The persistence of the belief among many U.S. experts, pundits, and policymakers that China can never truly catch up technologically and thus poses no fundamental threat, is deeply rooted in a conviction that there is only one “recipe” for innovation success: the Washington Consensus model of free markets, strong IP rights, and limited government. This mindset created a circle of narcissism that led the U.S. to overestimate its long-term advantage over China.
The “One Recipe” Mindset: The Washington Consensus as the Sole Path to Innovation
In the wake of the Cold War, the collapse of the Soviet Union in 1991 reinforced a powerful ideological conviction: liberal democracy and free-market capitalism, often encapsulated by the Washington Consensus, were not merely preferable but the only viable pathways to sustained economic prosperity and technological advancement. Alternative models were widely assumed to be inherently flawed, inefficient, and ultimately destined for failure. This triumphalist perspective framed global development debates for decades, shaping policy prescriptions across both established and emerging economies.
Within this framework, innovation was narrowly conceived as the product of individual genius, disruptive startups, and the competitive pressures of open markets. Intellectual property rights were elevated as the essential safeguard for creativity and progress, while any form of government intervention beyond basic research or minimal regulatory oversight was seen as intrusive, distorting, and likely to stifle economic dynamism. The combination of these beliefs created a worldview in which the market alone was trusted to allocate resources efficiently, reward ingenuity, and drive technological breakthroughs, leaving little room for alternative approaches to industrial policy or state-led innovation. This mindset not only influenced policy orthodoxy but also shaped the broader assumptions about what constituted “true” innovation in the global economy.
Dismissal of Alternative Models
For decades, the dominant economic and innovation framework embraced by U.S. academia and policymakers was rooted in the Washington Consensus, which emphasized the efficiency of free markets, strong intellectual property rights to incentivize innovation, limited government intervention in industry, and openness to global trade and competition. Innovation was largely understood through a Western lens, equated primarily with entrepreneurial ecosystems, venture capital, patent systems, and minimal state interference, as exemplified by Silicon Valley. Within this paradigm, alternative models of development were often dismissed or undervalued. The successes of East Asian “developmental states” such as Japan, South Korea, and Singapore—nations that relied heavily on state guidance, industrial policy, and strategic planning during their formative stages—were frequently downplayed. Early leaders like South Korea’s Park Chung-hee and Singapore’s Lee Kuan Yew, who wielded considerable authoritarian power in Western terms, were seen as exceptions that eventually succeeded only after adopting more market-oriented policies, rather than as evidence of a viable state-led developmental approach.
China, in particular, was perceived as a deviant case. Its state-driven industrial policies, strategic planning, heavy government investment, and reliance on state-owned enterprises did not fit the Washington Consensus template. This led many experts to characterize China’s system as inefficient, corrupt, or unsustainable, with the implicit assumption that without liberal democracy, open IP regimes, and free markets, large-scale technological innovation could not occur. China’s early growth strategy, heavily reliant on export-oriented manufacturing and technology transfer—both legitimate and illicit—reinforced the stereotype of the country as a “copycat,” incapable of producing true, groundbreaking innovation. This perspective overlooked the strategic intent underpinning China’s approach: to learn, absorb, and eventually leapfrog, demonstrating that the dominant Western model was neither the sole nor necessarily the superior path to technological and economic advancement.
The “Smiling Curve” Fallacy
The belief that the United States could retain the high-value segments of the production chain—design, research and development, and intellectual property—while outsourcing the so-called “low-value” manufacturing proved to be both alluring and deeply misleading. This notion drew intellectual legitimacy from Stan Shih’s “smile curve” theory, which depicted the highest value in the production process as concentrated at the two ends, in innovation and branding, while manufacturing occupied a lower-value trough. U.S. policymakers and corporate strategists embraced this framework as a rationale for deindustrialization, assuming that by focusing on innovation and services, the nation could sustain technological supremacy without maintaining domestic production capabilities.
Yet this interpretation represented a profound misreading of Shih’s insight. The smile curve was descriptive, illustrating how value is distributed across the production chain, not prescriptive, indicating where a nation should concentrate its efforts. In practice, design, process engineering, and manufacturing are deeply intertwined, each driving iterative learning, innovation, and operational refinement. By relinquishing the manufacturing end, the United States forfeited the ecosystem of tacit knowledge, process feedback, and industrial depth that sustains the high-value segments of the curve. What was imagined as a post-industrial strategic advantage instead exposed a structural vulnerability, undermining the very foundations that support innovation and long-term technological leadership.
Intellectual Echo Chamber
In U.S. academic and policy circles, market-centric theories of innovation and economic development became deeply entrenched, creating a self-reinforcing intellectual environment. Scholars who challenged this prevailing orthodoxy or highlighted the strengths of alternative models, such as state-led or coordinated industrial strategies employed by other nations, often found themselves marginalized or excluded from mainstream discourse. Over time, this fostered a form of groupthink, where warnings about the rising innovation potential of countries like China were either ignored or dismissed as misguided. The echo chamber of consensus amplified existing assumptions, leaving little room for critical reflection or the consideration of competing perspectives.
