Battlefield: Race for the Future and the Digital Domain

The United States and its allies face a formidable challenge from a rising axis of authoritarian states led by China. Read Lexington’s study as a pdf here.

America began the 21^st Century with a technological edge no other nation could match. However, in 2015, China’s leader Xi Jinping launched a three-part plan to supplant America as the global technology leader. This plan includes:

1.  Investing more than $2.8 trillion to usurp America as the pre-eminent tech powerhouse. Half this investment came in 2020 to 2025 from state-driven funds to advance AI, semiconductor production, and other strategic technologies, while the remaining $1.4 trillion is projected to flow into China’s AI sector by 2030 to secure global leadership.

•  Stealing what they can’t build to help accelerate their gains. Each year, China steals up to $600 billion in pirated software, critical intellectual property (IP), and trade secrets.

•  Making the world increasingly dependent on Chinese technology to give Beijing economic and geopolitical leverage, including through its Belt and Road Initiative and its Digital Silk Road efforts.

China’s efforts are paying off. As competition has accelerated, China has reached parity or surpassed the United States in numerous technologies. These technologies are centered in what economists call the digital economy – the combination of hardware, software, cloud services, e-commerce, internet connectivity, and data that runs most daily life. Together with advanced computing, AI, quantum information science, these sectors form the “digital domain.”

The digital domain is powerful because of its inherent value, its military implications, and because it enhances productivity across all other sectors. According to the U.S. Department of Commerce’s Bureau of Economic Analysis, the digital domain grew strongly in economic value over the past few years. From 2017 to 2022, the digital share of the economy grew at 7.1 percent, adjusted for inflation, compared to just 2.2 percent for the economy generally.

America’s digital domain is now valued at $2.6 trillion and accounts for 10 percent of the U.S. economy. Companies in the digital domain employ 8.9 million people across all fifty states. The core technologies resident in the digital domain are the new wellsprings of American power.

But China is determined to overcome our edge, and winning is not guaranteed. To effectively counter these challenges and secure our technological future, policymakers must focus on accelerating innovation and investment in critical technologies that will define global leadership in the years to come.

The list of authoritarian technological advances grows daily. From powerful artificial intelligence (AI) models like DeepSeek that embed censorship into global tech infrastructure to quantum computing breakthroughs that threaten cybersecurity, China is intent on tilting the digital landscape in its favor.

To secure a future defined by American leadership, prosperity, and democratic values, U.S. policymakers must prioritize accelerating innovation as a key pillar of our nation’s strategy. While there are many partners in this effort, the U.S. private sector is the cornerstone of the innovation ecosystem, driving breakthroughs and fostering a competitive edge through significant investments in research and development (R&D).

As China pursues technological dominance, U.S. policymakers must focus on four key objectives:

1. Accelerating Private Sector Innovation and Investment in Critical Technologies: Foster a supportive environment through incentives, access to capital, R&D, and innovation ecosystems, while securing AI preeminence by fostering both open- and closed-source AI leadership.

• Strengthening Supply Chains and Digital Infrastructure: Strengthen and secure tech supply chains, enhance energy and transmission capacity, bolster cyber defenses, and build a world-class workforce to sustain U.S. technological leadership.

• Implementing Forward-Thinking Policies to Sustain Leadership: Avoid regulatory missteps, ensure supportive policies, engage with allies, and align regulations with public and industry sentiments.

• Promoting Democratic Values and Countering Authoritarianism: Advocate for an open internet, counter digital authoritarianism, strengthen international partnerships, and utilize targeted export controls.

By addressing these objectives, the United States will advance our leadership in global innovation and fortify our national security and economic prosperity while upholding democratic values against rising authoritarian influences.

This is a pivotal moment in history – and a defining opportunity for the new administration and Congress to make AI leadership America’s modern-day moonshot, securing a multi-decade advantage in national security and economic prosperity. But the United States and our allies must choose wisely, as the decisions made today will shape the world for generations. By embracing innovation as a core strategy, fostering collaboration, and working alongside our allies to uphold democratic values, America will once again “meet the moment” and lead the world toward a better future.