One way to resolve these prisoner dilemmas and races to the bottom is through laws that bind all players, in this case an international treaty and founding of something akin to an International Nuclear Energy Agency for AI.
It's not going to be easy, but humans have achieved greater things before.
One idea from AI 2040 is to have China and the US build their data centers on the other's territory, respectively. Together with hardware verification of a slowdown baked into the chips themselves, this could lead to enough verifiability and enforcability of the pause/slowdown/shutdown.
So, as usual, the proposal is to limit what average people can do despite them not having behaved incorrectly nor having the capital to achieve the scaling of the big players, when the big players are the ones causing the harm?
Not to mention the implications for chip hungry developing countries in turning advanced IC fabs into the equivalent of nuclear enrichment facilities.