by Stephen S. Roach of Yale University faculty and former president of Morgan Stanley Asia.
The Chinese-American race for AI hegemony, no one is waving an official checkered flag, but the market bets that the US will win. Chipmaker Nvidia recently became the world's first $4 trillion company (and its CEO Jensen Huang has achieved global rockstar status). Microsoft, the largest investor in Openai's for-profit company, isn't far behind at a $3.7 trillion valuation, but early leadership doesn't guarantee victory, especially when it comes to innovation.
Almost a day has passed without a new report on China's extraordinary AI benefits. The US may have opened up new ground with Openai's ChatGpt, but China's Deepseek shocked the world earlier this year with the cost and processing efficiency of the major R1 language models. And this month, Chinese startup Moonshot AI released an impressive Kimi K2 model that surpasses its Western competitors in several key benchmarks. Many factors affect AI racing.
For now, semiconductors are obvious strategic chokepoints addressing America's benefits. Under the “small garden, high fence” policy, the Biden administration has imposed strict restrictions on advanced semiconductor exports. However, this backfires and encourages China's aggressive pursuit to develop its own AI chips.
Ultimately, AI races are likely to make fewer hardware decisions than strategic software breakthroughs. Despite President Donald Trump's newly announced AI action plan, China is well positioned for the long term. The Global Innovation Index 2024 (GII) ranked 11th in China, rating innovation performance from 133 countries on 78 separate indicators. Meanwhile, the US remains third.
The GII framework provides a comprehensive overview of the decline and flow of innovation around the world, but misses the fundamental theoretical research that is an important part of the puzzle. Government stewardship plays an important role here. Unlike private actors motivated by commercial returns, public support gives scientists and other researchers the room to push up the seemingly abstract frontier of knowledge.
On this scale, the United States is dangerously short. Based on official statistics from the National Science Foundation (NSF), the federal share of total US spending on research and development has been on a downward trend since the 1964 Post-Sputnik peak. In particular, for basic research, the federal market share of total expenditures fell from less than 30% in the late 1970s to about 10% in 2023.
What's even more confusing is the Trump administration's attacks on scientific research and higher education (on the surface to abolish diversity, equity and inclusion programs), and the anti-abuse thinking nurtured by America's increasingly worrying sinophobia. According to a detailed R&D rating recently released by the American Association for Advances in Science, Trump's budget proposal for 2026 could cut federal funding for basic research to just $30 billion. This is a 34% decrease from the $4.5 billion projected for fiscal year 2025.
In contrast, China has poured money into advancing its ambitious science and technology agenda, accounting for 28% of global research and development investments in 2023. China's R&D expenditure has increased at an average annual rate of nearly 14% over the past decade, with the most likely convergence of over 3.7% in the US, more than 3.7%, most likely in 2024.
Comparable countries figures for basic research are not readily available, but Jimmy Goodrich, a non-resident expert at the Center for Strategic and International Studies, was stabbed to calculate them. His extrapolation of the growth of trends in China's research and development yields a remarkable conclusion that the Trump administration is in the process of giving away America's long-standing lead in government-supported basic research.
why? Similar questions can be raised about many of Trump 2.0's policy reversals, from tariffs to foreign aid reductions and rollbacks of clean energy initiatives. Most of these actions were outlined in Project 2025 of the Heritage Foundation, the conservative agenda of Trump's second term. However, one of the main objectives of Blueprint was to “advocate, engage and concentrate the American innovation ecosystem.” The Guting for the basic research that followed is something else. On the contrary, it is adjacent to economic and competitive suicide.
Chinese President Xi Jinping is in the opposition. With its predecessors' focus on “scientific development,” XI has long emphasized the importance of basic research as a pillar of China's innovation. In early 2023, he argued that “strengthening basic research is an urgent requirement to achieve greater independence and strength in science and technology, and the only way to become a world leader in science and technology.” However, basic research is a great leveler. Whether the public sector drives the system or not, innovation ultimately flows from discovery.
Genesis: Artificial Intelligence, Hope, and the Human Spirit, a book by the late Henry Kissinger, Craig Mandy and Eric Schmidt argue that “discovery can be the most exhilarating ability of the human species.” Maintaining a culture of discovery requires supporting basic research that is not only abstract and theoretical, but also broadly spurring a wide range of nets. As the inventor of gunpowder and paper, the Chinese have long kept this lesson in mind. Unfortunately, America may be trying to relearn that in the difficult way.
Copyright: Project Syndicate, 2025.www.project-syndicate.org
