reforms, and reversed Biden-era climate policies. The president also turned the page on AI and digital assets, stepping away from the Biden-era focus on safety and regulation. The America First Trade Policy executive order—surprising in what it did not include (i.e., actual tariffs)—teased a deliberative approach with a spate of “studies” into the root causes of the merchandise trade deficits, effectiveness of export controls, and the like.
While the scope of the executive order points to continuity with Biden-era economic security policies, the “studies” will likely lay the predicate for a much more aggressive trade agenda with tariffs as the battering ram. Indeed, the president removed any doubts to the contrary by wielding the tariff threat—for different reasons—against Colombia, Mexico, Canada, Taiwan, and, of course, China.
The scope and sequencing of import taxes remain to be seen, as do the economic implications of the unfolding deportation program. Not to be forgotten, a fast-moving civil service reform agenda is taking shape—equal parts cost-cutting, wage bill rationalization, return-to-work, and AI-enablement—partially under the auspices of the new U.S. DOGE Service. For now, we are in something of a policy fog.
The beginnings of a Trump-era technology strategy also took center stage last week. The announcement of an eye-popping $500 billion Stargate Project saw the combined firepower of American, Asian, and Middle Eastern investors in the AI infrastructure for OpenAI in the United States. It was meant to signal U.S. leadership on “the built data center infrastructure landscape, from power and land to construction to equipment, and everything in between.” Notwithstanding some skepticism about whether the Stargate investments will fully materialize, the project stands out as a bold private sector alternative to Biden-era public investments to build the U.S. technological and industrial base. And yet, this apparent triumph of proprietary AI was upended by the curiously-timed release of China’s low-cost, open-source disruptor—what the economist Oliver Blanchard called “probably the largest positive tfp [total factor productivity] shock in the history of the world.”
There are many questions about the DeepSeek event. Does its $6 million price tag include the full costs of the development of its V3 (including failures along the way)? Will its other claims of power efficiency and use of mature chips to train its models stand up to scrutiny? Does it pose a fundamental challenge to the prevailing American model for AI development? Or is this a Jevons paradox moment along the way to a further exponential AI demand, reinforcing the logic of the Stargate Project? One thing is clear this week: Chinese tech has thrown down a challenge in a domain where the United States, heretofore, was confident of its superiority.
As policy and technology fog lifts, we’ll need to assess whether U.S. economic security and technology policies (and the government’s capacity to implement them) are fit for purpose. Indeed, that is the enduring test of Trump economic policies and tariffs in particular: Do they help or hinder our ability to stay ahead of the technology race?
Understanding the trends and the inevitable surprises across technology, policy, and national security, as deeply as we can, is our goal. With that understanding and insight, we aim to recommend viable gameplans so that the United States and its allies have a fighting chance to win the tech race. To do this well, we are building our team of scholars with the addition of Phil Luck, our new Scholl Chair and Director of our Economics Program, and Matt Pearl, new Director of our Strategic Technologies Program.
I invite you to take a look at our deep dives on energy, AI, and other technology and trade-related presidential actions; our expert commentaries on disruptive AI breakthroughs; and our thoughts on the bigger trends on trade and technology, including U.S. surpluses on services trade—an important engine of jobs and competitiveness.
– Navin Girishankar, President, Economic Security and Technology Department
AI & DeepSeek
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Chinese AI Startup "DeepSeek" Rattles Stock Market
Earlier this week, Director of the Wadhwani AI Center Gregory C. Allen joined Bloomberg to discuss why Chinese AI company DeepSeek is disrupting tech markets.
DeepSeek Deep Dive
Check out the latest episode of the AI Policy Podcast, where hosts H. Andrew Schwartz and Gregory C. Allen discuss the origins of Chinese AI Company DeepSeek, the release of its DeepSeek R1 model, and what it means for the future of U.S.- China AI competition.
The United Arab Emirates’ AI Ambitions
Following a trip to the UAE in late 2024, Gregory C. Allen, Georgia Adamson, and other scholars unpack the UAE’s AI ambitions, the G42-Microsoft deal, and how the U.S. can balance global AI diffusion with leadership.