This mindset also contributed to a broader overconfidence within U.S. academia and policymaking. The nation’s historical achievements, particularly in the information technology sector, reinforced a sense of technological exceptionalism—a belief that the U.S. possessed a unique and enduring “secret sauce” for innovation that could not be replicated elsewhere. Coupled with this was a systematic underestimation of domestic vulnerabilities, including the hollowing out of the industrial base, weaknesses in STEM education, and chronic underinvestment in public infrastructure. While China was methodically addressing these gaps, the United States largely presumed its advantages were permanent, overlooking the structural shifts underway that would challenge its global technological dominance.
The convergence of intellectual insularity and overconfidence created a dangerous blind spot. By valorizing past successes and discounting alternative developmental pathways, U.S. thought leaders cultivated a complacent narrative, leaving policymakers ill-prepared to recognize or respond to the rapid and strategic advances of emerging competitors. The result was a combination of academic narcissism and strategic myopia, which together undermined the nation’s ability to anticipate and adapt to a rapidly evolving global innovation landscape.
Misreading China’s “Socialism with Chinese Characteristics”
U.S. analysts frequently misread China’s model of “Socialism with Chinese Characteristics,” interpreting it through the narrow lens of a rigid, failing communist state incapable of adaptation. This perspective overlooked the pragmatic and highly flexible approach of the Chinese Communist Party (CCP), which, particularly under Xi Jinping, has demonstrated a willingness to experiment with market mechanisms while maintaining strict control over the levers of power. As Richard McGregor’s The Party: The Secret World of China’s Communist Rulers highlights, the CCP’s pervasive influence across political, economic, and technological spheres was often underestimated, leading foreign observers to misjudge the party’s capacity for strategic governance and long-term planning.
Equally consequential was the widespread dismissal of China’s state-directed approach to innovation. Programs such as massive R&D investments, targeted industrial policies, talent development initiatives, and strategic initiatives like “Made in China 2025” were often portrayed as inefficient exercises in “picking winners” or mere forms of state capitalism. This interpretation failed to recognize the deliberate, coordinated design behind these efforts, which allowed China to leverage its resources for rapid technological advancement. By underestimating both the CCP’s adaptability and the systematic, top-down orchestration of innovation, U.S. observers overlooked the strategic potential embedded in China’s model, misjudging its trajectory and the pace of its technological progress.
Focus on Immediate Commercial Gains Over Long-Term Strategic Competition
U.S. corporate and financial practices in the late 20th and early 21st centuries often prioritized immediate commercial gains over long-term strategic competitiveness, a phenomenon closely linked to the pressures of “quarterly capitalism.” Firms were drawn to offshoring for its immediate benefits, such as lower production costs and access to the vast Chinese market, often underestimating the strategic risks of transferring knowledge and capabilities to potential competitors. Management decisions were heavily influenced by the imperative to meet quarterly earnings targets, resulting in a pervasive short-term mindset that discouraged long-horizon investments in research and development, talent development, and sustainable innovation. Share prices frequently fluctuated in response to minor deviations in quarterly results, incentivizing speculative behavior and “financial engineering,” including stock buybacks and aggressive accounting practices, rather than fostering genuine value creation.
This short-termism distorted corporate incentives, particularly through compensation structures that tied CEO bonuses and stock options to quarterly performance, motivating managers to manipulate earnings through timing of revenue recognition, cost deferrals, or other accounting maneuvers, as seen in high-profile cases such as Enron and WorldCom. The suppression of risk-taking and innovation became systemic, with firms deferring or abandoning long-term projects whose payoffs would not materialize within the quarter. Pharmaceutical companies delayed early-stage drug development, and manufacturing firms underinvested in automation, collectively contributing to the erosion of U.S. industrial capabilities. In contrast, countries such as Germany and Japan historically cultivated multi-year corporate horizons, emphasizing employee training, technological development, and strategic industrial growth. Unlike China, which pursued a coordinated, long-term national strategy for technological leadership, the U.S. approach remained fragmented, shaped by the short-term pressures of quarterly reporting and electoral cycles, rather than a unified vision of sustained industrial competitiveness.
Strategic Resource Misallocation
The United States risked strategic complacency by overestimating its long-term technological and economic advantage, leading to a misallocation of critical resources. For decades, the U.S. maintained a position of relative dominance, underpinned by robust innovation ecosystems, global financial leadership, advanced military technology, and world-class educational institutions. This sustained superiority, however, fostered a sense of inevitability regarding U.S. leadership, which in turn contributed to underinvestment in key foundational areas such as applied research and development, STEM education, domestic manufacturing capacity, and vocational training. Activities deemed “lower-value” were often left to the private sector, while the economy increasingly prioritized financial services and intangible assets over tangible production capabilities.
