Nationalism has emerged as a potent force shaping global tech policy, nowhere more so than in the United States. With Donald Trump returning to the White House for a second term, his vision for America’s technological future is coming into sharper focus.
At home, Trump promises a sweeping deregulatory agenda coupled with industrial policy aimed at boosting domestic tech businesses. Abroad, his administration appears poised to double down on aggressive restrictions aimed at keeping American technology out of China’s hands.
Yet Trump’s grand vision to make America great again overlooks a crucial detail: the cycle of innovation matters hugely for technological progress. The path the US is charting risks fostering a tech ecosystem dominated by mediocre products, such as attention-grabbing social media apps, while failing to nurture the kind of transformative inventions that drive productivity and long-term economic growth.
Joseph Schumpeter, the renowned Austrian economist who popularized the term ‘creative destruction’, identified three key stages of the process. First, there’s innovation—a breakthrough idea or method. In the realm of artificial intelligence, this stage includes the development of neural networks, which laid the foundation for deep learning, and, more recently, the transformer architecture that has powered the rise of generative AI.
Then comes the stage of commercialisation, when disruptive ideas evolve into market-ready products. This is where tools like ChatGPT—applications built on large language models (LLM)—emerge and become accessible to everyday consumers. Finally, there’s diffusion, the phase when the novel technology becomes pervasive, reshaping industries and daily life.
So far, discussions of tech regulation have tended to focus on the later stages of this process, which bring immediate economic benefits, often overlooking the early stage of invention. It is true that regulations to ensure safety, guarantee data privacy and protect intellectual property can raise adoption costs and slow down product rollouts. But these guardrails are less likely to stifle innovation at the invention stage, where creative ideas take shape.
Of course, the prospect of discovering the next commercial blockbuster—something like ChatGPT—may indeed spur future invention, and widespread adoption can also help refine these technologies. But such feedback is likely to be very limited for most products.
Consider the case of Character.AI, a company that developed a popular companion chatbot. While the product has certainly contributed to the diffusion of LLM-based services, it has done little to spur invention. Recently, the company even abandoned its plans to build its own LLM, signalling that its focus remains firmly on diffusion rather than groundbreaking invention.
In such cases, regulations ensuring that innovations are safe, ethical and responsible by the time they reach the market would most likely deliver benefits outweighing the costs. The recent tragedy of a 14-year-old boy who took his own life after prolonged interactions with Character.AI’s chatbot underscores the urgent need for safeguards, especially when such services are easily accessible to young users.
Lax tech regulation also carries a hidden cost: it can shift resources away from scientific discovery, favouring quick profits through mass diffusion instead. This dynamic has fuelled the proliferation of addictive social media apps that now dominate the market, leaving behind a trail of societal ills—everything from teenage addiction to deepening political polarisation.
In recent years, a growing chorus of academics and policymakers has sounded the alarm over the systemic dysfunction of the US tech sector. Yet, despite the high drama of congressional hearings with Big Tech CEOs and a cascade of bills promising comprehensive reforms, the results have been disappointing.
So far, the federal government’s highest-profile effort to rein in Big Tech has centred on TikTok—in the form of a bill that would either ban the app outright or force its Chinese owners to divest. In the realm of data privacy, the most significant measure so far has been an executive order restricting the flow of bulk sensitive data to ‘countries of concern’, China chief among them.
Meanwhile, US authorities have increasingly directed their scrutiny inward to root out espionage. The now-infamous China Initiative, which disproportionately targeted ethnic Chinese scientists, has stoked fear and prompted a talent exodus from the US. Compounding this is a broad visa ban on Chinese students and researchers associated with China’s ‘military-civil fusion’ program. While ostensibly aimed at protecting national security, the policy has driven away countless skilled individuals.
This brings us to the paradox at the heart of US tech policy: simultaneous under- and over-regulation. On one hand, US policymakers have failed to implement essential safeguards for product safety and data privacy—areas where thoughtful oversight could mitigate risks while fostering a competitive environment conducive to cutting-edge innovation. On the other hand, they have adopted an aggressive, even punitive, stance toward US-based researchers at the forefront of scientific discovery, effectively regulating invention itself.
The irony could not be starker: in its bid to outcompete China, America risks stifling its own potential for the next breakthrough technology.
