Abstract for: System Dynamics Analysis of AI’s Socioeconomic Impact: Policy Insights on Inequality, Unemployment, and the Rise of DeepSeek

The rapid expansion of AI is transforming economic structures, reshaping labor markets, and intensifying socioeconomic inequality. This study employs a SD model to examine the long-term effects of AI Investment, AI Adoption and Automation on Employment, Income Distribution, and Socioeconomic stability in the United States. Three scenarios are implemented and a key focus is DeepSeek AI, a cost-efficient Chinese AI model that poses a competitive challenge to U.S. technological leadership. This study applies a SD model to analyze AI's reinforcing and balancing feedback loops within the U.S. socioeconomic system. By integrating qualitative and quantitative data, the model provides insights into the long-term implications of AI investment, adoption, and impact on unemployment, income inequality, automation, and more. Specifically, the study examines the disruptive potential of DeepSeek AI, an emerging low-cost Chinese AI model, and its impact on U.S. economic competitiveness. The three scenarios implemented and highlight different AI governance strategies for U.S. policymakers. Results from Scenario 1 suggest that, without intervention, DeepSeek’s expansion may raise U.S. unemployment to 6.5% by 2035 while increasing the Gini coefficient to 0.52, exacerbating income disparity. However, targeted policy interventions such as progressive AI taxation, workforce reskilling, and employment quotas could mitigate these negative effects, lowering inequality (Gini = 0.42) and stabilizing unemployment (4.8%). Implementing progressive AI taxation, comprehensive workforce reskilling, and equitable AI employment policies will help sustain U.S. AI leadership while safeguarding economic stability and social cohesion. AI is not just an economic opportunity but a policy challenge that requires strategic foresight. The decisions made today will determine whether AI serves as a catalyst for inclusive economic prosperity or an engine of social fragmentation. I utilized AI to suggest optimal scenarios for the U.S. socioeconomic system.