At the same time, U.S. policymakers and analysts frequently misread China’s pace and scale of technological progress, regarding the country primarily as a “fast follower” rather than a potential innovation leader. This underestimation, coupled with the embrace of globalization and economic openness, facilitated the transfer of critical technologies to China, accelerating the development of its indigenous capabilities. By neglecting to safeguard strategic areas and by assuming that domestic industrial and research capacity would naturally keep pace, the United States effectively weakened its own long-term competitive position, leaving itself vulnerable to the very shifts in global technological and economic power that it had assumed it would continue to lead.
Transfer of Critical Technology and Expertise
The United States’ long-held perception of China as merely a “copycat” led to a significant underestimation of the strategic implications of technology transfer, joint ventures, and intellectual property (IP) leakage. By assuming that China could not compete at the frontier of innovation, the U.S. inadvertently provided knowledge, tools, and expertise that enabled China to build capabilities in critical sectors, from semiconductors to 5G, AI, quantum computing, and green technologies. This miscalculation, rooted in a sense of technological and economic superiority, created a strategic vulnerability as China rapidly advanced in areas previously thought to be U.S. domains of uncontested leadership.
Yet the notion that China is uniquely aggressive in acquiring foreign technology ignores historical precedents among today’s wealthy nations. Britain’s industrial ascent in the 17th and 18th centuries, for instance, relied heavily on intellectual piracy and industrial espionage. Skilled artisans, machines, and technical knowledge were smuggled from Flanders and the Netherlands, particularly in textile manufacturing, and once Britain had secured its industrial lead, it enacted strict measures such as the 1719 Emigration Act to prevent knowledge from leaving the country. Similarly, the early United States, then considered a developing nation, routinely copied and reverse-engineered European technologies in textiles, steel, and machinery, often flouting patents and intellectual property protections. Samuel Slater, often hailed as the “Father of the American Industrial Revolution,” memorized Arkwright’s textile machinery designs in Britain and replicated them illegally in Rhode Island in the 1790s. In publishing, American entrepreneurs reprinted British works without paying royalties, flooding the market with cheap editions. The U.S. only strengthened copyright and patent laws once its industries had achieved global competitiveness, particularly in the late 19th and early 20th centuries.[1]
In this light, the contemporary U.S. stance on IP protection and free trade reflects a historical double standard. When the U.S. was in a position similar to China’s today, it pursued aggressive technology acquisition and protective policies to build domestic capabilities. Only after securing technological and industrial supremacy did it begin to advocate the virtues of free trade and strict IP enforcement, revealing a pattern of strategic opportunism. The surprise at China’s rapid technological advances is therefore not merely a result of misjudging Chinese innovation but also a failure to recognize historical patterns in the rise of technological powers, including its own.
Creation of Strategic Dependencies
The United States, by overestimating its long-term technological and economic advantage, inadvertently created significant strategic dependencies through the offshoring of critical supply chains. Reliance on Chinese production for essential goods, including pharmaceuticals, rare earth elements, and advanced electronics, left the U.S. vulnerable to supply disruptions, a vulnerability that became starkly evident during the COVID-19 pandemic. The crisis highlighted the depth of this dependence, particularly in areas crucial to public health. For instance, the U.S. discovered that it relied heavily on Chinese factories for personal protective equipment, such as masks, gowns, and gloves, as well as medical devices and components, including ventilator parts. In the pharmaceutical sector, over 80 to 90 percent of the active pharmaceutical ingredients (APIs) used in U.S. generic drugs originate from China or India, with India itself dependent on Chinese intermediates. China produces key antibiotics, such as penicillin, cephalosporins, and azithromycin, along with precursors for vitamins and painkillers. The absence of domestic production capacity for certain antibiotic classes means that any disruption in Chinese supply chains would have immediate and severe effects on U.S. hospital operations.
Beyond pharmaceuticals, the United States also became dependent on China for rare earth elements, which are indispensable for defense systems, consumer electronics, and renewable energy technologies. China controls approximately 60 to 70 percent of global rare earth production and nearly 90 percent of global refining capacity, further consolidating its strategic leverage. This overdependence on a single foreign supplier not only heightened economic risk but also introduced geopolitical vulnerabilities, leaving the U.S. exposed in moments of crisis and raising urgent questions about the resilience of its critical supply chains. In sum, the combination of offshored production, underestimated Chinese capabilities, and insufficient domestic alternatives created a web of strategic dependencies that challenged U.S. national security and economic stability.
