The US-China Race for AI Leadership: Why Smart Industrial Policy Can Make a Difference?

This thesis compares the role of government policy to promote AI in China and the United States, examining two distinct models of industrial policies – “brute force” versus “selective intervention.” It first assesses the importance of AI through the framework of industrial policy theory, detailing the series of instruments used to implement such plans and the successes and pitfalls of state-intervention. Second, it evaluates the objectives and unique factors of each country’s industrial policy model aimed at AI development. Whereas the Chinese model focuses on “brute force” which is designed to mobilize resources in the pursuit of a government-defined objective, the U.S. model relies on channeling market forces and correcting market failure in short- term, less-intensive, broad, but flexible objectives. The two approaches demonstrate fundamental differences in ideologies, economic institutions, and business-government relations in China and the United States. Finally, it concludes with an assessment of AI development metrics in the two countries, determining which model will likely produce better results in the long run. The research illustrates that the U.S. model towards AI development is ultimately more productive and sustainable as the state is more self- aware of its limitations and works in tandem with market forces to achieve progress