Introduction
While no one has officially waved the white flag in the US-China race for AI supremacy, financial markets favor the United States. NVIDIA, a chip manufacturer, recently became the world’s first trillion-dollar company, with CEO Jensen Huang achieving global stardom. Microsoft, the largest investor in OpenAI’s for-profit entity, follows closely with a valuation of $3.7 trillion.
Early Leads and Chinese Advancements
However, early leads do not guarantee victory, especially in the realm of innovation. Nearly every day brings news of China’s extraordinary AI advancements. While the US innovated with ChatGPT from OpenAI, China surprised the world earlier this year with DeepSeek’s cost-efficient language model R1 processing. In July, Chinese startup Moonshot AI launched its impressive Kimi K2 model, outperforming Western competitors in several key indicators.
Key Factors Influencing the AI Race
Several factors influence the AI race: powerful NVIDIA chips, talent, software, and strategic focus. Currently, semiconductors are a clear strategic bottleneck benefiting the US. Under the Biden administration’s “small yard, big fence” policy, strict export restrictions were imposed on advanced semiconductors. However, this has backfired, fueling China’s aggressive pursuit of developing its own AI chips.
Strategic Software Advancements vs. Hardware
Ultimately, I suspect that the AI race will be determined less by hardware and more by strategic software advancements. Despite Donald Trump’s recently announced AI Action Plan, China is well-positioned for the long term. The Global Innovation Index 2024 (GII) ranks China 11th in innovation performance among 133 countries, a significant rise from 43rd fifteen years ago. Meanwhile, the US holds steady at third place.
The Importance of Theoretical Basic Research
The GII framework offers a global innovation overview, but it overlooks a crucial aspect: theoretical basic research. Government management plays a critical role here, as public support provides scientists and researchers the freedom to expand seemingly abstract knowledge boundaries.
US Shortcomings in Basic Research Funding
The US has fallen dangerously short in this area. According to the National Science Foundation (NSF) statistics, federal government participation in total US R&D spending has been declining since the post-Sputnik peak in 1964. Specifically, federal government participation in total basic research spending dropped from nearly 30% at the end of the 1970s to around 10% in 2023.
Trump Administration’s Impact on Scientific Research and Higher Education
The Trump administration’s attack on scientific research and higher education (reportedly to eliminate diversity, equity, and inclusion programs) along with the increasingly concerning anti-China sentiment has been even more disconcerting. According to a recent detailed analysis by the American Association for the Advancement of Science, Trump’s proposed fiscal year 2026 budget is likely to drastically cut federal funding for basic research to just $30 billion, a 34% decrease from the projected $45 billion for fiscal year 2025. This would mark a return to levels last seen in 2002, according to NSF metrics.
China’s Investment in Science and Technology
In contrast, China has invested heavily in advancing its ambitious science and technology agenda. In 2023, China accounted for 28% of global R&D investment, just behind the US’s 29%. With China’s R&D spending growing at an average annual rate of nearly 14% over the past decade—more than triple the US’s 3.7%—convergence is likely by 2024.
Extrapolated Chinese Basic Research Funding
Although comparable basic research figures per country aren’t available, non-resident expert Jimmy Goodrich of the Center for Strategic and International Studies attempted to estimate them. His projection based on China’s trending R&D growth suggests that the Trump administration is relinquishing the long-held US lead in government-funded basic research.
Key Questions and Answers
- Q: Why is the US falling behind in basic research funding? A: The US federal government’s participation in total R&D spending has been declining since the post-Sputnik peak in 1964, with basic research funding dropping from nearly 30% to around 10% by 2023.
- Q: How has the Trump administration affected scientific research and higher education? A: The Trump administration’s policies, including attacks on scientific research and higher education, along with anti-China sentiment, have negatively impacted federal funding for basic research.
- Q: What is China’s strategy in the global AI race? A: China has heavily invested in its science and technology agenda, with R&D spending growing at an average annual rate of nearly 14% over the past decade, positioning it well for future convergence with the US.
