U.S. Threatens to Sanction China Over AI Distillation

Ashley Capoot, reporting for CNBC:

U.S. Treasury Secretary Scott Bessent on Tuesday said the Trump administration will look into whether Chinese artificial intelligence models have been distilled from American models, stating that the government does not support “IP theft.”

Chinese open-weight models are gaining steam against leading offerings from American companies like OpenAI and Anthropic, sparking concerns from tech executives and government officials about the durability of the U.S. lead in the AI race. Moonshot AI, a Chinese startup, released a model called Kimi K3 earlier this month that outperforms those companies across some industry benchmarks. Open weight refers to models whose final trained parameters are publicly released for download, while the underlying code and training data remain private.

“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 told Fox Business’ “Mornings with Maria” on Tuesday.

Bessent said the technical term for this theft is called distillation, which is an AI training method where a smaller, less capable model is built using outputs from an existing, stronger model. Anthropic sent a letter to the U.S. Senate Committee on Banking, Housing, and Urban Affairs last month alleging that the Chinese tech company Alibaba had carried out the “the largest known distillation attack” against it to date.

If distillation — training on data that doesn’t belong to the Chinese labs — is a sanctionable offense, then why isn’t pre-training? How is it fully legal for Chinese companies to use training data published by American citizens on the internet? This whole argument is bogus, and it’s quite evident that Bessent knows very little, if anything, about what he’s talking about. AI models are built on the idea that training a computer on the open internet is fair use — that pre-training is transformative enough under fair use doctrine, not “stea…