Washington has woken up to the importance of AI — and especially to the “AI race” against China. The plan seems to be to unleash a massive data center build, backed by complex corporate partnerships and a highly permissive regulatory environment, paired with some controls on who gets access to cutting-edge chips and frontier AI models like Anthropic’s Fable. But if the goal is to win the tech race, all these policies are just one piece of the puzzle. While artificial intelligence is a potentially transformative general-purpose technology, it’s hardly the only technology that matters.
The US led the world in technological innovation throughout the second half of the 20th century and well into the 21st. But China is directly challenging that leadership now, having spent the past two decades aggressively building out its innovation and industrial capacity. Just 20 years ago, the US led China in 61 of what were then 64 frontier technologies, according to research by the Australian Strategic Policy Institute, a think tank. As of three years ago, China had surpassed the US in 57 of the 64 technologies ASPI considers a priority. In other words, the country that prevails in the current tech race will need to do more than excel in AI.
To meet this challenge, the US must respond with more investment, but in a thoughtful way — by building on its unique capabilities and strengths, rather than trying to match China’s centralized and intrusive approach. But which technologies should the US focus on?
That’s the question we took up in a new book, Priority Technologies: Ensuring US Security and Shared Prosperity, which grew out of a seminar we co-lead at the Massachusetts Institute of Technology. Written by fellow faculty at MIT, its chapters explain that the US can maintain its technological leadership only if it makes advances in technology sectors such as critical minerals, semiconductors, biotechnology, quantum computing, drones and — to power them all — advanced manufacturing.
A few examples from this list illustrate how far the US has fallen, and how it can regain its competitive edge.
‘Invent It Here, Make It There’
In the case of drones, the new critical force in modern warfare, we find a familiar pattern to US industrial development: Invent it here, make it there. As Fiona Murray outlines in her chapter, the majority of essential drone components were invented in the US, Japan and Europe. But when it comes to manufacturing at scale, China stepped in and now makes 70% to 80% of all drones globally, leaving the US highly vulnerable to Chinese trade weaponization (leverage that became clear when China stopped shipping drone parts to US startup Skydio in 2024).
The good news for the US is that over the past two years, the balance in this sector has started to shift. The US has a vibrant set of drone innovators and a nascent industrial production ecosystem in which the public sector (led by the Department of Defense) and the private sector both participate. Success in this space requires not just advanced technology but also scale-up finance, first customers, manufacturing capacity, a workforce to support that capacity, and supply-chain sources outside China. The US innovation and industrial ecosystems for drones are modest in scale today, but through strategic investments and partners like Ukraine — which is driving the frontier of drone innovation — the US can gain ground and advance its domestic capabilities.
Two other areas covered by the book, biomanufacturing and quantum computing, speak to both national security concerns and significant economic opportunities for the US. Given where they are in their lifecycles, each requires a different focus.
The US still leads globally in biotechnology innovations, but as with drones, it lacks the manufacturing capacity and the scale-up financing to capitalize on a sector that is poised to generate more than $4 trillion of value worldwide in the coming decade. The US should invest in the biotech industrial ecosystem (continuous, distributed manufacturing, for example) to match its innovation prowess and avoid ending up with vulnerabilities similar to those it faces with drones or semiconductors.
In the case of quantum computing, the critical goal is to achieve “quantum advantage” — the point at which quantum systems outperform classical computers on practical problems. The US innovation ecosystem is growing and expanding in quantum computing, with the private sector playing a critical role in both research and development, as well as startup investment. Eventually, manufacturing and scale-up will be a concern, but at this stage the challenge is to maintain consistent funding in R&D. The US has the scientists, the labs and the startups; it needs consistent and sustained government funding to advance science and engineering breakthroughs and avoid a “quantum winter” that could set in if private sector enthusiasm were to wane.
Finally, across all these technologies the US needs a strong industrial base. That doesn’t mean bringing back the exact sort of factories that left the US decades ago. It means investing in advanced manufacturing, in which digital technologies are transforming production systems through AI, sensors, robotics and 3D printing. Adoption of advanced manufacturing technologies is arguably the most pressing challenge for US manufacturing. Some 250,000 small and medium-size manufacturers are the backbone of the country’s industrial supply chains. Bringing even 20% of them to the technological frontier would mean transforming 50,000 firms. Unlike China, the US does not have a systematic way to get 50,000 companies to make investments in productivity-enhancing innovations like AI and robotics. It desperately needs subsidies, tax breaks, government procurement and other incentives to push small manufacturers to adopt these technologies.
Resilience Without Isolationism
In our view, the US can regain its competitive footing in each key area on our list. But doing so requires renewed, long-term commitment and a more expanded view of what it will take, from early-stage research to downstream manufacturing. Investments in new fields can provide the scientific and technological breakthroughs that allow the US to run alongside or even overtake China. Scale-up financing and policies that guarantee demand or help companies find their first customers can help bring products to market. Manufacturing capabilities and capacity, hollowed out after decades of outsourcing and offshoring, can ensure the ability to innovate in both products and processes as well as build more resilient domestic supply chains.
None of this is a call for — or even consistent with — isolationism. In the development of any new technology, scale matters. If the US has access to a bigger market, that confers an important advantage. If it can attract talent from around the world, that creates a major edge that China doesn’t have. And if it can work with technology partners in trusted countries — within NATO, for example — that’s a major source of strategic strength.
Nor does this kind of focus require a statist approach to policymaking. What works best in the US is incentivizing scientific and technological breakthroughs on university campuses and then private-sector-led financing for entrepreneurial startups that commercialize the resulting new products. The trick is to also train the next generation of workers at all skill levels, and to carefully invest in specialized regional hubs where innovation and industrial ecosystems come together — ensuring that the manufacturing of new products remains spread around the country, creating prosperity that’s shared broadly.
One final note about AI: Some believe we are on the cusp of a scientific revolution in which “AI scientists” design and execute experiments, discover drugs and perhaps even launch new enterprises. Scenarios like that are intriguing, but they risk framing US prospects for scientific progress merely in terms of how good the country is at AI.
AI will surely affect the way technologies are developed, scaled and deployed going forward. But technological progress has never and will never depend on one input alone — even one as critical and general as intelligence. Invention is important, but technological leadership in the 21st century will go to the country that adopts these new ideas rapidly and applies them in clever ways. And that will require the US to build vibrant innovation and industrial ecosystems that adopt and diffuse new technologies, including AI.
Simon Johnson is a professor at the MIT Sloan School of Management and the recipient of the Nobel Prize in Economics in 2024. He was recently appointed chair of the UK government’s AI Economics Institute.
Elisabeth Reynolds is a Professor of the practice in MIT’s Department of Architecture and Planning and former special assistant to the president for manufacturing and economic development at the National Economic Council.