US Threatens Sanctions on China Over Alleged AI Model Theft

The White House is weighing a crackdown on China’s alleged “IP theft” of artificial intelligence models in the United States, Treasury Secretary Scott Bessent said in an interview with Fox Business Tuesday (July 21).

The President Donald Trump administration will examine whether Chinese AI models have been distilled from their U.S. counterparts, Bessent said.

“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, adding that the technical term for this theft is known as “distillation,” a practice Chinese AI firms have been accused of using before.

For example, Anthropic last month accused operators connected to Alibaba and its AI lab of conducting a massive distillation campaign against its Claude models, generating more than 28.8 million interactions with Claude through roughly 25,000 fraudulent accounts between April 22 and June 5.

In February, the startup made similar allegations against three other Chinese AI labs, including DeepSeek, Moonshot AI and MiniMax, although on a smaller scale.

“The way distillation works is simple,” PYMNTS reported June 26.” A campaign sends large volumes of carefully designed prompts to a target model and captures its responses. Those responses become training data. The competing model learns to reason and respond in ways that replicate the original, without paying for the research behind it. It is less like hacking a system and more like sitting next to the best student in class and copying every answer they write, at industrial scale.”

Detection is difficult as a distillation query looks identical to a legitimate one. A developer seeking help from Claude in debugging a function and a campaign systematically extracting Claude’s coding behavior would submit the same type of request.

The only indicator is pattern, like massive volume, repetitive structures and prompts focused on the same narrow capabilities, coming from hundreds of coordinated accounts in sequence.

As organizations integrate AI models into core operations, “the proprietary logic and specialized training of these models have emerged as high-value targets,” Google Threat Intelligence Group warned in a blog post earlier this year.

Also Tuesday, U.S. Trade Representative (USTR) Jamieson Greer told CNBC the White House is exploring whether China is using unfair practices to gain an advantage in the AI race.

“We’re taking a very close look at how China is propagating its AI development to make sure that our companies compete again on a level playing field,” Greer said.

For all PYMNTS AI coverage, subscribe to the daily AI Newsletter .