Op-Eds/Essays

First published in Foreign Affairs
 

China has long been dismissed as the world’s factory floor—a country that excels at manufacturing technologies invented elsewhere yet unable to invent anything radically new on its own. But it has proved in the past decade that it can be an innovation powerhouse. China is now far ahead of the United States in manufacturing and deploying advanced technologies such as electric vehicles, batteries, wireless telecommunications equipment, humanoid robots, and next-generation nuclear power. China’s rapidly growing pharmaceutical sector has nearly caught up to the United States in its pace of introducing new drugs to the market. And China’s military now has technological capabilities the United States lacks, including what the Pentagon calls “the world’s leading hypersonic missile arsenal.” 
 

China’s success stems from pouring resources into all parts of its innovation ecosystem, from basic scientific research to educating scientists and engineers to commercializing new products. In 2015, Beijing launched an ambitious plan called “Made in China 2025” to accelerate its goal of becoming a global technology leader. By offering massive state support to companies in key sectors, such as information technologies, robotics, and aerospace, Chinese leaders aimed to reduce the economic and national security risks associated with China’s dependency on foreign firms and make its own high-tech firms more competitive. 
 

Ten years since launching Made in China 2025, China has largely succeeded. Its product innovations in electric vehicles, for instance, are so impressive that last year Ford's CEO, James Farley, called China’s electric vehicle industry “the most humbling thing I have ever seen,” with far superior in-vehicle technology, costs, and quality. Even in sectors in which China has failed to dominate, it has made major strides. In semiconductors, China has not managed to manufacture leading-edge chips to train the most advanced artificial intelligence models, but it has built the world’s largest production capacity for legacy chips that are used in cars and ordinary electronics. In its 2025 annual report to Congress, the U.S.-China Economic and Security Review Commission, which analyzes the national security implications of the two countries’ economic relationship, found that “China now possesses a hyper-charged, state-directed manufacturing base without historic parallel.” More direly, the commission also assessed that “China is now positioned to develop and scale new technologies and attain first-mover advantage in many industries of the future.”
 

The United States, meanwhile, has lost its focus. After more than 80 years as the world’s undisputed innovation leader, Washington has failed to fully appreciate the threat posed by China’s increasing domination of the innovation chain—from basic research to high-tech manufacturing. And policymakers’ recent actions are making the problem worse. Instead of rising to the occasion to meet this challenge, the current administration is undermining U.S. strengths in innovation and failing to address its weaknesses. 
 

The United States needs to once again embrace science and innovation as crucial to American strength. This requires investing in basic science, which focuses on expanding fundamental knowledge and which is the source of truly disruptive new technologies. It also means attracting, educating, and retaining the world’s best science and engineering talent. And it demands exploring new ways of turning cutting-edge research into marketable products and scaling them more quickly. China is moving ahead; if the United States fails to correct course, it risks ceding the future to its greatest geopolitical rival.
 

BACK TO BASICS

A commitment to basic science has been at the heart of U.S. technological leadership since the mid-twentieth century. The best innovation generally occurs where the best science occurs. Although humans have been inventing new technologies throughout history, it was only during the Industrial Revolution that technology began spurring sustained economic growth. As the historian Joel Mokyr has shown, the key factor underlying this growth was seventeenth- and eighteenth-century advances in science and the culture of science in the West, which spread knowledge of the principles that explain natural phenomena. Before that, Mokyr writes, “it was a world of engineering without mechanics, iron-making without metallurgy, farming without soil science.” A society that understands why something works can more easily improve how it works, a process that builds on itself and accelerates technological development.
 

In the United States, universities are the largest performers of basic scientific research, and the federal government is its largest funder. Before World War II, universities conducted relatively little scientific research, concentrating instead on their educational mission. But the war forced a reckoning. Vannevar Bush, President Franklin Roosevelt’s science adviser, enlisted academic scientists to develop new technologies—including many that proved key to victory, such as microwave radar, the atomic bomb, and penicillin. When the war was over, Bush urged U.S. leaders to continue to support scientific research at universities. “New products and processes are not born full-grown,” he wrote. “They are founded on new principles and new conceptions which in turn result from basic scientific research.” Bush saw universities as the right place for research to develop these new principles and conceptions. They are under less pressure for immediate and tangible results than industrial laboratories and they are the training ground for young scientists. In the early years of the Cold War, American officials set up agencies such as the National Science Foundation to fund such exploratory research. 
 

