US President Donald Trump is under pressure to respond to the growing success of Chinese AI models that many companies prefer over more powerful but more expensive US versions from Anthropic or OpenAI.
The issue came to a head this week with the release of Moonshot’s Kimi K3, which White House officials say was developed by stealing the capabilities of Anthropic’s most powerful model through a process called distillation.
The method is widely used across the industry, but US officials say Chinese firms have used it at scale to illegally copy proprietary US systems.
Michael Kratsios, director of the White House Office of Science and Technology Policy, on Wednesday condemned the practice and suggested that Moonshot had also circumvented US export restrictions on Nvidia’s powerful AI chips to build its products.
The Commerce Department’s Bureau of Industry and Security is formally investigating Chinese firms such as Moonshot over the use of these chips, a spokesperson told The Information.
Treasury Secretary Scott Bessent this week threatened sanctions against China, with reports that the US is also weighing a ban or curb on foreign-made open-source models that are often built through distillation.
Earlier this year Anthropic sent letters to US lawmakers warning of the practice, formally accusing Chinese firms Moonshot, DeepSeek and MiniMax of industrial-scale distillation of its Claude designs.
Illegal distilling “is IP theft and industrial espionage” and “a national challenge that creates serious national security risks for the United States and democratic allies,” Sarah Heck, Anthropic’s head of public policy, told X.
Open-source, or open-weight, models cost less and use source code that programmers can customize — something that’s especially appreciated by startups and companies that don’t want to be subject to models from Anthropic, OpenAI or Google that cost money and must be taken as-is.
Even if it were just an idea, the startup community has urged the White House to drop any plans to block foreign-made open-source models, saying it would simply unfairly reward US AI giants, stifle competition and raise AI entrepreneurs high prices.
“Lobbyists are urging Washington to treat open-source AI as a security threat. In fact, it’s something more familiar: proper competition that should be welcomed,” wrote Bill Gurley, a former venture capitalist, in The Washington Post.
On Wednesday, a group of 179 startups wrote a letter to the Trump administration urging it to think twice against any outright bans or strict restrictions on foreign-made designs.
“Denying American startups access to models available abroad would stifle competition, strengthen incumbents and function as a tax on intelligence,” the letter from the Little Tech Association said.
“The panic must stop”
Some critics of limiting open source models believe that OpenAI and Anthropic are trying to save themselves by eliminating the emergence of this rival technology.
The two artificial intelligence giants are facing huge financial pressure ahead of expected IPOs in the coming months, with Wall Street taking a closer look than ever at their business performance ahead of their expected public listings.
“The Kim panic has to stop,” said David Sacks, the former White House AI policy chief who still has the president’s ear.
“President Trump’s regulatory approach is working… As long as we don’t sabotage ourselves with unnecessary regulations, the US will continue to win,” he told X.
Weighing in strongly on the debate over Chinese models was Jensen Huang, CEO of Nvidia, whose company makes the basic AI infrastructure for both open-source and proprietary US-made companies.
American companies should “absolutely” be allowed to use Chinese AI models, he told Axios.
“These Chinese models are great. Open source models that are great should be used,” he said.
