The Efficiency Moat: Why China Is Beating the U.S. on AI… And Everything Else

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The Efficiency Moat: Why China Is Beating the U.S. on AI… And Everything Else<br>From electric vehicles to drones to solar to AI, the Chinese are doing what the U.S. used to - investing and competing. Chinese strategy is also predatory, but we could learn a thing or two from them.<br>Matt Stoller<br>May 15, 2026

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Today, Donald Trump is in China negotiating with Xi Jinping, with the possibility of reordering the global economy. As with most of these kinds of summits, the symbolism and pomp is rich. Trump understands imagery, and he brought with him a group of CEOs. In this picture, where Trump is greeted by Chinese Vice President Han Zheng, you can see Elon Musk and Nvidia CEO Jensen Huang in the background.

These men are both worth over $100 billion, and they project Trump’s view that dominant American firms represent the strength of the nation.<br>What has happened so far? Rush Doshi, a savvy China analyst, noted there were few promises here and there, but ultimately not very much has yet occurred.

Rush Doshi@RushDoshi

Day 1 of the Trump-Xi summit is over. Here are my key takeaways from the readouts, interviews, and the banquet.

(1) New Chinese Formulation: Most interesting takeaway for me is that China is out with a new frame for the relationship: “I have agreed with President Trump on a<br>1:22 PM · May 14, 2026 · 56.5K Views

9 Replies · 105 Reposts · 277 Likes

The reason for that is simple - Chinese leaders are happy with the status quo, and they don’t feel there’s any reason to change what they perceive as a winning hand against the U.S. And when I say winning, I mean something specific - they are in the process of monopolizing the industrial base and high tech industries of the entire world. Increasingly everyone depends on China for vital goods, while China systematically removes their need to import anything from anyone else. We saw this most obviously when China cut off rare earth magnets to the U.S. and the rest of the world last year, but the vulnerability exists across many sectors.<br>For a long time, I’ve been labeled a China “hawk” in D.C. parlance. Hawk is often seen as a proxy for war, and that conflation is intentional, because it confuses the left around the world. My concern is not about the need to mobilize for war, China is a nuclear power and there is simply no winning in any conflict. The concern is economic; there are certain important predatory practices that China is using to monopolize industrial production and technological development. I do not want to live in a world where China controls all commerce, because it means very bad things for everyone else.<br>There’s a lot that China does well, and I’m going to talk about that. But first I want to start with why China is a toxic actor in the global economy. If you look at consumer spending in a country, in most countries that share is between 55-65%. The U.S. is at 67% or so. Most of what we produce goes back to the people themselves. China is different; Chinese consumption rates are at roughly 40% of GDP, with about that same amount going to investment. Those are insane levels.

That means Chinese people just don’t get the fruits of what they make. Instead, the Chinese government, mostly through their banking system but also land management policies, takes that capital and gives it to their own local producers of everything from high tech carmakers to plastic Christmas ornaments. To many people, such a system looks benevolent. China is offering cheap solar panels and great cars to a world starved of such products, and doing so without the military aggression of the U.S.<br>But as with Amazon offering cheap prices until it monopolized the e-commerce market, this short-term strategy will not work well for anyone. The Chinese system is organized around having massive levels of unnecessary industrial capacity, which it turns towards waste and exports. To give you a frame of reference, if the U.S. subsidized domestic manufacturing by $7 trillion a year, that would be the equivalent of what China does. No one can compete with that level of state support.

Brad Setser@Brad_Setser

China's auto sector is a near-perfect metaphor for China's economy -- domestic demand is down, quite significantly. But exports are on a rocket ship up -- vehicle exports should come close to reaching 12m this year, car exports 10-11m

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10:21 AM · May 11, 2026 · 128K Views

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This excess capacity is why American manufacturing disappeared. It’s also why manufacturing everywhere from the Philippines to Germany to Russia is disappearing, causing friction globally between China and the entire world. It’s a different type of tension than that between the U.S. which is a chaos agent in the Middle East, but it’s very real. With just a few more years of this trend, the entire global auto industry will be in...