On Tuesday, Treasury Secretary Scott Bessent stated that the United States would scrutinize open source models from China for indications of intellectual property theft, threatening sanctions against Chinese AI companies if such theft is confirmed. “We’ve seen a lot of talk about open source models coming and threatening the large language models in the US,” Bessent remarked 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.”

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Bessent’s remarks, initially reported by Bloomberg, come as Chinese models—most recently Moonshot AI’s Kimi K3—are gaining in capability and popularity, potentially undermining the business models of leading American AI firms like OpenAI and Anthropic, as well as their capacity to raise additional funding for developing frontier models. On Monday, Axios reported that the Trump administration is considering a total ban on Chinese open source models, though this has been contested by others. For months, AI companies have been cautioning about campaigns by foreign entities to replicate their AI technology and release it as open source. In April, the White House announced it would collaborate closely with AI firms to combat such theft.

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Sanctions from the U.S. against Chinese models would add to the government’s expanding toolkit for maintaining leadership 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 represent a significant escalation in the technological competition between frontier labs and Chinese open-source alternatives. Model distillation, a technique that transfers some capabilities from a larger model to a smaller, easier-to-run system, is at the center of this debate, though not everyone agrees that distilling another company’s model constitutes theft. Earlier this month, Microsoft CEO Satya Nadella criticized major labs for making 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.”

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AI labs’ training practices continue to pose legal risks for these companies. This week, Anthropic received approval to begin paying authors 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. Additionally, some industry voices argue that distillation is not the primary reason China is catching up to U.S. AI firms. “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.,” one insider noted. “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.”