The impossible
AI is reshaping both soft power and hard power around the globe. The United States, to its credit, has an early lead with the former. The leading LLMs are trained on Western text, global training and inference are still dominated by American companies, and we are ahead in the global race for market share of total tokens generated.
But as it stands, China is running away with the hard power part of AI – robotics. As the incredible progress in AI continues, we start seeing intelligence embedded in the physical world – culminating in generalist robots that perform a wide variety of tasks across applications, from manufacturing to services to defense. This will redefine every aspect of our society and reshape daily life. The country betting on that future is China, not the US.
In the 10 years since the CCP released its “Made in China 2025” strategy, Chinese companies have leapfrogged the rest of the world’s density of robots per capita. They passed the United States in 2021, then the famously automated economics of Japan and Germany in 2024, and will soon eclipse Singapore and South Korea, their last remaining contenders. In short order China has become the world’s central robotics power. Entirely autonomous “dark factories,” like those of smartphone and automobile manufacturer Xiaomi, operate in complete darkness with no humans present.
China has successfully executed what we once thought impossible. Only ten years ago we scoffed that “China can copy, but they can’t innovate,” which we then revised to, “They can innovate, but they can’t make the upstream high-precision tooling.” Maybe we shouldn’t have been so comfortable, given how Chinese companies had outcompeted the rest of the world in industry after industry – from solar photovoltaics, where competition outside of China has been practically decimated, to 5G, whose global deployment was a massive success for China’s national champion Huawei. The same pattern is playing out now with robotics. China has built a playbook to dominate strategic industries, and has used that playbook to become the robot superpower.
Homegrown Chinese companies now design and fabricate precision parts like harmonic reducers at competitive quality, cheaper prices, and – most importantly – colocated with their customers in manufacturing superclusters. This is the part that should scare the West the most. The colocation of so many robot toolmakers, assemblers, and customers in nodes like Shenzhen or Shanghai is how new combinatorial use cases are discovered, how manufacturing sequences are optimized around that new potential, and how firms develop advanced process knowledge that is completely opaque to the West. In a few years, it will be Chinese companies that are making parts that we cannot replicate – not just at low cost, but at any cost. There are parallels from the past. In the 1970s, Japan shocked the world with Toyota’s lean production methods, just-in-time inventory, and ethic of kaizen, continuous improvement to eliminate waste. Initially dismissed, by the 1980s Japanese automakers had overtaken American and European giants and reshaped the global auto industry. If we do not act to avert it, this will be another Toyota moment, but on a much greater scale.
If we don’t act soon, the United States will find it extremely difficult to catch up: we are approaching a period of compounding improvement that threatens to make China’s advantage virtually insurmountable. As with LLMs, training advanced robotics systems requires pretraining data on the scale of the internet, along with reinforcement learning to train generalist policies that can reason across a wide range of distortions in environment, perception, and task. As data from real-world deployment comes online, the country with more robots gains flywheel momentum; more deployment means more high-quality data which underwrites further deployment. The United States isn’t entirely out of the game, and our lead in AI software carries over: American companies like World Labs are at the forefront of building frontier models that could allow robots to reason about 3D space. But as these capabilities mature, it will be action in the real world – from routing cable harnesses through chassis pathways in electronics assembly to simply doing laundry – that will unlock the economic and strategic promise of generalist robotics.
Micron tolerance
To understand what China has achieved in the past few years, let’s talk about the harmonic reducer – a simple manufactured part that’s deceptively hard to make.
Harmonic reducers are a type of gear system that looks almost like a shoulder or an elbow in its socket. They transfer rotational energy from one end (usually at high speed, from an electric motor) into a much slower gearing, at high torque. They do this by offsetting an inner and outer gear ring that are slightly offset from one another, paired with a rotating oval-shaped piece on the inside. When driven by an electric motor, this creates a waveform that slowly drives the outer socket with a high gear ratio and high torque – suitable for many robotic applications, including humanoid ones.
The challenge in manufacturing these tools comes from how sensitive they are to minute distortions in tooling and operating. They must be made micron-level precise, at low cost, to do their jobs correctly. Even more precision is required when these sockets are chained together into systems with multiple degrees of freedom, like the multiple joints on a robotic finger, hand, or limb. Achieving the strength and dexterity of a human hand, at non-prohibitive cost, requires true manufacturing excellence.
