The United States cannot win the AI race against China by simply improving its own capabilities. A comprehensive policy analysis from the Information Technology and Innovation Foundation (ITIF) argues that America must simultaneously limit China's access to critical knowledge, resources, and foreign markets, or risk losing global technological dominance even if domestic innovation accelerates .

This challenges the prevailing Washington narrative that emphasizes "speeding us up" over "slowing them down." The analysis presents more than 100 actionable recommendations for policymakers, arguing that China's state-directed innovation strategy is so powerful that U.S. domestic efforts alone cannot reverse the trend of American technological decline in critical industries .

Why Can't the U.S. Just Focus on Beating China at Its Own Game?

The dominant view in Washington, championed by former Obama Treasury officials and many Silicon Valley leaders, holds that America should ignore Chinese competition and focus exclusively on strengthening its own economy. The logic seems straightforward: if U.S. companies innovate faster and build better products, they'll naturally win market share. But this approach overlooks a critical reality about how modern technology industries actually work .

National economic power industries, such as semiconductors, artificial intelligence, machine tools, and aerospace, operate under a fundamental constraint: competition in these sectors is largely "win-lose." When China gains market share, the United States and its allies lose it. This isn't a zero-sum game where both sides can prosper; it's a competition for dominance in industries that directly determine a nation's geopolitical leverage and economic security .

The problem with a "domestic-only" strategy becomes clear when you examine what happened in industries like solar panels, shipbuilding, high-speed rail, and telecommunications equipment. In each case, Chinese firms captured global market share while Western companies withdrew entirely. Even if the U.S. protected its home market through tariffs or other barriers, Chinese firms would still conquer markets that once belonged to American companies in Europe, Asia, and the developing world .

What Does Limiting China's Progress Actually Mean?

The ITIF analysis identifies five specific categories of action that policymakers should pursue to slow Chinese advancement in critical industries. These go beyond the export controls and tariffs already in place, targeting the underlying sources of Chinese innovation and growth .

• Knowledge Acquisition: Limit Chinese firms' and researchers' access to cutting-edge research from U.S. universities, government laboratories, and private companies through stricter controls on technology transfer and academic collaboration.
• Market Access: Reduce Chinese imports into the United States and restrict Chinese investment in American technology companies that could accelerate their capabilities.
• Mercantilist Policies: Counter the negative effects of Chinese government subsidies, state-directed industrial policy, and other practices that artificially boost Chinese firms' competitiveness.
• Global Competition: Contest Chinese firms in non-Chinese, non-U.S. markets, preventing them from capturing the international sales revenue that fuels further innovation and expansion.

The analysis emphasizes that both knowledge access and foreign market share serve as "jet fuel" for Chinese innovation. Every dollar in revenue that Chinese firms earn from global markets funds their research and development efforts. Similarly, access to Western research accelerates their technological progress. Cutting off these resources simultaneously addresses both the supply side (what China can access) and the demand side (where Chinese firms can sell) of their innovation engine .

Why Won't Pressuring China to Change Its Policies Work?

Some policymakers argue that the real solution is to negotiate with China, asking the Chinese Communist Party (CCP) to abandon its state-directed innovation strategy, reduce industrial subsidies, and respect intellectual property rights. This approach assumes that China's current policies are negotiable positions rather than core strategic commitments .

The ITIF analysis rejects this assumption. China's innovation mercantilism, state subsidies, and technology acquisition strategies are not tactical choices that Beijing might abandon in exchange for trade concessions. They are fundamental to the CCP's long-term goal of achieving global dominance in advanced industries as part of its broader vision for global hegemony. The only way China would change course is if the CCP lost its political dominance, which is not a realistic outcome of diplomatic pressure .

Moreover, U.S. leverage over China has dramatically eroded over the past 15 years. Fifteen years ago, Western nations had sufficient economic and technological leverage to force Chinese policy changes, such as currency revaluation or reduced intellectual property theft. Today, that leverage has reversed. China now holds the leverage, as demonstrated by its threats to restrict exports of strategic minerals essential to semiconductor and battery manufacturing. This shift fundamentally changes what's possible through negotiation .

How Should Policymakers Frame the Challenge?

The analysis argues that all proposed actions against China in the technology and trade space should be judged on a single criterion: do they help or hurt China's ability to boost its national economic power industries? This framing differs significantly from how the Biden administration has justified some recent actions .

For example, the Biden administration imposed 100 percent tariffs on Chinese electric vehicles, citing cybersecurity risks as the primary justification. While cybersecurity concerns are legitimate, framing the issue exclusively in those terms limits the scope of potential policy responses. It restricts action to industries where cyberrisk is demonstrable, excluding the much broader set of advanced technologies that don't involve obvious cybersecurity threats but are equally critical to national power .

A more comprehensive approach would frame the competition explicitly as a struggle for dominance in national economic power industries. This broader framing justifies action across semiconductors, artificial intelligence, aerospace, advanced manufacturing, and other sectors where Chinese dominance would fundamentally shift the global balance of power in Beijing's favor .

What About Complete Decoupling From China?

Some policymakers advocate for "decoupling," a strategy of severing economic ties with China entirely. While production decoupling makes sense in some contexts, the analysis argues that complete sales decoupling is counterproductive .

If the United States blocked all Chinese imports and prevented American companies from selling to Chinese customers, U.S. firms would lose critical revenue streams. For most advanced industries, the domestic U.S. market alone cannot generate enough sales revenue to cover the massive fixed costs of research, development, and manufacturing. Every dollar that American companies earn from Chinese customers is a dollar that doesn't go to Chinese competitors. Cutting off sales to China simply cedes the Chinese market to Chinese firms while reducing the revenue available to American companies for reinvestment in innovation .

The analysis suggests a more nuanced approach: encourage production decoupling, where U.S. firms move manufacturing out of China to other locations, while maintaining sales access to Chinese markets. This preserves revenue for American companies while reducing dependence on Chinese manufacturing infrastructure .

The core argument is straightforward but challenging: the United States cannot afford to choose between strengthening itself and weakening China. Both strategies are necessary. Without simultaneous action on both fronts, American technological dominance will continue to erode, with profound consequences for U.S. geopolitical power in the 21st century.