Lithium iron phosphate batteries for electric vehicles, solar panels, and three-dimensional LiDAR systems for self-driving cars all emerged from American research - yet China now holds near-monopolies on their global production. That pattern represents one of the most dangerous weaknesses in the U.S. innovation system, L. Rafael Reif, president emeritus of the Massachusetts Institute of Technology, argued in a new Foreign Affairs essay, as "Hvylya" reports.
The core problem, Reif wrote, is a lack of patient capital. Innovative startups trying to build physical products based on scientific breakthroughs - often called "tough tech" or "deep tech" - need years and billions of dollars to invent manufacturing processes, build supply chains from scratch, and navigate regulations written for products that did not previously exist. American investors prefer software startups that require less capital and deliver faster returns. Nearly half of all new venture capital funding in 2024 went to software companies.
China fills that gap with state-directed financing. Government guidance funds channel enormous sums into early-stage companies in favored industries. In December, Beijing launched a new fund designed to direct hundreds of billions of dollars into tough-tech firms over the next 20 years. The result is a manufacturing ecosystem that congressional investigators have called unprecedented in scale.
Reif pointed to a specific example of what works when patient capital is available. In 2010, a $465 million Department of Energy loan allowed Tesla to develop its manufacturing facility in Fremont, California - without that funding, the company might not have survived. MIT's own incubator, The Engine, helped Commonwealth Fusion Systems secure initial backing to develop revolutionary superconducting magnets for fusion energy. The company has since attracted $3 billion in funding, and Google has agreed to buy power from its first fusion plant in Virginia.
But government support remains vulnerable to politics. Sublime Systems, another startup from The Engine, received an $87 million Department of Energy grant in 2024 to commercialize low-carbon cement production - a technology that could cut global carbon emissions by eight percent. In October 2025, the Trump administration canceled the grant as part of a broader clawback of climate-related funding, forcing the company to pause construction on its first plant.
Earlier, "Hvylya" examined why China is on track to become the first country in history to face an aging population before achieving broad prosperity.