The transistor, the moon landing, the Internet. With every milestone of American innovation, the U.S. has cemented its reputation as global epicenter of progress.
But in recent decades, outsourcing, sluggish federal investment, and regulatory entanglements have raised concerns that the country is losing its edge—and this at a time when China’s technology sector grows more formidable by the year.
Now, the Trump administration has chosen to set up AI firms like Oracle and Open AI as national champions to compete with China through Project Stargate’s USD 500 Billion investment, and related policies.
But will it work?
The stakes are high.
Big Tech's rise isn’t down only to entrepreneurship—state intervention played a role. Cold War-era defense contracts and venture capital shaped its trajectory, while taxpayer-funded research, like DARPA's ARPANET, laid the groundwork for the internet. The 20th century thrived on robust Federal investment, albeit the government’s share of R&D funding decreased after the Cold War.
But Washington continued to help: 1990s privatisation brought competitiveness, but Section 230 of the 1996 Communications Decency Act gave U.S. platforms liability protections absent in Europe. Favorable tax policies, including R&D credits and the 2017 corporate tax cuts, funneled billions to tech giants. Government contracts, such as Amazon's AWS (Amazon Web Services) and Palantir’s work with ICE (Immigration and Customs Enforcement), further solidified Big Tech.
Recently, the CHIPS and Science Act of 2022 earmarked $52.7 billion to rejuvenate domestic semiconductor manufacturing. By 2025, it spurred over $200 billion in private-sector investments, with TSMC alone committing $100 billion to U.S.-based chip plants. Beyond semiconductors, the Inflation Reduction Act injected $369 billion into clean energy and electromobility, although China still dominates with 75% of global lithium-ion battery production.
The U.S. is accelerating innovation: SpaceX cuts launch costs, NASA’s Artemis program eyes a 2026 moon landing, next-gen solid-state batteries promise efficient electric cars, Neuralink’s first human brain-computer interface implant in 2024 and declining genome sequencing costs bolster US biotech, and so on.
And yet, for all this, bureaucratic stagnation remains—by early 2025, much of the CHIPS Act funds were still undisbursed (GAO), and globalisation has eroded U.S. manufacturing; semiconductor production fell from 37% of global supply in 1990 to 12% in 2020.
The advent of AI has been a shot in the arm: since the launch of ChatGPT, Big Tech has grown massively, illustrating the power of the AI promise to attract investment, albeit this may may see a correction :
The National AI Initiative has nearly doubled federal AI R&D funding since 2019, targeting an industry expected to exceed $1 trillion by 2030.
But here again, China is ahead in AI patents and seems to have overtaken US technology with Deep Seek.
Why?
How did the US lose its lead?
Lina Khan, outgoing chair of the Federal Trade Commission, led the charge against Big Tech’s dominance. She sees market dominance of firms like Amazon and Google as having created a hostile environment for startups in which venture funding dries up for any company perceived as a threat:
“While monopolies may offer periodic advances, breakthrough innovations have historically come from disruptive outsiders…behemoths rarely want to advance technologies that could displace…their own businesses.”
This is not entirely true. Economies of scale can be essential to innovation, and “disruptive outsiders” are often not the originators of “breakthrough” technology. As we’ve seen, a great deal of innovation has resulted from the government committing funds to research (which is then refined and commercialized by private firms). But it is certainly the case that smaller, hungry startups tend to be key players in taking a theoretical innovation and making it competitive:
“Google developed the groundbreaking Transformer architecture that underlies today’s A.I. revolution in 2017, but the technology was largely underutilized until researchers left to join or to found new companies…”
It is true that the tech industry in the US is today very far from looking like it did when it was at its most innovative.
Khan’s answer is that “In the arena of Artificial Intelligence, developers should release enough information about their models to allow smaller players…to bring their ideas to market without being beholden to dominant firms’ pricing or access restrictions.”
Yet, her critics argue that breaking up these giants would undo the economies of scale that fund moonshot projects able to compete with China.
The answer to this dilemma is that, in general, state and market complement one another, but only if you get the relationship right: large economies of scale and state funding drive innovation, and private sector competition produces and packages that innovation in ever-cheaper, more usable, marketable forms.
This means China, and not the US, is getting AI right.
The U.S. is pushing for a tech resurgence, but can it reclaim dominance? Long the world-hub of innovation—from transistors, to the internet—decades of outsourcing and stagnation have taken a toll. Now, the CHIPS Act and Project Stargate aim to revive American leadership, but China is still surging ahead. The Big Tech giants have stifled competition by cornering the market, and the US has lost sight of what made it great: Government-funding for R&D, and a competitive environment in which start-ups find ways to better commercialize that innovation. China, on the other hand, is following this very model, and crushing the competition.
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