"Freeing up those spots" implies that US students are barred from competing for grad school places or that international students have some advantage that domestic students do not.
They often do have more money. And rampant cheating. But regardless, Chinese students can attend any university in China or the US, while an American cannot realistically attend school in China. Obviously that means China is going to have a brighter educational future, as they use our system to advance their own.
It makes a very big difference in getting there.