The precision required to manufacture harmonic reducers is well beyond the reach of most machine shops. Production has historically been dominated by highly specialized German and Japanese manufacturers: the Japanese company Sumitomo and the German-Japanese firm Harmonic Drive are the two dominant players in the space, together accounting for 95 percent of global market share. But in the last few years they’ve faced intensifying competition from new entrants from China. A firm called Green Harmonic, based in the city of Suzhou near Shanghai, offers harmonic reducers with performance comparable to products from Sumitomo and Harmonic Drive, but at roughly 30 to 50 percent cheaper price points. Green Harmonic now has more than 30 percent market share within China; and will soon look abroad. In the coming years, we can expect companies like Harmonic Drive to face their “Toyota moment,” with major strategic implications: there are countless cases of Chinese firms translating cheap, reliable manufacturing into global market share and eventually driving competitors out of business.
Harmonic reducers are just one illustrative part of the robotics hardware stack. Creating a fully functioning robot requires a huge variety of other small components – precision bearings that enable smooth joint rotation, custom printed circuit boards that route power and signals between subsystems, specialized connectors that maintain reliable communication in high-vibration environments, miniature encoders that provide millimeter-accurate position feedback, force-sensitive resistors embedded in fingertips for delicate manipulation, inertial measurement units that track orientation changes down to fractions of a degree, servo motors with sophisticated current control algorithms, shielding to prevent electromagnetic interference between tightly packed electronics, thermal interface materials that dissipate heat from high-performance processors, and countless fasteners, gaskets, and protective housings engineered to withstand the mechanical stresses of real-world operation. Each component must be carefully selected not just for its individual performance characteristics, but for how it integrates with the broader system: a single point of failure can render a sophisticated robot completely inoperable.
Chinese companies, from Siasun and Estun in controllers to AVIC Electromechanical in torque sensors, are rapidly entering and starting to win the market for every part of that system. Together, these firms and countless others constitute a sophisticated and mature ecosystem that has allowed Chinese firms to locally source practically the entire robot – not only from within China, but within a megacluster like Shenzhen.
We’re at the point today where Chinese domestic manufacturers and their suppliers contribute all of the parts necessary to bring robotic dreams to life, and iteratively learn from one another. The Chinese startup Unitree has captured the global imagination with highly advanced robots cheaper than anything else offered before – agile and LLM-integrated robot dogs for as little as $1,600, a humanoid for $5,900. Those costs will keep coming down; the robot dogs will keep getting stronger and more capable.
How the West lost “open vs. closed”
How has China converged on the global frontier so quickly? As with other parts of the Chinese industrial sector, state subsidies have helped. Many Chinese cities offer robotics companies complete tax deductions on their research expenses, generous subsidies, and preferential corporate income tax rate. Even though China offers more extensive state support for other strategic sectors like electric vehicles or batteries than for robotics, the cumulative economic assistance certainly helps domestic industry and keeps the Chinese market impenetrable to outside entrants.
But focusing on those subsidies misses the biggest part of the story. The Chinese robotics industry thrives off the unique advantages offered by the Chinese market. The scale of the Chinese industrial sector provides an endless variety of shopfloor scenarios to train and harden robots, and dense industrial agglomerations around Shanghai or Shenzhen provide endless opportunities for colocation and close collaboration at every layer of the supply chain – from component suppliers like Green Harmonic to end-users like BYD. Chinese factories adopt new technologies quickly and benefit from superfast digital infrastructure: they are now among the most networked in the world, filled with high-definition cameras and precision sensors collecting data over low-latency 5G connections. And below that bleeding-layer layer of Chinese industry there is a vast stratum of low-cost, highly-skilled labor that can churn out sophisticated hardware at a cost and speed virtually unmatched anywhere else in the world.
Most importantly, all of this occurs in a dynamic, competitive, and open ecosystem: new firms and technologies enter all the time, with few of the regulatory barriers that exist in other countries. The natural selection of market discipline removes uncompetitive firms rapidly, allowing those companies that emerge as global competitors, like Unitree, to be among the best companies in the world. Chinese entrepreneurs might enjoy state support in strategic sectors, but more importantly they benefit from the breakneck innovation and intense competition of an extremely dynamic open market – all while the CCP is able to keep that market opaque to outsiders and control access to it at will.
