Analysis by Lowy Institute senior fellow John Edwards has warned of the negative impacts posed by the race between the two superpowers for pre-eminence in critical technology.
The report says the US ambition is to contain China's progress in artificial intelligence by denying the nation's ability to use or make advanced chips.
"The US denial of advanced chips to China is unusual in that the United States must act through other countries because it does not produce the chips it wishes to prevent China producing or acquiring," it reads.
Dr Edwards said this posed a challenge for Australia because if wider export denials were placed on technology to China, the US would expect its allies to follow suit.
"We need to recognise that the US is seeking to stop China's progress in artificial intelligence," he said.
"If AI proves to be as big as a agent of economic transformation as some people suggest it may be, it is economically an issue of great significance to Australia."
This could mean ending "thousands of partnerships" with Chinese academics in medicine and high-tech fields.
"The possible range of additional denials is very wide and would cover a number of areas in which Australia and China has established scientific and technical cooperation," the report reads.
The report says Australia cannot match the increasing subsidies provided to industry by the US, China, and the European Union.
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