On Jan. 27, Wall Street was shaken by a trillion-dollar market drop after the Chinese AI company DeepSeek surpassed ChatGPT in popularity, becoming the number one downloaded app on Apple’s iPhone store. What truly rattled the industry was DeepSeek’s claim that it built its latest AI model using a mere $6 million — a fraction of the cost American tech giants spend on AI development.
DeepSeek’s disruptive market entrance comes just weeks after the Biden administration issued a particularly onerous export rule that aimed to regulate the global diffusion of advanced AI chips and models. This rule categorizes countries into three different tiers, classifying 150 countries into a middle tier to which exports of advanced computing chips will be subject to several restraints. Critics have pointed out that this will only lower global demand for United States-designed computing chips and encourage “middle-tier” countries to develop non-U.S. computing ecosystems, weakening U.S. leadership in advanced computing and AI specifically. It’s worth noting that DeepSeek engineers had to work around U.S. chip export restrictions by innovating on outdated Nvidia chips—ironically achieving a breakthrough despite, or perhaps because of, these limitations.
Rather than restricting access to cutting-edge technology and thus, halting the exchange of know-how and ideas, the U.S. should consider a more flexible approach through adaptive regulations and regulatory sandboxes to fuel innovation. These frameworks lower entry barriers for startups and small businesses by reducing compliance costs and encouraging risk-taking and investment. Expanding international cooperation would also allow U.S. businesses to compete seamlessly across borders, reinforcing the country’s leadership in key industries. Overregulation does the opposite: it halts competition and drives innovation elsewhere. DeepSeek’s AI breakthrough may be a cautionary tale of how restrictive laws can backfire.
This regulatory dilemma is not unique to AI; the space industry has long struggled with similar challenges under restrictive export control regimes. The same logic that applies to AI — where excessive restrictions risk backfiring — applies to space technologies, where rigid regulations like the International Traffic in Arms Regulations (ITAR) have made it difficult for American companies to collaborate internationally or maintain a leading role in the commercial space race. The DeepSeek case serves as a timely warning: if the U.S. continues to impose overly restrictive policies on space technology, it risks ceding ground to foreign space competitors just as in AI.
A clear example of this can be seen in synthetic aperture radar (SAR) imaging satellites. SAR technology, which enables high-resolution imaging through cloud cover or darkness, is subject to strict ITAR controls in the U.S., severely limiting its export and international collaboration. However, foreign competitors, such as Finland’s ICEYE, have successfully commercialized SAR satellites without similar restrictions. As a result, while U.S. companies face regulatory barriers that slow innovation and market expansion, foreign companies like ICEYE are gaining a competitive edge in the global space industry. Although export regulations such as ITAR are key to protecting national defense technologies, it’s also fair to say that the complex regulatory framework makes it difficult for the U.S. to maintain its leadership in the commercial space industry.
The DeepSeek case must serve as a wake-up call for the tech and space industry to rethink the increasingly insular approach the U.S. export control regime has adopted. By restricting access to global markets, the U.S. is not only limiting its own companies but also missing out on the exchange of knowledge and expertise that fuels innovation. While safeguarding national security is essential, over-regulation can hinder competitiveness and drive technological progress abroad.
To maintain its leadership in AI and space technology, the U.S. must aim for a better balance between security and innovation. Rather than relying on blanket restrictions, policymakers should adopt flexible regulations that foster strategic partnerships and international collaboration. Otherwise, the DeepSeek lesson may repeat itself in the space industry, with the next major space breakthrough happening far beyond U.S. borders.
Ana Laura Villicaña is an LL.M. candidate in Technology Law and Policy at Georgetown University, a Legal Extern at Aegis Space Law, and a Student Board member at the Association of Commercial Space Professionals. She has also written on regulatory barriers affecting the commercial nuclear space industry.
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