The White House Is Seeking Solutions for Chinese AI Challenges

The Trump administration is divided regarding its approach to the swift advancement of China’s leading AI technologies, as reported by various sources familiar with the discussions.

The discussion is largely split between factions within the White House advocating for tighter regulations on Chinese AI that could soon match the most potent US models, and the Commerce Department, which views those restrictions as impractical.

This dilemma has become the newest point of contention for the administration concerning AI, particularly following the recent release of China’s Kimi K3 model by the Moonshot AI lab, which competes with top US offerings from Anthropic and OpenAI.

In the past few days, senior officials at the White House have deliberated over potential actions to prohibit China’s AI labs from advancing their models through training on US models, a method referred to as distillation, according to the sources.

Presidential action is anticipated from the White House after Anthropic claimed last month that the Chinese tech company Alibaba executed the “largest known distillation attack” against them. Currently, this action is not expected to manifest as an executive order, as noted by one source.

A spokesperson for the White House declined to comment on the details of this report.

The White House is particularly concerned about distillation attacks. They announced on Wednesday that Moonshot developed Kimi K3 by distilling Anthropic’s Claude Fable 5 model. Treasury Secretary Scott Bessent informed Fox Business that covert distillation could result in sanctions, likening it to “IP theft.”

Though several proposals are circulating within the White House, no formal request for input has been sent to the Commerce Department, which has its own viewpoints, according to two individuals knowledgeable about the discussions.

The Commerce Department has increasingly established itself as a key player in the administration’s internal divisions over AI, particularly since it regulates export controls via the Bureau of Industry and Security.

Lutnick has explored options to incentivize leading US labs to develop their own open weight models to counterbalance China’s progress and has engaged with various AI lab leaders in recent weeks, the sources state.

Lutnick seems to be occupying a middle ground in regulation—having imposed export controls on Anthropic to rein them in—while being more flexible than Cairncross, according to one of the sources.

Earlier this month, the administration’s primary AI concern was Anthropic’s Claude Mythos and Fable 5 models due to their capability of identifying weaknesses in government systems and critical infrastructure.

However, challenges regarding AI policy have intensified with the emergence of open weight models from China—models that lack safeguards to prevent breaching government systems and can be downloaded and utilized by anyone.

This is an edition of Hugo Lowell’s Inner Loop newsletter. Read previous newsletters here.