Silicon Valley's biggest AI companies have spent years convincing Washington that the United States is locked in an existential race with China over artificial intelligence, and this framing has fundamentally reshaped US policy. Scale AI's CEO ran a full-page ad in The Washington Post the day after Trump's inauguration declaring "America Must Win the AI War." Palantir and other defense contractors have secured billions in government contracts by invoking the same competitive threat. But a forthcoming academic paper reveals a more complicated story: the "race with China" narrative may rest on fundamental misconceptions about China's actual AI priorities, and it appears to be doing real damage to international cooperation at a critical moment.

How Did Tech Companies Turn the China Threat Into Policy?

The narrative emerged in 2017 when China released its "New Generation AI Development Plan," setting a goal to become a world leader in AI by 2030. US defense and tech circles immediately took notice, with think tanks and defense contractors warning of a technological contest as consequential as the space race. Tech companies quickly deployed this framing to head off regulatory oversight. Mark Zuckerberg testified before the Senate in 2018 that restricting American innovation in facial recognition would mean "we're going to fall behind Chinese competitors" with different regulatory regimes.

Mark Zuckerberg

The strategy proved remarkably effective. Defense companies followed suit, invoking China's ambitions to push a larger role for AI in the military. The Department of Defense's AI budget request more than doubled in three years, from roughly $800 million in 2021 to $1.8 billion in 2024. Palantir and Scale AI each secured major government contracts during this period, with Palantir winning up to $10 billion in contracts and Scale receiving a $249 million Department of Defense deal in 2022.

What's the Real Problem With This Narrative?

The concern isn't that China poses no competitive threat. Rather, researchers argue that the race framing may be based on misrepresentations of China's actual capabilities and intentions. According to a forthcoming paper by researchers including those from Oxford's Future of Humanity Institute, the narrative appears to be distorting AI governance debates in both the US and China, crowding out meaningful policy, and undermining international cooperation precisely when it's most needed.

"There's an open secret in DC: attach the word China to anything and you can get it done," said Samm Sacks, a senior fellow at New America.

Samm Sacks, Senior Fellow at New America

The Biden Administration's export control strategy, implemented in October 2022, restricted China's access to advanced chips, semiconductor equipment, and model weights. Key figures who shaped this policy, including Jason Matheny and Tarun Chhabra, had overlapping roles at the Center for Security and Emerging Technology (CSET) and the Office of Science and Technology Policy (OSTP). After ChatGPT's release, administration officials became increasingly concerned with the prospect of artificial general intelligence (AGI), a hypothetical AI system that could match or exceed human intelligence across all domains. This crystallized into a strategy: the US and China were locked in a race toward AGI, and the US had to do everything to stop China from getting there first.

Who Benefits From the Race Narrative?

• Defense Contractors: Companies like Palantir and Scale AI have secured billions in Pentagon contracts by framing AI competition as a national security imperative, directly linking their commercial success to the race narrative.
• Tech Companies Seeking Deregulation: The competitive threat argument has allowed major tech firms to resist AI safety regulations and oversight by arguing that restrictions would handicap American innovation relative to China.
• Government Officials and Think Tanks: Policy makers and researchers at organizations like CSET and RAND have gained influence and funding by positioning themselves as experts on the China threat, with some receiving support from foundations like Open Philanthropy.

The researchers acknowledge that some advocates of the race narrative are genuine believers with legitimate concerns about China's capabilities. However, they note that others are clearly chasing government contracts, looser regulation, and investment returns. The distinction matters because it shapes whether the narrative drives sound policy or policy that primarily benefits specific industries.

What's Happening at the Diplomatic Level?

Despite years of competitive framing, Washington and Beijing are now weighing bilateral discussions on AI governance. According to reporting from the Wall Street Journal, the two countries are considering putting AI on the agenda for a summit between President Trump and Chinese leader Xi Jinping. The deliberations reflect concern that advanced AI competition could become an "arms race of the digital era" and could trigger crises neither side is prepared to manage.

This represents a significant shift. For years, the dominant narrative has been one of zero-sum competition. Now, both sides appear to recognize that some form of dialogue and guardrails might be necessary. When national governments open bilateral AI dialogues, practical outcomes typically include attempts to harmonize safety standards, renewed focus on export controls for advanced chips and models, and pressure on cloud and chip vendors to implement compliance workflows.

What Does This Mean for the Broader Geopolitical Picture?

The shift from a globalized, interdependent economy to what investors call "managed fragmentation" is reshaping how governments think about technology and sovereignty. Rather than viewing AI as a domain where the best ideas and companies win regardless of origin, governments increasingly see AI infrastructure as a matter of national security. This includes not just chips and data, but energy grids, undersea cables, and semiconductor supply chains.

The implications are profound. Supply chains, technology, and capital flows are reorganizing around resilience and control rather than pure efficiency. The US and China are building parallel tech ecosystems, with distinct AI stacks, separate chip supply chains, and competing data governance frameworks. Each side is betting that vertical integration and domestic control will prove more durable than interdependence.

For investors and businesses, sovereignty has become a core underwriting variable. Policy, security, and regulation increasingly shape revenue durability, cost of capital, and exit outcomes alongside traditional business fundamentals. Companies that thrive will be those that can navigate this new landscape of managed fragmentation, where the state is playing offense in determining what gets built, where it operates, and who can own it.

The question researchers are now asking is whether the race narrative, however useful it may have been for securing funding and policy attention, is the right framework for managing AI's development and risks. As bilateral talks begin, the answer to that question may determine whether the US and China can find a path toward cooperation on AI safety, or whether the competitive framing becomes a self-fulfilling prophecy that locks both countries into an escalatory cycle.

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