The Trump administration is signaling a major escalation in the U.S.-China artificial intelligence rivalry, shifting its focus from restricting advanced chips to potentially targeting Chinese AI models themselves if they are found to have been built using stolen American intellectual property.
U.S. Treasury Secretary Scott Bessent said on Tuesday that Washington would examine Chinese open-source AI models for signs of intellectual property theft, warning that the administration could impose sanctions on Chinese AI companies if such practices are established.
“We’ve seen a lot of talk about open source models coming and threatening the large language models in the US,” Bessent said during an interview on Fox Business. “This administration supports open source models, but what we do not support is IP theft. If we see, especially, that overseas models are stealing from our great companies, we have the ability to sanction them because of this theft.”
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His remarks, first reported by Bloomberg, come at a pivotal moment in the global AI race, with Chinese developers rapidly closing the gap with U.S. frontier AI companies. The comments also suggest the White House is broadening its strategy for maintaining America’s technological lead beyond export controls on semiconductors to the AI software layer itself.
Since 2022, Washington has relied heavily on export restrictions aimed at limiting China’s access to Nvidia’s most advanced AI chips and semiconductor manufacturing equipment. Those measures were designed to slow China’s ability to train cutting-edge AI models.
However, Chinese companies have responded by optimizing software, developing more efficient AI architectures and building increasingly capable models using domestically available hardware.
The latest wave of Chinese models has surprised many industry observers.
Moonshot AI’s Kimi K3, unveiled last week, has been described by the company as the world’s largest open-weight AI model with 2.8 trillion parameters. Other firms including Alibaba, Z.ai, MiniMax and DeepSeek have also introduced competitive open-weight systems this year, many of which deliver performance approaching leading U.S. proprietary models while costing significantly less to deploy.
Their rapid progress has challenged a long-standing assumption among Western analysts that Chinese AI firms lagged their U.S. counterparts by six months or more. As Chinese models gain adoption among enterprises seeking lower-cost alternatives, pressure has mounted on companies such as OpenAI and Anthropic, whose business models depend on premium-priced proprietary AI services.
At the center of Washington’s concerns is model distillation, a technique that enables developers to transfer some of the capabilities of a larger AI model into a smaller and cheaper system. Major U.S. AI companies have repeatedly lamented that foreign competitors are using distillation to replicate the behavior of their frontier models without bearing the enormous costs of developing them from scratch.
The White House said in April it would work with leading AI developers to combat theft of AI technology, acknowledging growing concern that America’s competitive advantage could erode if its models are copied overseas.
Earlier this week, Axios reported that the Trump administration is considering a broad prohibition on Chinese open-source AI models, although others familiar with policy discussions have disputed that such a sweeping ban is imminent.
If sanctions are ultimately imposed, they could represent the first time Washington has directly targeted AI models rather than the hardware used to train them, opening a new front in the technology rivalry between the world’s two largest economies.
Industry Divided Over What Constitutes Theft
Whether model distillation amounts to intellectual property theft remains one of the most contentious issues in artificial intelligence. Many AI companies argue that copying the behavior of proprietary models without authorization undermines years of expensive research and development.
Others disagree.
Microsoft Chief Executive Satya Nadella recently questioned the industry’s position, arguing that AI companies themselves rely on broad access to publicly available information when training their own systems.
“While the great innovation that comes from model providers having fair use rights to train models on public data is needed, I find it ironic that the status quo is to then turn around and impose restrictive terms on distillation,” Nadella said earlier this month.
Some researchers also argue that distillation alone cannot explain China’s recent advances.
Hugging Face Chief Executive Clem Delangue said China’s success stems primarily from strong domestic research capabilities rather than copying Western systems.
“We know distillation to be a very small factor in the ability to create good models, and it’s a practice that everyone is doing, including companies in the U.S.,” Delangue said on TechCrunch’s Equity podcast.
“If it were easy just to do distillation to get good at building AI models, there would be many other countries, including in the U.S., with much better open source AI. The reality is they have really, really good research teams in China… taking a much more open and collaborative approach to AI than in the U.S.”
However, Bessent’s comments indicate that Washington increasingly sees advanced AI models as strategic assets comparable to advanced semiconductors. That position mirrors Beijing’s own evolving policy. Chinese authorities are reportedly considering tighter export controls on advanced AI technologies and model weights while exploring measures to limit overseas access to China’s most advanced AI systems.
As both governments move to protect their domestic AI champions, the competition is evolving beyond hardware and into control over the software, algorithms and data that underpin next-generation artificial intelligence.
If the United States ultimately sanctions Chinese AI developers over intellectual property concerns, it would mark a significant expansion of the technology conflict, potentially affecting the global adoption of Chinese open-source models and further fragmenting the international AI ecosystem.