OPINION:
On Oct. 15, Malaysian authorities seized approximately $12 million in advanced artificial intelligence chips, uncovering a suspected operation to evade export restrictions.
The shipment’s final destination remains unknown, but the seizure exposes a larger problem for Washington: Restricting China’s access to advanced technology is only part of the task ahead. America must also prevent Beijing from turning foreign innovations into industries that displace American competitors.
China’s playbook is nothing new. For decades, Beijing has sought to acquire foreign technology, reproduce it domestically and use government subsidies to challenge Western competitors.
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Through strategies such as Made in China 2025 and its 2017 Artificial Intelligence Development Plan, Beijing has poured billions of dollars into domestic industries. Regional technology hubs provide manufacturing support and subsidized infrastructure. The objective is to reduce dependence on foreign suppliers until Chinese firms can compete internationally at prices that Western companies will struggle to match.
American universities and technology companies have also played an unintended role in China’s rise. Research often supported by American taxpayers is published worldwide, allowing Chinese firms to build on discoveries without bearing the original costs.
Open-weight AI models offer similar opportunities. DeepSeek used Meta’s Llama to develop smaller versions of its R1 reasoning system, demonstrating how American innovations can accelerate China’s progress.
Beijing has also benefited from scientists trained in America. Yang Zhilin, a Carnegie Mellon Ph.D. graduate who worked with researchers at Google and Meta, returned to China to co-found Moonshot AI, the developer of Kimi.
Although legitimate, such activities raise a troubling question: Why should America bear the costs and risks of pioneering technologies only to help create competitors that can commercialize them more cheaply?
Once China acquires foreign technology and reproduces it domestically, the next step is mass production. Subsidies lower manufacturing costs, while Beijing directs state-owned enterprises and domestic firms to adopt Chinese technologies, creating an initial market.
Producers can then expand production and improve their products through widespread use. As costs fall, Chinese firms become more competitive internationally, challenging Western producers without comparable support.
We have seen this before. In solar panels, China built on foreign technology and used government support to develop an industry that now dominates the global market, turning foreign innovation into industrial strength.
Artificial intelligence could be next, and the consequences could be far greater.
America has long led in breakthrough innovation, driven by a culture that rewards experimentation and risk-taking. Unlike China’s state-directed system, American investors finance uncertain ideas, recognizing that failure is part of the process.
Most ventures fail, but successful ones can transform industries and reshape the global economy.
The problem is that inventing a technology and dominating its market are not the same thing.
As technologies mature, greater investment produces diminishing returns, shifting the advantage from inventors to those who can produce more cheaply. This is where China has built a formidable advantage.
A similar shift is emerging in AI, where rising model development costs underscore the importance of affordability and widespread adoption. Although advances in reasoning and autonomous agents offer opportunities for American breakthroughs, technological leadership does not guarantee commercial dominance.
The warning signs are visible. American companies, including DoorDash and Airbnb, have begun adopting lower-cost Chinese AI models. DoorDash’s use of Moonshot AI’s Kimi has drawn congressional scrutiny over security risks.
Still, the greater threat may be economic. As Chinese models gain traction among American businesses, developers can expand market share and improve their products through widespread use. America could continue leading in AI innovation while China increasingly dominates its commercial applications.
Washington has not adequately addressed this danger. Protecting American breakthroughs is essential but insufficient to preserve technological leadership.
The U.S. should encourage AI adoption through targeted tax incentives and affordable computing power. Wider adoption would strengthen domestic demand and help developers improve their technologies while competition lowers costs, without government picking winners and losers.
Washington must also work with allies to restrict China’s access to sensitive technologies and counter industrial subsidies that disadvantage Western companies. Export controls accomplish little if circumvented through third countries.
Time is running out. Once China dominates emerging industries, reclaiming those markets could take decades, if it is possible at all. Our next Congress could shape America’s economic and technological future for generations.
America has proved that it can invent the future. The question is whether it can prevent China from dominating the industries those inventions create. By the time Washington acts, the damage may be irreversible.
• Derek Levine is a professor at Monroe University and the King Graduate School. He is the author of “China’s Path to Dominance: Preparing for Confrontation With the United States” and “The Dragon Takes Flight: China’s Aviation Policy, Achievements, and International Implications.”
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