In May, we examined how the quality of Chinese exports—as measured by the Economic Complexity Index (ECI) developed by Harvard’s Growth Lab—has significantly improved over the past three decades and is now approaching the level of the United States.
China’s dominance in the world’s most strategically important industries is further confirmed by the ITIF’s Hamilton Index, which shows that China not only leads in absolute production terms but also outpaces all but a handful of countries in relative terms showing an LQ higher than one
A region with an LQ greater than 1 in a particular industry means its output in that industry is proportionally larger than its overall share of the economy. This suggests the region is over-specialized in that industry and potentially has a competitive advantage.
This suggests China is over-specialized in in key advanced industries. and potentially has a competitive advantage. In essence, the LQ provides a benchmark for evaluating a region’s relative performance in specific industries, helping to identify areas of strength and weakness in its industrial landscape.
A clear confirmation of this is the growth of Chinese investment in research and development, which is now on par with that of the United States in purchasing power parity terms, as well as the country’s increasing share of PCT (Patent Cooperation Treaty) patents.
The situation becomes even more striking when factoring in Taiwan, whose geopolitical future is arguably the most significant “known unknown”—we may not know when, but there is little doubt it will be absorbed by China in the not too distant future.
U.S. imports from Taiwan have more than doubled over the past two decades, and they primarily consist of high-tech, high-complexity products—Taiwan currently ranks fourth globally on the ECI.
While U.S. technological leadership is clearly at risk, tariffs are not the answer. On the contrary, they may encourage emerging economies like Vietnam to deepen trade and strategic ties with China rather than diversify away from it.
The only effective response to China’s rise, we believe, is to double down on the very foundations that have made the U.S. the world’s leading hub for innovation and home to the largest and most dynamic tech firms: an open economy, abundant opportunities, entrepreneurial freedom, and a world-class university system.
Faith in free markets has historically allowed the best-performing companies to thrive and compete globally—but this would not have been possible without a university ecosystem (According to the Times Higher Education World University Rankings 2025, seven of the world’s top ten universities are based in the United States) capable of attracting top-tier faculty and students from around the world.
In the 2023/24 academic year, the number of international students in the U.S. reached an all-time high of 1.126 million, including nearly 299,000 new arrivals. A significant share came from China (25%) and India, which last year overtook China to become the largest international student community at 29% of the total.
However, merely attracting foreign students may no longer be enough. Increasingly critical is the ability of U.S. universities to produce STEM graduates—those most in demand by the labor market and essential to sustaining the growth of the tech sector.
On this front, China’s efforts are starting to pay off. As of 2020, China was producing more than 3.5 million STEM graduates per year, compared to 820,000 in the U.S. It’s not just the absolute number that is striking, but also the share of STEM degrees: over 40% of Chinese graduates are in STEM fields, compared to just 20% in the United States.
If we focus on STEM PhDs—highly specialized, research-intensive degrees that build on earlier STEM education—China is projected to produce nearly 80,000 by 2025, double the approximately 40,000 expected in the U.S.
Moreover, more than half of U.S. STEM PhDs (around 16,000 of 39,000) will be awarded to international students, a large portion of whom are Chinese and increasingly inclined to return home after completing their studies abroad.
The United States urgently needs to reorient its own students toward STEM education, which is crucial to maintaining leadership in strategic sectors, while continuing to attract the world’s best and brightest students.
Of course, this requires a high-performing university system with a natural bias toward innovation and a growing commitment to research and development investment.
However, recent signals from the White House suggest a shift in the opposite direction—one that could undermine efforts to counter what is arguably the most formidable technological challenge from the East: the race for supremacy in advanced chips and beyond.
