By Asheesh Agarwal:
Artificial intelligence (AI) is driving hundreds of billions of dollars in domestic investment and consumer surplus, but ongoing U.S. leadership is threatened by a surging China and a suffocating patchwork of state overregulation, including a surprising not in my back yard (NIMBY) movement. Those are some notable points raised in Stanford’s comprehensive 2026 AI Index Report. The main takeaway: to maintain American leadership, policymakers must address these challenges soon.
America’s AI Edge
First, the good news. In many ways, AI is living up to its promise as a driver of growth and innovation. In 2025, the U.S. led the world with $285.9 billion in AI investments, 23 times more than China, and 1,953 newly funded AI companies, 11 times more than the runner up.
These private sector investments are juicing the economy. AI is helping to double productivity growth. AI’s various tools, most of which remain free or very cheap, generated an estimated consumer surplus of $172 billion. As AI evolves from a novelty chatbot into a tool capable of handling complex coding and research, the median value per user has tripled.
At the same time, the Index reveals that America’s AI lead is shrinking – and that misguided policy choices soon could leave us falling behind.
The Dragon in the Rearview Mirror
Like the T-Rex in Jurassic Park, China is closer than it may appear. Today, top-tier U.S. models beat their Chinese counterparts by only 2.7 percent, a difference nearly imperceptible for most uses. China now leads the world in AI patents, research articles, and citations. In the realm of “embodied AI,” the disparity is even more alarming: China installs 7.3 times more industrial robots than the U.S. and generates twice as much electricity – the literal lifeblood of AI compute. While America excels at software and capital, China is dominating the physical and structural foundations of AI.
Off the Trail
Instead of working together to address this challenge, some domestic policymakers are steering us in the wrong direction – toward a myriad of regulation that could significantly raise the cost of introducing and operating new AI models. Between 2016 and 2025, for example, the U.S. enacted far more AI bills than any other G20 nation, and 25 times more than China.
Although the federal government has pulled back, we are witnessing a “regulatory surge” at the state level. The total number of AI-related bills passed increased from fewer than 10 in 2020 to 150 in 2025. Some of these bills, such as one enacted in Colorado in 2024, attempt to impose a sweeping regulatory framework on AI use and development.
Individually, each state law can impose significant (and usually unjustified) costs on its own, but together, these state laws are creating a fragmented patchwork of expensive regulatory requirements. An AI startup in Austin now faces a different compliance burden than one in Denver or Boston. While China operates with a unified, state-sanctioned mission, American innovators labor under a “compliance tax” that only the largest tech companies can afford to pay.
Recently, some states such as Maine, and many localities, have started to consider moratoriums on the physical infrastructure that enables AI, the seeds of a dangerous NIMBY movement. In critical hubs like Northern Virginia, Ohio, and Indiana, the buildout of the necessary infrastructure is stalling due to local resistance and power grid constraints.
As the Report notes, this physical infrastructure is an indispensable element for AI. Data centers “are where compute is housed, and their capacity, geographic distribution, and underlying supply chains shape what AI systems can be built and where.” More broadly, such moratoriums could cripple growth for millions of students and workers because the infrastructure ecosystem “is relevant beyond AI capabilities, as it shapes education priorities and workforce development.”
Moreover, this resistance may explain why the U.S. lags in the actual adoption of generative AI. We currently rank 24th globally with a 28.3 percent adoption rate, far behind China. If Americans hesitate to embrace these tools, the productivity gains will accrue elsewhere. As emphasized by last year’s Nobel laureate in economics, ongoing prosperity requires societies to continue to invest in new technologies and embrace the possibilities of change.
A Path Forward
Instead of applying the brakes, we should accelerate AI’s infrastructure with the same urgency as the transcontinental railroad and the interstate highway system. In Washington and the states, policymakers should streamline the permitting process for data centers, secure our energy infrastructure, and, most importantly, resist the urge to overregulate a nascent industry into stagnation.
The choice is stark. If we allow a patchwork of state laws and local opposition to slow our progress, while China doubles down on state-directed growth, we will suffer the consequences for generations. We will lose both the economic race and the ability to define the values, including transparency and freedom, that have defined our nation for almost 250 years. The time for a unified national AI strategy is now.