This reads a bit like over-moralizing to me. US labs will continue improving their models because they have to make money in a competitive market. Chinese distillations have arguably improved the status-quo, with Qwen and R1 forcing GPT-OSS to be released to the public. American businesses are competing, and American customers are getting better products because of the competitive pressure on them.

Your purported "prisoner's dilemma" hasn't happened yet to my knowledge, instead we seem to see the opposite. The high-speed development velocity has forced US labs to release more often with less nebulous results. Supporting either side will contribute to healthier competition in the long run.