This government-university partnership created the world’s greatest and most diverse collection of research universities. The United States not only led in basic research; it also effectively transformed new ideas into foundational technologies, including the Internet and smartphones. Funding from the National Institutes of Health, which supports biomedical research at U.S. universities, medical schools, and academic medical centers, contributed to nearly every drug approved by the Food and Drug Administration between 2010 and 2019. After the Bayh-Dole Act of 1980 allowed universities to own and license discoveries that came from federally funded research and to share the royalties with academic inventors, universities became hives of entrepreneurship, spinning out world-leading companies including Google and Moderna. Studies of Stanford and MIT in the 2010s found that the cumulative revenues of the companies founded by their alumni entrepreneurs would put each institution among the world’s ten largest economies by GDP. 
 

The United States still invests more than any other country in fundamental science. In 2023, according to data from the Organization for Economic Cooperation and Development, the United States spent $78 billion on basic research conducted in university and government laboratories. This is why scientists in the United States have made so many foundational discoveries—everything from the CRISPR genome editing enabling potential cures for genetic diseases to the artificial neural networks powering generative AI. 
 

But U.S. advantages in basic research are under threat. Under President Donald Trump, the government is turning universities from partners into adversaries. Soon after Trump was inaugurated for a second term, in January 2025, the administration hollowed out research funding agencies and froze or terminated research grants at universities. Even after being forced to reinstate thousands of these grants, the administration has disrupted $1.4 billion worth of projects, a January 2026 analysis in Nature showed. The administration is also trying to dismantle the system in which research funds are awarded on merit, often after peer review. Instead, it hopes to institute a system based on political favoritism, offering advantages to universities that submit to its ideological demands. Important research topics that the administration dislikes for political reasons, including climate science and the development of messenger RNA vaccines, are now virtually off-limits to researchers looking for federal support.  
 

China’s leaders, meanwhile, have identified their country’s relative weakness in basic science as an obstacle to homegrown innovation and sought to fix it. Beijing has ramped up its investment in basic research conducted in universities and government labs: between 2013 and 2023, China increased its funding for this research by nearly a factor of four, reaching $57 billion (adjusted for purchasing power parity). And China has no intention of stopping now. Chinese leader Xi Jinping has repeatedly emphasized that strengthening basic science is the key to two of China’s most important goals: technological self-reliance and international competitiveness. China’s 2026 budget draft, released in early March, includes a 16.3 percent increase in central government spending on basic research. 
 

China’s universities now top the rankings for research quality that U.S. universities used to dominate. In 2016, five of the world’s ten most productive universities on the Nature Index—which measures research publications in the most prestigious science journals—were American and just one was Chinese. On the 2025 index, nine out of the top ten universities were Chinese. China is now poised to lead in developing emerging technologies. In 2025, according to the Australian Strategic Policy Institute, China led the world in high-quality research in 66 of 74 strategically significant technologies, including those with a high risk of being monopolized by a single country.
 

CHINA’S GOT TALENT

One of the strengths of the U.S. system of innovation is that it attracts the top scientists and engineers from around the world. On average, over the past 20 years, 38 percent of the science and engineering doctoral degrees awarded by American universities have gone to international students. International students earn the majority of doctorates in computer and information sciences, engineering, and mathematics. They are instrumental in the discoveries and inventions that emerge from university laboratories, and many go on to make important contributions to American science and entrepreneurship. Forty percent of U.S. recipients of the Nobel Prize in chemistry, medicine, and physics in the past 25 years have been immigrants. Immigrants have founded more than half of the country’s startups, valued at $1 billion or more.
 

But federal policies are discouraging universities from producing the next generation of leading American scientists, whether they are born in the United States or abroad. Grant freezes and cuts are forcing universities to reduce the number of graduate students and postdoctoral fellows they support. Harvard, for example, announced that it is halving the number of science Ph.D. students it is admitting this upcoming academic year. Crackdowns on student visas, bans on travel, and overzealous immigration enforcement are also dissuading international students from studying in the United States. 
 

Uncertainty over funding and political attacks on universities have spurred even established researchers to take jobs elsewhere. European universities are reporting unprecedented interest in open positions from U.S. academics. The brain drain is even flowing toward China as numerous U.S. scientific superstars of Chinese origin have returned to work in China. According to CNN, at least 85 U.S. researchers have joined Chinese institutions since the beginning of 2024. In artificial intelligence, a field of intense competition with China, more top researchers are training in China and choosing to work there. An analysis by The Economist found that in 2019, only a third of the researchers at the world’s leading AI conference who completed their undergraduate degrees in China remained there. In 2025, more than two-thirds did. Over the same time period, the share of Chinese researchers who received graduate degrees abroad and then returned to China more than doubled. 
 

China has already surpassed the United States in training scientists. In 2022, the latest year for which data are available, China awarded more than 53,000 doctoral degrees in science and engineering, whereas U.S. institutions awarded fewer than 45,000. With less than a quarter of China’s population, the United States can’t compete with China unless it welcomes international students and makes it easier for them to remain in the country after they earn their degrees. 
 

