September 2, 2025
By Daniel Silverberg and Elena McGovern, Co-Heads of Capstone’s National Security Practice
While media attention remains focused on the Israel-Gaza conflict and stalled Ukraine-Russia negotiations, several quieter but strategically significant developments involving China evolved in important ways in August: the U.S.–China rivalry over AI chip dominance, the U.S. Navy’s purchase of autonomous maritime drones, and President Trump’s escalating conflict with Indian Prime Minister Modi. Although foreign policy is typically a secondary election issue, we expect these developments to influence midterm dynamics.
1. Internal wrangling within the GOP on the US/China Chipmaker race
Nvidia’s recent earnings call, coupled with Alibaba’s counter-announcement, highlights the intensifying competition over AI chip supremacy. In the Q3 earnings call, CEO Jensen Huang revealed that Nvidia has not shipped its H20 AI chips to China due to “geopolitical issues.” The H20 chip is central to AI infrastructure, and Nvidia believes that getting Chinese AI companies to use the H20 chip (and future generations of its products) will ensure the US remains the go-to source for global AI infrastructure and standards, rather than China. President Trump – to the consternation of China hawks – handed Nvidia a major win earlier this summer by granting licenses to export H20 chips to China (albeit with a revenue-sharing arrangement), but Chinese authorities responded by restricting Chinese companies from buying the chips, likely to prevent Chinese companies from becoming “too reliant” on US technology. Adding to this complexity, Alibaba reportedly developed a domestic chip capable of replacing the H20, signaling China’s accelerated push toward technological self-reliance.
This fight is highly significant for the midterms because it touches on core voter concerns about China as a strategic rival. Candidates from both parties are likely to use this moment to shape their messaging on technological leadership and economic competition. Democrats may invoke the historical line from 1949, suggesting that “Trump lost China,” and argue that “AI is the next arms race, why are we falling behind?” China hawks (mostly GOP hardliners) will continue to argue for strict export controls to prevent “arming” China with advanced AI capabilities. Silicon Valley and pro-business Republicans and moderates will argue for maintaining U.S. market dominance by allowing companies like Nvidia to sell chips overseas, preserving their global relevance.
Both parties could leverage this issue to push for CHIPS Act expansion, additional onshoring of semiconductor production, and stricter AI export controls, but these measures will be merely symbolic, since the fault lines within the GOP will likely prevent concrete legislative action.
In short, Jensen Huang’s cryptic remark signals more than a supply-chain hiccup; it exposes a strategic tug-of-war that candidates can weaponize to demonstrate toughness on China, support for American tech, and vision for AI leadership.
2. Navy purchase of Saronic Drones Reflects Autonomous Bet in Fight Against China
Saronic, a venture-backed defense technology company, announced in August that the US Navy plans to purchase $400 million of its maritime autonomous drones. These systems, capable of ‘operating in swarms” without human command, are part of the Pentagon’s effort to build an autonomous naval fleet to counter Chinese threats in the Indo-Pacific. While modest in size, the purchase reflects a broader shift toward AI-driven naval platforms and faster, more flexible procurement through Other Transaction Agreements (OTA), highlighting the Pentagon’s embrace of Silicon Valley innovation and innovative procurement mechanisms over traditional defense primes. Further, Ukraine’s drone attack on Russian airfields last spring underscored the urgency for the US military to shift to scalable, long-range unmanned systems that can be mass-produced and help the Navy both extend surveillance and complicate enemy targeting, especially in locations like the Taiwan Strait.
Bottom line, the Saronic purchase is significant because it deepens the acceptance of Silicon Valley technologies at a time when the US is battling China over AI dominance. The military application of AI is far from perfect – recent stories have highlighted the technological challenges the Navy has experienced. These are speed bumps – the Navy and other branches will continue to expand into AI-based autonomous systems. Politically, the Saronic deal provides candidates a tangible example to frame China competition, defense innovation, and American manufacturing as electoral issues, while signaling the ongoing expansion of AI-based autonomous military systems.
3. Modi-Trump Tensions Open Door for Democrats Among Indian Americans
President Trump’s public feud with Prime Minister Modi represents a potential political vulnerability for the GOP among Indian American voters, a demographic that has traditionally leaned Republican. The deterioration of U.S.-India relations in recent months—sparked by Trump taking credit for a Pakistan-India ceasefire and imposing tariffs on India while not acting against China—has fueled Modi’s outreach to China, highlighted by his participation in President Xi’s regional summit on August 31, and heightened Indian American voter sensitivities. Democrats may capitalize on this opening to increase their appeal among Indian Americans, particularly in swing states, framing the issue as “Who Lost India?” Taken together, these developments show that technology, national security, and geopolitics are no longer separate from U.S. electoral politics. The race for AI and semiconductor dominance with China, the shift toward autonomous military systems, and US-India dynamics all have implications for campaign messaging, potential legislative action, and industrial policy, and the midterms will signal the future US trajectory on these issues. Firms that anticipate these shifts and strategically align with policy priorities will be best positioned to capture growth and mitigate risk in an increasingly geopolitically charged landscape.
Daniel Silverberg, Co-Head of Capstone’s National Security Practice
Elena McGovern, Co-Head of Capstone’s National Security Practice
Read more from Capstone’s National Security Practice:
What Comes Next After the US Strikes on Iran?
Trump, Iran, and the GOP’s Foreign Policy Crossroads
A Fractured Front: Why the US-Iran Negotiations Will Stall
