DeepSeek vs USA: This is how the first shockwave of the AI war wiped $589 billion off US economy

Tech shares plunged and chip maker Nvidia suffered falls of nearly 17% on Monday, as President Donald Trump warned DeepSeek’s emergence was a “wake up call” for existing AI giants.

Nvidia’s drop in share price marked the biggest ever one-day loss in market value on Wall Street, of about 589 billion dollars.

Just a week after its launch, DeepSeek has quickly become the most downloaded free app in the US.

It claims that its large language AI model was made at a fraction of the cost of its rivals, including OpenAI, which uses more expensive Nvidia chips to train its systems on vast swathes of data.

The announcement has raised significant doubts over the future of US firms’ dominance in AI, prompting the sharp falls for Nvidia, as well as tech giants including Microsoft, Meta and Google parent Alphabet, which are all pouring billions into the technology.

The S&P 500 dropped 1.5%, dragged down in large part by the fall from Nvidia.

The S&P 500 dropped 1.5%, dragged down in large part by the fall from Nvidia.

DeepSeek’s claims also affected tech stocks elsewhere, with Dutch chip making company ASML falling 7% and Japan’s Softbank dropping 8.3%.

The FTSE 100 appeared resilient on Tuesday morning, rising 0.21% in early trading.

A Downing Street spokesman said the advancements show the UK must “go further and faster to remove barriers to innovation” in the AI sector.

Asked whether the Government would be open to using Chinese AI such as DeepSeek in Whitehall, the Prime Minister’s official spokesman said: “We’ve got some of the strongest data protection laws in the world and we will always ensure personal data and the operation of public services is handled responsibly and securely.

“But more broadly on the developments over the last few days, the rapid development and breakthrough of new AI models demonstrates exactly why the UK is so focused on AI and why we need to go further and faster to remove barriers to innovation here to make the UK a more competitive market.

“And whilst we’ve already got the third largest AI market in the world, we’ve got an opportunity to get ahead and do more, and that’s what our AI Opportunities action plan is all about.”

The spokesman added he would not “get ahead of specific models” when asked whether he would rule out using Chinese AI in Whitehall.

Analysts said the announcement from DeepSeek is especially significant because it indicates that Chinese firms have innovated faster despite the US putting controls on exports of Nvidia’s most powerful chips to the country.

The news marks a sharp change in fortunes for established AI companies, whose stocks have soared in value in recent years amid hopes they would reshape the world economy and deliver huge profits.

Mr Trump said he was not concerned about the breakthrough, adding that the emergence of DeepSeek could be “a positive” and a “wake-up call” for the US.

“If you could do it cheaper, if you could do it (for) less (and) get to the same end result, I think that’s a good thing for us,” he told reporters on board Air Force One.

Mr Trump also said he wanted to bring in trade tariffs that are “much bigger” than the 2.5% that some reports had suggested were favoured by incoming Treasury Secretary Scott Bessent.

“I have it in my mind what it’s going to be but I won’t be setting it yet, but it’ll be enough to protect our country,” Mr Trump told reporters on Monday night.

It comes as DeepSeek said it was the victim of a cyber attack on Monday that prevented users from registering on its site.

The company said it had suffered “large-scale malicious attacks” on its services but that registered users were able to log in normally.

Kathleen Brooks, research director at investment firm XTB, said: “How does Trump react to a threat against the US AI dominance? He threatens wide-ranging tariffs on foreign-produced semiconductors, pharma and metals.

“Since Nvidia uses chips produced by TSMC in Taiwan, it could be hit by the tariffs.

“However, the 17% drop in its share price on Monday, which led to a record 589bn dollar loss in its market cap, may have gone too far and there are early signs in European trading that Nvidia could stage a recovery on Tuesday.”