US Signals Sanctions on Chinese AI Firms Over Intellectual Property Concerns

On Tuesday, Treasury Secretary Scott Bessent announced that the U.S. government would scrutinize open-source models from China for potential intellectual property theft, warning of sanctions against Chinese AI firms if such violations are confirmed.

“We’ve seen a lot of talk about open source models coming and threatening the large language models in the U.S.,” Bessent said on Fox Business Tuesday. “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.”

Bessent’s comments were first reported by Bloomberg.

The statement comes as Chinese models — most recently Moonshot AI’s Kimi K3 — are gaining in capabilities and popularity, threatening to harm the business models of top American AI firms like OpenAI and Anthropic, as well as their abilities to raise more capital to continue developing frontier models.

On Monday, Axios reported that the Trump administration is considering a wholesale ban on Chinese open source models, although others have disputed that claim.

AI companies have been warning for months against campaigns by foreign actors to copy their AI technology and redeploy it as open source. In April, the White House said it would work closely with AI firms to combat the theft.

Sanctions from the U.S. against Chinese models would add to the growing list of strategies the government is attempting to maintain the lead in the AI race. After restricting China’s access to advanced chips and tightening export controls, Washington is now signaling it may target the AI models themselves, a move that could mark a significant escalation in the technological competition between frontier labs and Chinese open source alternatives.

Model distillation is a technique that allows some of a larger model’s capabilities to be translated into a smaller system that’s easier to run — but not everyone agrees that distilling another company’s model constitutes theft.

Earlier this month, Microsoft CEO Satya Nadella criticized large labs for making just this assumption: “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.”

AI labs’ training practices continue to be a source of legal risk for the companies. Anthropic this week got the green light to start cutting authors checks as part of its $1.5 billion settlement after a judge ruled it had illegally downloaded and stored millions of copyrighted books to train its AI.

Furthermore, some in the industry argue that distillation isn’t the only reason China is catching up to U.S. AI companies.

“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.,” Hugging Face CEO Clem Delangue said on a recent episode of 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.”