The Administration's First Weeks
Energy Emergency: Interpreting Executive Orders on Energy and Climate
Joseph Majkut, Kevin Book, Michael Catanzaro, and Clay Seigle unpack the new administration's executive orders designed to prioritize domestic energy production and reinstate an energy dominance agenda, and look ahead at the implications for U.S. energy policy.
Trump's 2025 Return & India: Immigration, Trade, and Global Relations
Katherine Hadda, spoke with NewsX on India-U.S. relations under a potential second Trump administration, highlighting tariffs, China, and Quad Cooperation
Trump’s Moves to Modernize U.S. Technology Policy
Matt Pearl examines the new administration's tech policy priorities and how the disruptor-in-chief will reshape the most disruptive sector.
What to Expect: The Trump Administration’s Economic Security Policy on Asia
Navin Girishankar recently joined The Korea Society for a discussion on the Trump Administration’s economic security policy towards Asia, including US-China economic competition, tariffs, and critical next generation technologies.
Trump's First Days and a U.S. FDI Boom
Check out this week's episode of the Trade Guys, as Bill Reinsch, Scott Miller, and H. Andrew Schwartz run through the early trade actions of the new administration and unpack the record-high U.S. share of global foreign direct investment (FDI).
More Analysis
Huawei Redux: Understanding the World’s Most Infamous Company and Its Geopolitical Significance
On Monday, Scott Kennedy hosted Eva Dou of the Washington Post to discuss her new book, House of Huawei: The Secret History of China's Most Powerful Company.
The Minerals Security Partnership Under the South Korean Leadership
As South Korea succeeds the U.S. as the chair of the Mineral Security Partnership (MSP), Jane Nakano and Hyun Soo Chu examine what could be strategic priorities for the MSP under South Korea’s leadership.
Russian Oil Sanctions Demand Persistence
The new U.S. sanctions imposed on Russia will succeed in reducing Moscow’s oil revenues, writes Clayton Seigle. But policymakers should be on guard for evasion tactics and prepare for a medium-term campaign to retain the upper hand.
The Transition: Green Industrial Policy in the Red Era
This week, Joseph Majkut and Quill Robinson discuss green industrial policy with Oren Cass, founder and chief economist of American Compass, and Jane Flegal, Executive Director of the Blue Horizons Foundation and former Senior Director for Industrial Emissions at the White House Office of Domestic Climate Policy under President Biden.
Welcome Philip A. Luck, Scholl Chair in International Business and Director of the CSIS Economics Program
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Photo: CSIS
We are pleased to announce that Philip A. Luck has been named Scholl Chair in International Business and director of the CSIS Economics Program, joining EST after serving most recently as deputy chief economist at the U.S. Department of State.
Dr. Luck brings to CSIS world-class expertise on the economics of international trade, global supply chains, and migration. As deputy chief economist at the Department of State, he led analytical efforts to combat sanctions and export controls evasion, increase global supply chain resilience, combat economic coercion, and improve migration policy design and implementation.
We're excited to have Dr. Luck strengthening the economic research and analytical capabilities of EST in order to address the most pressing issues at the intersection of economic and national security planning. Be on the lookout for his work.
Welcome Matt Pearl, Director of the CSIS Strategic Technologies Program
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Photo: CSIS
Please join us in welcoming Matt Pearl as director of the CSIS Strategic Technologies Program. Matt brings extensive experience working at the intersection of technology and national security policy, having served most recently as director for emerging technologies and special advisor to the deputy national security advisor at the National Security Council.
As director of the Strategic Technologies Program, he will build on CSIS’s long track record on technology policy and its role in national security in areas such as digital governance (including cybersecurity, privacy, and surveillance); digital infrastructure (including data centers and telecommunications networks); and emerging areas such as space commerce, digital assets and decentralized finance, and quantum and other forms of unconventional computing.
Check out Matt's first commentary on the Trump Administration's early moves to modernize U.S. technology policy.
