Washington wants to sanction Chinese AI for ‘theft’. Nvidia’s Jensen Huang says that’s backwards.

Treasury Secretary Scott Bessent said the US will scrutinize Chinese open-source AI models for stolen intellectual property and could hit their makers with sanctions, citing watermarks of US large language models found on Chinese models. Nvidia CEO Jensen Huang countered that Chinese open-source models are excellent and should be used, arguing that free AI drives demand for Nvidia's chips. The split highlights a policy clash as the US prepares for AI talks with China in September.

On Tuesday, Treasury Secretary Scott Bessent went on television with a warning for China. On the same day, the chief executive of the company that powers the entire AI boom went the other way. The threat Bessent said the US will scrutinise Chinese open-source models for stolen intellectual property, as Bloomberg https://www.bloomberg.com/news/articles/2026-07-21/bessent-says-us-will-scrutinize-chinese-ai-models-for-ip-theft first reported. It could then hit their makers with sanctions. “This administration supports open source models, but what we do not support is IP theft,” he said. His evidence is watermarks. “We are finding watermarks of our US large language models on many Chinese models,” he said. The technical term is distillation, training one model on another’s outputs. Bessent called it theft, and promised action within weeks. What set it off The trigger is Kimi K3 https://thenextweb.com/news/moonshot-kimi-k3-largest-open-model , an open-weight model from China’s Moonshot AI. It matches or beats OpenAI and Anthropic’s best on some benchmarks, and costs far less. Its arrival sparked a chip-stock selloff and a fresh bout of Washington panic https://thenextweb.com/news/kimi-k3-reactions-sacks-khosla-marcus-ai-race . US labs have accused Chinese rivals of siphoning their models for months. Huang’s rebuttal Nvidia’s Jensen Huang, speaking to Axios https://www.axios.com/2026/07/22/nvidia-jensen-huang-china-open-source-ai at a new chip plant in Texas, called that panic misplaced. “These Chinese models are excellent,” he said. “Open-source models that are excellent should be used.” American firms, he argued, should “absolutely” be allowed to run them. His logic is commercial. Cheaper, free models put AI in more hands. More AI means more demand for the chips, data centres, and power Nvidia sells. “Free AI should be great for chips,” he said. He also rejected the fear that a downloaded Chinese model is a “backdoor” to Beijing. Firms can wall them off in secure sandboxes, he said. The awkward part Not everyone accepts the theft charge. Distillation is common, and US labs do it too. “We know distillation to be a very small factor,” Hugging Face chief Clem Delangue told TechCrunch https://techcrunch.com/2026/07/21/us-threatens-sanctions-against-chinese-ai-models-over-ip-theft/ . It is, he added, “a practice that everyone is doing, including companies in the US.” There is an irony too. Anthropic, one of the loudest accusers, just had its own $1.5bn settlement https://thenextweb.com/news/anthropic-1-5-billion-copyright-settlement-approved approved over pirated books used to train Claude. Huang went further, urging the government to stop restricting https://thenextweb.com/news/white-house-dictating-frontier-ai-model-access-anthropic-openai Anthropic’s own Mythos model. “Let Anthropic run,” he said. What happens next Bessent will lead the US side at AI talks with China https://thenextweb.com/news/us-china-ai-talks-september in September. The distillation fight will be on the table. For now the split is stark: the government wants to fence Chinese models out, while the world’s most valuable chipmaker wants them let in. Get the TNW newsletter Get the most important tech news in your inbox each week.