Microsoft President Brad Smith has issued a stark warning to US President Donald Trump. He says China is currently winning the artificial intelligence race outside American borders. Smith points out that US companies are falling behind their international rivals in foreign markets.
China's Strategy: Subsidies and Open Models
Smith explains the Chinese government's approach clearly. They use low-cost "open" AI models combined with substantial state-backed subsidies. This strategy gives Chinese firms a significant price advantage. Smith told the Financial Times that China now has competitive open-source models, benefiting from government subsidization that allows them to undercut American companies on price.
DeepSeek's Global Impact
The rapid growth of Chinese AI startup DeepSeek illustrates this pressure. Microsoft's research shows DeepSeek's R1 large language model, released a year ago, accelerated global AI adoption. Its accessibility and low cost made it particularly popular in the global south. This helped China overtake the US in the global market for open AI models that developers can use freely.
In contrast, US tech giants like OpenAI, Google, and Anthropic maintain tight control over their most advanced technology. They profit through customer subscriptions and enterprise deals rather than offering free models.
The African Battleground
Microsoft's research reveals concrete numbers about this competition. Chinese companies hold an 18% AI market share in Ethiopia and 17% in Zimbabwe based on usage data. Smith emphasizes that African countries need more funding from international development banks to build data centers and cover electricity costs to compete effectively.
"If we rely on private capital flows alone, I don't think that will be sufficient to compete with a competitor that is subsidized to the degree that Chinese companies often are," Smith explained regarding competition in developing regions.
African Perspectives on AI Choices
Bright Simons, vice-president at Ghana's IMANI think-tank and an AI expert, offers a different view. He says there's no scientifically rigorous proof that DeepSeek leads in Africa. However, he acknowledges that free Chinese AI systems provide cheaper options that Africans can afford compared to expensive solutions.
"Africans can't afford very expensive solutions apart from open source, so you have to go to Meta's Llama or Chinese options," Simons noted. He also mentioned Africans are developing their own local models like Masakhane and South Africa's InkubaLM.
Markets Where US Technology Faces Restrictions
Microsoft's research shows DeepSeek gains major advantages in countries where American technology faces limitations. The Chinese AI company holds a 56% market share in Belarus, 49% in Cuba, and 43% in Russia according to the study.
DeepSeek surprised Silicon Valley last year with its powerful R1 reasoning model. The company claimed it built this model at lower cost with less computing power. DeepSeek is expected to release a new AI model before the Lunar New Year holiday.
The Growing AI Divide
Microsoft's research reveals a significant disparity in AI adoption. Nearly a quarter of the global north used AI in the fourth quarter of 2025, compared to just 14% of the global south and 16% globally.
Smith calls this growing gap "a cause for concern." He warns that failing to address the AI divide could perpetuate and broaden the economic divide between north and south. He emphasizes this represents an important battleground in US-China competition.
Needed Investments and American Advantages
Smith claims more investment is necessary from multiple sources. Private companies need to build data centers and provide skills training. Governments and financial institutions must contribute funding as well.
"What we do have is, as American companies, a stronger reputation for trust. We have access to better chips than the Chinese companies do... [but] you always have to compete on price," Smith added, acknowledging both American strengths and challenges.
Democratic Values at Stake
Smith issued a final warning about ignoring AI adoption in regions like Africa. These areas have young, rapidly growing populations. Ignoring them could lead to systems that don't support democratic values taking root.
"If American tech companies or western governments were to close their eyes to the future in Africa, they would be closing their eyes to the future of the world more broadly, and I think that would be a grave mistake," Smith concluded.
