US Treasury Threatens Sanctions on Chinese AI Firms Over IP Theft

On Tuesday, Treasury Secretary Scott Bessent said the U.S. would examine open source models from China for signs of intellectual property theft, threatening sanctions against Chinese AI companies if IP theft is established.

“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.