PATIENCE IS A VIRTUE

In addition to shoring up basic research, Washington also needs to address one of the United States’ long-standing weaknesses: its lack of a coherent strategy for supporting critical new technologies from the time they emerge from research laboratories until they become commercially viable. Many technologies invented and developed in the United States are ultimately manufactured at scale in China. These technologies include lithium iron phosphate batteries for electric vehicles, solar panels, and three-dimensional, real-time LiDAR (Light Detection and Ranging) systems that allow self-driving cars to “see.” China now has near monopolies on these technologies globally, which means it could weaponize them by withholding supply in the event of a geopolitical conflict. 
 

U.S. companies hoping to commercialize emerging technologies still have the advantage of U.S. capital markets, which are unmatched in the world. Private-sector investors provide discipline, helping ensure that funding is not squandered on hopeless projects when it could be better deployed elsewhere. Yet early-stage private investment is often characterized by a focus on short-term gains. Investors typically prefer companies such as software startups that require relatively little investment and offer quick returns. It is no coincidence that nearly half of new venture capital funding in 2024 went to software companies. 
 

Such a short-term approach does not work well for innovative startups trying to build physical products based on science and engineering breakthroughs, often called “tough tech,” “hard tech,” or “deep tech.” Investing early in first-of-a-kind tough-tech companies is risky. These companies have to invent a manufacturing process to go along with their products, and they have to build supply chains from scratch. They need to navigate regulations that were not written for them because the type of product they are making did not previously exist. It can cost billions of dollars and take years to launch a commercial pilot plant. 
 

The United States often lacks the patient capital these companies need. But in China, where the government is the business community’s largest lender and investor, there is plenty, including through public-private investment vehicles called government guidance funds. In December, for instance, Beijing launched a new fund that intends to steer hundreds of billions of dollars over 20 years into early-stage tough-tech companies. This is not to say that China’s model is perfect. Because Beijing’s goal is market domination rather than generating returns, local governments in China often indiscriminately support companies in favored industries. Many promising firms now find themselves competing so intensely that there is a deflationary spiral and massive overproduction. Financing is plentiful in China in state-favored sectors, but high-performing venture capital and private equity fund managers in China dislike funding linked to the government—especially the central government—because of the risk of political interference. And in recent years, Chinese Communist Party leaders have cracked down on entrepreneurs and tried to ensure that state goals guide companies’ decisions, which may prove antithetical to innovation in the long run. But so far, China’s overwhelming investment in its universities, labs, and early-stage companies has more than balanced out the disadvantages of its economic model. 
 

ENGINE OF PROGRESS

When I was the president of the Massachusetts Institute of Technology, I frequently saw that discoveries and inventions generated in MIT laboratories with potentially enormous societal impact were failing to move to the marketplace because of a lack of capital. The same was true at other major research universities in the United States. In response, in 2016, MIT founded an incubator and accelerator called “The Engine” to offer funding from patient investors interested in helping solve global challenges. The Engine also offered startups laboratory space, access to specialized equipment, and a network of experts to get their companies to the point at which more traditional venture capital firms would step in. 
 

The Engine has demonstrated how supporting tough tech can move potentially world-changing technologies toward the marketplace. One of its early portfolio companies was Commonwealth Fusion Systems. Fusion—in which lighter atoms fuse into heavier atoms, releasing tremendous energy—powers the sun and the stars. Fusion has long been seen as the holy grail of clean energy: unlike the fission used in today’s nuclear power plants, it does not produce long-lived radioactive waste, and it cannot cause uncontrolled chain reactions. But fusion requires heating hydrogen plasma to about ten times the temperature of the sun while somehow keeping it confined. Commonwealth’s revolutionary invention is a new high-temperature superconducting magnet that contains this plasma, allowing greater energy production in a smaller apparatus. Because there is no supply chain for such magnets, however, the company needed to build its own factory to make them. With initial support from The Engine, Commonwealth has now attracted $3 billion in funding, and Google has agreed to buy half the power generated by the company’s first grid-scale fusion power plant in Virginia. 
 

The federal government has many of its own programs that are designed to support innovative startups, including the nonprofit venture capital firm In-Q-Tel, established by the CIA, which focuses on intelligence and defense; the Department of Energy’s Loan Programs Office (now known as the Office of Energy Dominance Financing); and the Small Business Innovation Research and Small Business Technology Transfer programs. These have generated many successes. In 2010, for example, a $465 million Department of Energy loan allowed the electric car company Tesla to develop a manufacturing facility in Fremont, California, which it repaid with interest three years later. Without that funding, Tesla might not have survived. 
 

