Without Fundamental Policy Change US Risks Losing Techno-Economic-Trade War With China, New Report Warns

WASHINGTON-The United States is engaged in an existential techno-economic-trade war with China, and absent fundamental policy transformation, it faces a grave risk of losing the advanced production capabilities that underpin national security and economic strength, according to a new report from the Information Technology and Innovation Foundation (ITIF).

China will soon surpass the United States in a broad array of what ITIF calls "national power industries": advanced, traded-sector industries that form the foundation of military strength, economic resilience, and strategic independence. As a result, the United States faces a growing risk of dependence on China for key technologies and products, a shift that would significantly alter the global balance of techno-economic power.

"Washington has not yet come to grips with either the scale of the China challenge or the magnitude of the policy changes required to respond," said ITIF President Robert D. Atkinson, author of the report. "This is not normal economic competition. China is executing a coordinated, long-term campaign to dominate advanced industries. Incrementalism will not stop that trajectory. If the United States fails to act boldly, it will lose core national power industry capabilities-and the freedom of action and security that come with them."

The report emphasizes that marginal improvements to existing policy approaches will not suffice. While it is likely too late for the United States to win the techno-economic-trade war, given China's size and pace of advance, America must and can avoid losing. Doing so will require bold new approaches to strengthen the U.S. techno-industrial-economic system and halt the erosion of U.S. power-industry capabilities.

Taken together, these realities lead to a simple but far-reaching proposition: The organizing principle of U.S. (and allied) techno-economic-trade policy must be bolstering the competitiveness of national power industries to confront the China challenge. That objective must take precedence over competing economic goals and policy principles.

Accordingly, the report argues that competition with China demands new paradigms across major policy realms, including science and research, corporate financing and investment, manufacturing policy, trade, regulation, and more. America's current weakness, it concludes, is not the result of a single failure but of an interlocking system of policies misaligned with the realities of techno-economic competition.

"To avoid losing to China, the United States must put itself on a wartime footing when it comes to technological innovation, economic competitiveness, and trade," said Atkinson. "We say 'avoid losing' because China is a formidable competitor with a massive domestic market and an enormous 'bank account' to subsidize its rise. The West may not be able to stop Chinese firms from leading every industry, but it must avoid losing its own power-industry capabilities. Failure to do so would put the CCP in the driver's seat."

This report is part of an in-depth, multi-year research series led by ITIF's Hamilton Center on Industrial Strategy, with support from the Smith Richardson Foundation. The series examines China's mercantilist predation in strategically critical industries, assesses the erosion of U.S. and allied industrial power, and delivers a comprehensive policy agenda to prevent long-term American decline as China seeks global hegemony. Forthcoming reports will provide detailed recommendations across key policy domains, including science and research, antitrust, finance, workforce and education, and more.

The report urges policymakers to abandon the Panglossian belief that markets alone will generate the industrial capabilities national power requires.

"Markets may optimize GDP, but only by chance will they produce the capabilities national power industries require," said Atkinson. "There is no inherent reason the United States will lead in semiconductors or machine tools in the face of predatory, state-backed Chinese competitors. Policymakers already accept this logic in defense procurement. It's time to extend that thinking to dual-use and enabling industries through well-crafted government programs."

To ensure U.S. firms in strategic industries can compete and succeed globally against Chinese rivals, ITIF calls for a coherent national power industry strategy, guided by five core principles for U.S. techno-economic-trade policy toward China:

1. China is a strategic adversary. Beijing is pursuing dominance across virtually all advanced industries critical to national power, and competition in these sectors is inherently win-or-lose.
2. Losing national power industries to China is not an option. As U.S. and allied capabilities erode, military strength weakens and Chinese leverage over democratic nations grows.
3. Domestic action alone is insufficient. China's techno-economic mercantilism is so powerful that even strong national policies can only slow losses without complementary external measures.
4. Allied action is essential. Considering China's size and wealth, no single country can withstand China's scale and resources alone; the West must act collectively.
5. Incrementalism will fail. Avoiding defeat requires launching a new system of "national power capitalism," redesigning policy from the ground up to match the CCP's challenge.

The report concludes that U.S. policy must start from scratch, as many core assumptions guiding economic and trade policy are rooted in a post-World War II world that no longer exists.

"Throughout history, U.S. policy has undergone major paradigm shifts when circumstances demanded it-from the War of 1812 to the New Deal and the postwar era," said Atkinson. "Today's challenge is no less consequential. Bold change grounded in a new bipartisan consensus may be difficult, but it is what this moment requires."

ITIF will publish additional reports in the National Power Industries Series throughout 2026 and will convene a major policy conference in November to review the findings and chart a path forward.

• Read the report: Robert D. Atkinson, "The Case for Policy Transformation to Avoid Losing the Techno-Economic-Trade War With China" (ITIF, February 2026)
• Explore the series: ITIF's National Power Industries Series
• Save the date: National Power Industry War Conference (November 17, 2026)

Contact: Sydney Mack, [email protected]