This is your incorrect perception. The credibility of China around the world (outside the US) as a technology leader is already higher than the US. The current government is only cementing this perception.
(And then frankly half the papers from these vaunted US institutions have author lists that could equally be from Wuhan or Peking university, and a bunch of those will inevitably return to professorships in their native country, not like anyone is funding professors in the US)
But yes in terms of sheer quantity of graduates and and research papers China wins out but what matters is the quality. The US has problems with lousy and even outright false papers but in China it’s endemic.
And to your point, the reason people come to the US from Peking or Tsinghua to do their pHd or postdoc is because of the high quality research, which is why cutting it is so detrimental
And China is absolutely the technology leader.