Fighting the Wrong War: How America is Losing the AI Race to China

4 minutes read time.

To hear the Trump administration tell it, the United States is poised to “sustain and enhance America’s global AI dominance.” The White House is full of bold proclamations about “winning the AI race” against China, a contest defined by the quest to be the first to achieve world-changing Artificial General Intelligence (AGI). It is a narrative of strength, vision, and inevitable American victory. It is also a dangerous fiction. A deep look at the administration’s actual policies reveals a strategy so chaotic, self-defeating, and fundamentally misguided that it amounts to a masterclass in how to lose. The United States is not just losing the AI race; it is failing to even comprehend the nature of the battlefield, fighting the wrong war entirely.

Part I: The Hardware Shakedown – America’s Chaotic “Strategy”

The administration’s primary engagement with the AI industry has not been a coherent national strategy, but a series of chaotic, personality-driven interventions that have turned long-term industrial policy into a “game of insider politics.” The most stunning example of this is the President’s personal haggling with Nvidia’s CEO, Jensen Huang, over the price of export licenses to China. As the President himself recounted, the negotiation was not a matter of complex policy, but a street-market haggle: “I want 20 percent,” the President demanded. “Will you make it 15?” Mr. Huang reportedly countered. The deal was struck.

This is not industrial policy; it is a shakedown. This “roller-coaster ride,” as one expert at the RAND Corporation described it, has left the leaders of our most vital industry with no choice but to “grovel for a presidential reprieve with financial promises and gifts.” The result of this failed, top-down strategy is a desperate and reactive game of cat-and-mouse on the ground. As Reuters recently revealed, because the administration’s export controls have failed to stop the bleeding, U.S. authorities are now resorting to secretly planting physical location trackers in high-risk shipments of AI chips—a low-tech, Cold War-style tactic that smugglers are already wise to. This is not the action of a nation leading a technological race; it is the action of a nation that has lost control of its own most valuable technology and is now reduced to chasing its stolen goods around the world.

Part II: China’s “Below the Threshold” War

While the U.S. is mired in this self-inflicted chaos, China is waging a much more patient, strategic, and far more dangerous campaign. According to a recent threat assessment from Microsoft’s intelligence team, China is engaged in a long-term cyber campaign that operates “below the threshold of war.” Its primary target is not military hardware, but the soft tissue of American society: our critical infrastructure.

This is the modern face of strategic warfare. The goal is to coerce and deter the U.S. in a future conflict by demonstrating the ability to cripple our power grids, our financial systems, our supply chains, and our communication networks. The historical precedents are chilling. We have seen what this looks like when the U.S. and Israel reportedly used the Stuxnet worm to physically destroy Iranian nuclear centrifuges, and we have seen it in Russia’s repeated, devastating cyberattacks on Ukraine’s power grid. This is the war China is preparing for, and by all accounts, the one they are already fighting.

Part III: The Strategic Mismatch

The contrast between the two nations’ approaches could not be more stark, and it reveals a profound and dangerous strategic mismatch.

The U.S. administration is focused on short-term, transactional, and personality-driven hardware deals. Its “strategy” is a chaotic blend of tariffs, subsidies, and personal shakedowns, a “roller-coaster ride” that has left its own domestic industry unstable and confused.

China, meanwhile, is focused on a long-term, state-driven, strategic “below the threshold” war against our core infrastructure.

This is a classic strategic blunder of epic proportions. We are building a bigger, better, and more expensive sword, while our adversary is patiently and methodically poisoning our wells. We are focused on the flashy hardware, while they are focused on dismantling the very system that allows that hardware to function.

A Failure of Vision

The Punk administration’s rhetoric of “winning the AI race” is a dangerous distraction from a grim reality. A nation whose industrial policy is dictated by the whims of one man cannot compete with a nation that has a coherent, state-driven, multi-decade plan. While there is a narrow path forward for the U.S. through a renewed and serious diplomatic effort to establish “bilateral crisis management mechanisms” for cyberwarfare, the current administration’s chaotic and transactional approach makes any such progress profoundly unlikely.

The United States is not just losing the AI race; it is, by all available evidence, failing to even show up to the correct event. By focusing on petty shakedowns and political theater while ignoring the far more serious, systemic threat of a strategic cyber campaign, the administration is leaving the nation’s future dangerously exposed.