Delayed Policy Response
The United States’ delayed policy response to China’s technological rise reflects a deep-seated overconfidence in its own long-term advantage. For decades, many U.S. experts assumed that the American model of innovation and technological leadership was inherently superior and unassailable, fostering a sense of intellectual narcissism. This mindset led to a pervasive underestimation of China’s capabilities, with policymakers and industry leaders often dismissing China as a mere imitator, incapable of developing independent technological strengths. As a result, the strategic foresight necessary to monitor, invest in, or adapt to China’s approaches was largely absent.
This overconfidence was compounded by a failure to fully grasp the deliberate, state-coordinated nature of China’s long-term strategy. From investments in STEM education to industrial policy initiatives and the pursuit of technological self-reliance, China’s methodical approach was often overlooked or misunderstood. The United States further relied heavily on open markets and collaborative innovation, assuming these mechanisms would guarantee its perpetual advantage. This belief underestimated China’s ability to leverage technology transfers, reverse engineering, and indigenous innovation to accelerate its own capabilities. Moreover, U.S. observers frequently expected China to replicate the Silicon Valley model of innovation. When China instead developed a hybrid system that combined robust state support with market dynamics, it confounded expectations and revealed the limitations of a one-dimensional view of technological progress.
The consequences of this misreading became evident as China’s technological ascent gained undeniable momentum, exemplified by leadership in 5G, electric vehicles, and renewable energy. By the time these achievements were clear, the United States was slow to respond, leaving a significant strategic gap. Only recently has Washington begun large-scale efforts to catch up, through initiatives such as the CHIPS and Science Act, the Inflation Reduction Act, expanded R&D funding, STEM education reforms, and tighter technology controls. These measures reflect a belated recognition of the structural and strategic challenges posed by China’s rise, demonstrating that the cost of delayed policy response is far greater than incremental adjustments made after the fact.
Failure to Adapt to a New Geopolitical Reality
During the early decades of the 21st century, the United States struggled to adapt to a rapidly shifting geopolitical landscape, distracted by prolonged military engagements in Iraq (2003–2011), Afghanistan (2001–2021), and, more recently, the Russo-Ukrainian war (2022–present). These conflicts not only diverted attention and resources from emerging near-peer competitors, particularly China, but also eroded strategic focus at a critical moment when Beijing was consolidating its economic, technological, and military strength. U.S. policymakers continued to operate under the assumption that China would eventually liberalize and integrate as a benign “responsible stakeholder” within the existing U.S.-led global order. This belief underestimated China’s methodical state-directed approach and left the United States ill-prepared for strategic competition with a powerful authoritarian rival intent on reshaping global rules to its advantage.
At the same time, longstanding global governance structures, particularly the International Monetary Fund (IMF) and the World Bank, failed to evolve in line with the new economic realities. Despite the Asia-Pacific region accounting for more than 60 percent of global growth and countries like China, India, and members of ASEAN emerging as major economic players, leadership and voting power at these Bretton Woods institutions remain dominated by the United States and Europe. Kishore Mahbubani, a Singaporean diplomat and geopolitical analyst, has repeatedly argued that this institutional inertia undermines the legitimacy and effectiveness of global economic governance. The West’s reluctance to reform these institutions has driven developing nations to establish parallel frameworks, such as the China-led Asian Infrastructure Investment Bank (AIIB) and the BRICS New Development Bank, reflecting a broader shift toward South-led initiatives that increasingly challenge the traditional Western-dominated financial order.
This combination of strategic misjudgment and institutional stagnation highlights a deeper U.S. vulnerability: overconfidence in its long-term advantage and a failure to recognize the speed, scale, and sophistication of China’s rise. By assuming that the status quo would naturally persist, the United States ceded critical ground in both global governance and geostrategic influence, leaving itself exposed to a competitor capable of leveraging economic, technological, and financial instruments in pursuit of long-term strategic objectives.
Conclusion
For decades, many U.S. experts adhered rigidly to the Washington Consensus model of innovation, treating it as the only viable path and dismissing China’s alternative, state-guided approach as inherently doomed. This ideological rigidity fostered a form of intellectual narcissism, leading to a systematic underestimation of China’s capacity for technological advancement. By clinging to the notion of inevitable American superiority, policymakers and academics alike misread the scale, speed, and hybrid nature of China’s innovation system.
As a result, the United States overestimated its own long-term advantages, fostering a period of underinvestment in critical technologies, education, and industrial capabilities. This misjudgment created strategic vulnerabilities that only became apparent as China’s methodical, state-coordinated development transformed it into a genuine technological competitor. The one-size-fits-all mindset, rooted in both the Washington Consensus and assumptions of U.S. exceptionalism, significantly impaired the ability of U.S. institutions to understand China’s unique innovation model and its ambitious long-term goals. Today, the United States is actively struggling to recalibrate its policies, industrial strategies, and educational priorities in response to the challenge posed by China’s rise.
References:
[1] Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, Ha-Joon Chang, 2007