China has all but caught up. The US is not going to “win” the AI war. Here’s what we should do instead.
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China has all but caught up. The US is not going to “win” the AI war. Here’s what we should do instead.<br>Seven options, considered
Gary Marcus<br>Jul 20, 2026
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Axios coverage of the new model
Three weeks ago, I warned here that<br>“The ultimate culmination of the “no moat => more competitors => price wars => profits are scarce” argument that I have been making here regularly since the summer of 2023, has arrived — and may wreck the U.S. AI industry”<br>Last week, the Chinese company Moonshot.AI announced a model called Kimi K3 that is largely on a par with the best American models, and unlike those models, it is an “open weight” model that consumers will be able to download to run locally (if they have the large-scale hardware to support it) for free. The US stock market dropped partly on this news Friday, and the repercussion are likely to be immense. It’s no fluke, either. Chinese model GLM 5.2 from Z.ai made shockwaves not long before. Alibaba’s new Qwen model may add to the disruption.<br>All this calls the business models of OpenAI and Anthropic into serious question, and may kill or greatly undermine their IPOs. It also casts serious doubt on the never-too-plausible idea that America might “win” the AI race.<br>Ryan Fedasuak (who later went on CNN to discuss) expressed some surprise at this:<br>@AEI:\n\naei.org/foreign-and-de…","username":"RyanFedasiuk","name":"Ryan Fedasiuk","profile_image_url":"https://pbs.substack.com/profile_images/2027839612840734720/V1K7-Qn-_normal.jpg","date":"2026-07-17T15:08:29.000Z","photos":[],"quoted_tweet":{},"reply_count":28,"retweet_count":43,"like_count":168,"impression_count":49900,"expanded_url":null,"video_url":null,"video_preview_media_key":null,"belowTheFold":false}" class="pencraft pc-display-flex pc-flexDirection-column pc-gap-12 pc-padding-16 pc-reset bg-primary-zk6FDl outline-detail-vcQLyr pc-borderRadius-md sizing-border-box-DggLA4 pressable-lg-kV7yq8 font-text-qe4AeH tweet-fWkQfo twitter-embed">
Ryan Fedasiuk@RyanFedasiuk
We can’t ignore what just happened. The American moat in AI software is not as strong as many of us had hoped.
It’s time to recognize the AI race for what it really is: an industrial systems competition to build and install compute.
My latest for @AEI:
aei.org/foreign-and-de…<br>3:08 PM · Jul 17, 2026 · 49.9K Views
28 Replies · 43 Reposts · 168 Likes
But it’s not like anyone should be surprised. The essay I wrote in January 2025 after DeepSeek came out — which one reader last week called “scarily accurate” — pretty much laid it all out. At the time I warned that<br>the US would not achieve a decisive victory in AI over China if they continued to focus largely on LLMs
that we would instead converge on a tie
that the lack of a technical moat would mean that companies like OpenAI would remain unprofitable.
that Nvidia would be vulnerable
that the CHIPS act would backfire, without doing much to hold China back
that models will continue to get more efficient and less expensive, but that hallucinations and reliability problems will persist.
that racing endlessly around LLMs would sap resources that could instead go into developing more original ideas.
That’s basically what has happened. I wish more people had listened.<br>That they didn’t is probably inevitable in government that lacked distance from Silicon Valley, and rarely consulted anyone for an outside opinion. By treating Silicon Valley fantasies as real, US government has massively blundered; the economy is now precarious, the companies they supported seem marginal, and China seems poised to undercut those companies further. We should never have gone all-in on GenAI, which never seemed to offer much in the way of a technical moat, in the first place.<br>A bunch of cheap xenophobic dismissals of China got us nowhere.<br>The question is what should we do now?<br>Well, to begin with, Congress ought to investigate. How did the US squander its lead? Were there strategical or tactical errors made? Was going all in on a single technology that could be replicated foolish? Did US companies do enough to protect their IP? Is the Chinese government subsidizing the Chinese companies, and to what degree? Is espionage from China involved? Are the US companies making good choices? Would investments in US companies likely make money or lose money? Have restrictions on immigration backfired, leading to a talent drain? (Kimi’s founder went to Carnegie Mellon and returned to China. Why?) Are there lessons to be learned for the next iteration of AI, or future technologies such as quantum computation or fusion?<br>But investigation won’t take us far. The real questions are strategic.<br>Here are seven options the Trump administration might consider, ending with a wild card that long-term might do more for the world than any of the first seven.<br>Do nothing . Let OpenAI and Anthropic...