But these programs are piecemeal efforts, and they are too dependent on politics. Innovation policies implemented by one administration are easily undone by the next. One example of this is Sublime Systems, a startup spun out of The Engine. Sublime received an $87 million grant from the Department of Energy in 2024, during the Biden administration, to commercialize an electrochemical process to produce cement that would require less energy and emit less carbon dioxide than traditional production. Because cement accounts for eight percent of global carbon emissions, this is a technology with enormous strategic potential. In October 2025, however, the Department of Energy under the Trump administration canceled the grant as part of a widespread clawback of funds for climate-related projects, forcing Sublime to pause construction on its first manufacturing plant.
 

Other industrial policies are also failing to support needed innovation and commercialization. Research from the Federal Reserve has found that tariffs, which the Trump administration claims will encourage reindustrialization in critical and emerging technology sectors, actually reduce innovation in the long run. Tariffs decrease domestic companies’ incentives to innovate, and they shrink the markets available for their products. The government is also taking ownership stakes in private enterprises, something that in the past the United States usually did only during crises such as the Great Depression and the 2008–9 global financial crisis. Since 2025, the government has taken an equity stake in the technology company Intel; negotiated a so-called golden share in U.S. Steel, which gives it the power to veto company actions it doesn’t like; and demanded a cut of the chipmakers NVIDIA’s and AMD’s sales in China as a condition of offering an export license for more advanced AI chips. Direct state ownership like this can distort markets, making the success of companies a function of political connections rather than quality or potential. And when the government is both regulator and owner, conflicts of interest abound. It can demand equity stakes in return for regulatory approvals, or it can apply looser standards to the companies it owns.
 

A CAPITAL IDEA

These policies and programs cannot replace a coherent strategy to build American industry and compete with China up and down the innovation chain. What the United States needs is a single overarching entity focused on competitiveness that can help fund the industries of the future. This entity would identify critical technologies and offer a long runway to promising startups in those fields. It could also be on the lookout for startups in emerging areas that would represent first-of-a-kind technologies. The goal would be to provide initial capital when the private sector will not. It would complement and coordinate existing agency-specific programs that support innovative startups, and would help finance technologies that fall outside those programs’ remits. Such an institution would offer what The Engine and its spinoff Engine Ventures offer, but at a national level: a large-scale program of patient support to get critical ideas out of the lab and into the marketplace.
 

This organization could take the form of a government corporation, which is an independent federal entity created by Congress that has a public mission but that can generate revenues and potentially be self-sustaining. The Export-Import Bank, for instance, is a government corporation that offers financing for U.S. exporters when private sector lenders are unwilling or unable to support them. Because Congress can determine the details of a government corporation and the parameters of its mission, legislators could focus this new corporation for emerging technologies on the needs of the country in the long term. One way to achieve this would be to appoint a board that serves fixed terms independent of political cycles and that includes business leaders, investors, and academic leaders. 
 

To maximize its impact, this government corporation could offer startups investments, loans, and loan guarantees at the riskiest stages of development, including prototyping, building a first factory, or scaling up. This would encourage private capital to invest by showing that these companies can be commercially viable. The corporation could organize government procurement guarantees—committing the government to buy a certain amount of the product once it is made—which would ensure there is a market in advance and further lower the risks for private investors. It could also help promising startups navigate regulatory obstacles at both the national and state levels and advise Congress on tax policies that promote private investment in tough tech. 
 

This corporation should operate with a venture capital mindset. It should expect that not all its bets will pay off but that even a few successes would reap enormous dividends for national competitiveness. Such a government corporation could help ensure that technologies invented in the United States benefit the American public by creating high-paying jobs at home and by increasing the country’s exports. If it proves impossible to manufacture a crucial emerging technology in the United States because of a lack of industrial infrastructure, supplies, or skills, this type of institution could ensure, at a minimum, that it is manufactured by an ally. 
 

Such a partnership between business and the federal government to develop radically new technologies has a long history in the United States. During World War II, for example, Japan conquered rubber-producing countries in Asia and cut the United States off from its supply of natural rubber. The Reconstruction Finance Corporation—which was formed during the Great Depression to offer emergency lending to banks and other businesses and then pivoted to funding industrial production for defense—created a synthetic rubber industry by getting rubber, oil, and chemical companies to share patents and research. Around the same time, the army asked General Electric to begin manufacturing jet engines, a British invention, which launched an industry that the United States continues to dominate more than 80 years later. More recently, the government-funded Operation Warp Speed led to rapid vaccine discovery, development, and distribution during the COVID-19 pandemic. 
 

The United States needs a similar kind of institutional creativity today. It cannot sit back and hope that China falters. Unless the United States learns the lessons of its history and mobilizes both public and private resources to once again launch, manufacture, and scale frontier technologies, it will fall behind. In that case, China is poised to build new monopolies on a foundation of American weaknesses.