Who is winning in AI—China or America?

Subscribe to enjoy similar stories. IN 1995, DURING a golden age for globalisation, a business professor from Berkeley coined a cheering term: “the California effect". When companies in wealthy markets face new competition from foreign rivals, argued David Vogel in his book “Trading Up: Consumer and Environmental Regulation in a Global Economy", they do not invariably lower standards, as gloomsters might predict.

Instead, strict rules in a competitive market can trigger a race to the top, including in neighbouring jurisdictions. A case in point involves strict engine-emissions standards imposed by the state of California, America’s most important car market. Rather than make different engines for different states, to take advantage of those with looser regulations, many firms chose to make all their cars to comply with Californian standards.

In 2012 Anu Bradford of Columbia University coined what she called “the Brussels effect". This was her tribute to the rule-making superpowers of the European Union, a vast consumer market stitched together by rules written in Brussels. Multinational firms might chafe at fussy EU regulations, or rage when fined by Eurocrats.

But time and again, they adopted EU standards worldwide. Today the global governance of trade is not enjoying a golden age. Still, the largest economies—America, China and the EU—retain a keen interest in setting global standards.

And for rule-writers in 2025, shaping AI governance is the greatest prize of all. Until this year few would have bet on a Chinese victory in that contest, or the emergence of a “Beijing effect". For many countries, the Communist Party’s record of internet regulation set a forbidding precedent.