US threatens sanctions on Chinese AI models over alleged intellectual property theft

Key points

• Treasury Secretary Scott Bessent announced on Tuesday, 20 May 2025, that the US will examine Chinese open-source AI models for signs of intellectual property theft.
• Bessent threatened sanctions against any Chinese AI company found to have stolen technology from American firms.
• Chinese AI lab Moonshot AI's model Kimi K3 is among the latest Chinese models closing the gap on leading US systems.
• Anthropic, one of America's top AI companies, reached a $1.5 billion settlement this week after a judge ruled it had illegally downloaded millions of copyrighted books to train its own AI.
• Hugging Face CEO Clem Delangue argues distillation is a minor factor in China's AI progress, and that strong Chinese research teams deserve most of the credit.

The US government is turning up the heat on Chinese artificial intelligence. Speaking on Fox Business on Tuesday, Treasury Secretary Scott Bessent said Washington will examine open-source AI models, which are AI systems whose underlying code is shared publicly for anyone to use, coming out of China for signs of intellectual property 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 said. The comments were first reported by Bloomberg.

The warning follows months of rapid progress by Chinese AI labs. Moonshot AI's Kimi K3 is the latest model to draw attention, offering capabilities that rival expensive American systems at a fraction of the cost. That kind of competition worries US firms like OpenAI and Anthropic, not just for their market share, but for their ability to raise the enormous sums of money needed to keep building next-generation AI.

One practice at the centre of the debate is model distillation. This is a technique where a smaller, cheaper AI model is trained to copy the behaviour of a larger, more powerful one. Critics argue Chinese developers have used distillation on American models without permission. Supporters say everyone does it, and that it does not amount to theft.

Hugging Face CEO Clem Delangue pushes back on the theft framing. "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.," he said on a recent podcast. He credits China's strong research culture, not copying, for its AI gains.

Microsoft CEO Satya Nadella has also been sceptical of American labs crying foul. He pointed out the irony of US companies claiming the right to train on public data, then turning around and blocking others from doing something similar with their own outputs.

Could US sanctions actually stop Chinese AI?

Probably not on their own. Sanctions can restrict American companies from doing business with named Chinese firms, but they cannot stop Chinese researchers from publishing or sharing code globally. The US has already limited China's access to advanced chips, the specialised processors that power AI training. Targeting the models themselves would be a new and harder-to-enforce step.

For ordinary users, the immediate effect is noise rather than action. Chinese AI apps remain freely available for now. But if sanctions do arrive, American businesses that have quietly built products on top of cheap Chinese models could find themselves in a legal grey area fast.

Bessent's remarks add to a broader picture of Washington treating AI as a national security issue, not just a tech story.