China!
The US Sovereign Wealth Fund is coming for your equity 💰🇺🇸🤑
Hi everyone,
Happy Super Bowl Day!
Trump is President and China is back in the crosshairs. Exactly where they should be. On Christmas Day, China launched an AI solution called DeepSeek that is almost as good as OpenAI and Anthropic. We’ll unpack that further.
And, with Trump’s tariffs and other protective measures issued via Executive Order, Chinese companies like Temu and Shein are in code red with their business viability being called into question.
Last but not least, TikTok was supposed to be shut down, but it was saved by Trump’s Executive Order. It’s becoming clearer what Trump has in mind for the future of the Chinese social media juggernaut.
DeepSeek – China’s OpenAI Killer? Or, more Chinese spyware
A tech selloff hit public markets with Nvidia leading the charge after news leaked about a new AI company called Deepseek that had developed foundational AI models on par with the likes of OpenAI and Anthropic. The story went: Deepseek was able to build a competitive technology with 1% of the funding and in less than 6 months. And, everyone ate it up – hook, line and sinker.
From Reuters: “The company has attracted attention in global AI circles after writing in a paper last month that the training of DeepSeek-V3 required less than $6 million worth of computing power from Nvidia H800 chips.”
Forever the China skeptic, I had my suspicions.
And then, more information started to come out. Alexandr Wang, the billionaire and CEO of Scale AI, said that DeepSeek has been using 50,000 Nvidia H100 chips which A) would cost approximately $1.25 billion if buying the GPU’s normally and B) is illegal due to export restrictions to China.
Each H100 Nvidia GPU is approximately $25,000 * 50,000 = $1.25B
However, the US has implemented export bans to prevent Chinese companies from using the most advanced AI chips from Nvidia, ARM, and others. Yet, China is circumventing those bans which means the GPU’s have to cost even more than $25k/each.
All of this is unconfirmed of course, but the story that seems more believable is that this unknown tech startup actually had massive backing by the Chinese state government and others – in the form of capital, manpower, and hardware (the illegal chips). I bet the hedge fund, High-Flyer, that launched DeepSeek had some nice Puts (shorts) on Nvidia and other public companies that were affected and made a nice killing in the process. Nothing is too good to be true – and this DeepSeek thing immediately seemed fishy. Any tech company that uses DeepSeek should expect their code and data to be hacked and sent straight to the CCP.
De Minimis and the USPS
Temu and Shein have built their business on the back of American negligence and laziness. That’s started to change and hopefully is just the beginning. By offering subsidized shipping for international, small package shipments from China – the USPS has long been the sucker for Chinese manufacturers looking to sell their cheap trinkets in the US. That should be going away and will be a huge blow to Temu and Shein’s business models.
Then, the other asinine loophole was De Minimis – which creates a tax-free, duty free classification for small items being shipped into the US. What started in 1938 as an exception for $5 gifts or $1 “other items” has crept up to $800!! I’m curious how much money these politicians who advocated to increase De Minimis over the years received from CCP shell companies.
Reports from Reuters,
“Nearly half of all packages with the de minimis exemptions come from China, and more than 30% of all daily packages shipped under de minimus are from Temu and Shein.”
Fortunately, De Minimis was terminated last week via executive order. And, now Temu is only allowing customers to buy products that are already in the United States.
The USPS has asked Trump to delay the termination of de minimis until they can put an alternative mechanism in place to collect tariffs on all the packages.
Here’s some more fallout:
Shein is rumored to have halted working with FedEx cargo planes
Temu and Shein are saying that they will still be cheaper than American alternatives. Instead of being 40% cheaper, they will be 28% cheaper
Shein’s contemplated IPO for H1 ‘25 now called into question. Was previously announced at a $63B value and to be listed on LSE.
All of this fallout is from the elimination, or upcoming elimination, of de minimus. The subsidized shipping rates by the USPS haven’t been addressed yet. Those will most likely also come into the Trump administration’s crosshairs and provide even more pressure on Temu and Shein and the overall economics of fulfillment out of China.