The United States was able to win the key industries of the twentieth century for reasons not so dissimilar to why China is winning now: a dynamic and open market, sometimes combined with strategic government support, created epochal American companies that unleashed immense economic value – from Boeing and Lockheed to IBM and Intel. But now we are undermining our historic advantage. Not only are we failing to thoughtfully modernize regulations created to address yesterday’s challenges – before we faced the prospect of a global competition with China – but some policymakers are busy adding new barriers, like administrative requirements for AI startups or restrictive copyright proposals at both the federal and state levels. China is doing everything they can to ensure that they win the industries of the future. The same cannot be said for the United States.
We know where this ends
When Marc Andreessen wrote that “software is eating the world,” few people understood at the time the extent to which every business was about to become a software business and every organization a software interface. The same thing is now happening in the physical world: robotics will simply become every manufacturing business, every part of the physical world.
But the transformations that the internet facilitated took place in a setting where governments recognized the benefits of innovation and encouraged a light-touch regulatory regime. Now they’ll be playing out in the regulation-heavy workplaces and factory floors of the United States. Our “permission-first” regulatory regime in everything from drones to sidewalk delivery robots means that any company interested in robotics will have to spend time and money dealing with lawyers, permits, and endless regulatory approvals. For more established players, agreements with labor unions make automation maximally difficult: dockworkers unions have been fighting against automation for years, helping ensure that American ports are some of the slowest, least automated, and least efficient in the world. Simply put, we are not set up to win.
Given how difficult it is for companies to introduce automation of any kind, it shouldn’t be surprising that many sectors of the American economy are defined more by cost disease and rising prices than by increasing productivity. Construction labor productivity declined by more than 30 percent between 1970 and 2020. Even in manufacturing, which should normally be resistant to cost disease, the United States has seen its labor productivity decline over the last 15 years.
There are no “dark factories” in the United States. The closest that we have is Tesla’s Gigafactory Nevada, which is 90 percent automated. No other major manufacturer comes close. Because our highly restrictive regulatory approach constricts both demand and supply for robots – it’s hard for startups to build them and for enterprises to buy them – the American robotics industry has little global presence. There is no self-sufficient American robotics supply chain. There are robotics companies based in the United States, but they are almost always dependent on Chinese suppliers: products that are labeled “Made in America” will still have core components that originate in China. Even a component sourced from an allied nation will inevitably depend on China – CMOS image sensors, dominated by Japan’s Sony, depend not only on neodymium and dysproprium sourced from Chinese refiners but also on lenses produced by Chinese companies like Sunny Optical.
The trajectory is obvious. Chinese companies are slated to dominate and oversupply market niche after market niche until production is uneconomical for all competitors. Foreign suppliers are feeling the heat of Chinese competition; some have been acquired outright by Chinese firms. KUKA, a massive German manufacturer of industrial robots with roots in Bavaria dating back to 1898, was acquired by a Chinese company in 2016, with the German government changing its foreign direct investment policies only after the acquisition had been approved. There are a few bright spots of resilience – the United States, with the help of Taiwan’s TSMC, maintains an advantage in advanced logic chips, with Nvidia’s Orin the most popular chip powering advanced robotics. But Unitree’s G1, one of the most advanced humanoids on the market, doesn’t use Nvidia chips. It uses the Rockchip RK3588, made in China.
What we need to do
It’s time for the United States to get serious about American robotics. As generalized physical intelligence comes into view and robotics becomes a major force in reshaping countless critical industries, our absent robotics industry will emerge as a critical vulnerability for American strategy. It is not too different from importing all our critical networking and telecom equipment from Huawei.
Domestically, we need to stop shackling our robotics industry. Market discipline from competition with Chinese suppliers could easily be positive for American firms: steel sharpens steel. But in order for American companies to realize those benefits and actually compete, they need the freedom to experiment and iterate so they can truly compete with their Chinese counterparts. We need to go from permission-first to permissionless.
Even if we recalibrate our regulatory policy with an eye toward fostering innovation, we won’t be able to catch up to China in time. Ecosystems can’t be built in a day. But our domestic capacity, when combined with those of allied states like Germany, Japan, and South Korea, can still make up almost the entirety of a robust robotics supply chain, and those weaknesses can be identified and addressed.
As Chinese companies grab market share and displace European and Asian incumbents, our foothold is a wasting asset. The United States and our allies will need to align our interests, identify what we have that works, and let our entrepreneurial businesses get to work.
This is our wakeup call. The leadership of the United States has been bold in defining and defending the AI software stack; now in concert with its most relevant allies it must lay the groundwork for a defensible AI robotics stack. There is time, but not much. The most crucial challenge of the AI race is coming into view. We need to get in the running.
