Trump Faces Pressure Over Chinese AI Surge, Accusations of Illicit Copying

US President Donald Trump is under increasing pressure to address the growing success of Chinese artificial intelligence models, which are gaining favor with companies due to their lower cost compared to more powerful but expensive US alternatives from Anthropic and OpenAI.

The White House has voiced concerns, particularly following the release of Moonshot's Kimi K3 model. Officials allege that Chinese firms are using a technique called "distillation" to illicitly replicate the capabilities of leading US AI models. While distillation is a common industry practice, US officials claim Chinese companies are employing it at an industrial scale to copy proprietary American systems and circumvent export controls on advanced AI chips.

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Illicit distillation 'is IP theft and industrial espionage' and 'a national challenge that creates serious national security risks for the United States and democratic allies.'

The Commerce Department's Bureau of Industry and Security is reportedly investigating Chinese firms like Moonshot for their use of these restricted chips. Treasury Secretary Scott Bessent has threatened sanctions against China, and the US is reportedly considering a ban or restrictions on foreign-made open-source AI models, which are often developed using distillation.

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Lobbyists are urging Washington to treat open-model AI as a security threat. In fact, it is something more familiar: proper competition that should be welcomed.

AI companies like Anthropic have warned US lawmakers about this practice, formally accusing Chinese firms such as Moonshot, DeepSeek, and MiniMax of large-scale distillation of their models. Anthropic's head of public policy described the practice as "IP theft and industrial espionage" posing significant national security risks.

However, the startup community and some venture capitalists are pushing back against potential restrictions. They argue that open-source models offer crucial competition, lower prices, and greater customization, which are vital for startups. They fear that blocking foreign-made models would stifle innovation, benefit established US AI giants, and increase costs for entrepreneurs. Some critics suggest that companies like OpenAI and Anthropic are primarily motivated by a desire to eliminate emerging competition.

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Denying American startups access to models available abroad would stifle competition, entrench incumbents, and function as a tax on intelligence.