The Trump administration is split over how to respond to the rapid rise of China’s leading AI models, according to multiple people familiar with deliberations.

The debate is broadly divided between parts of the White House, which has pushed for stricter controls on Chinese AI that may soon rival the most powerful US models, and the Commerce Department, which has viewed those restrictions as unworkable.

The conundrum has become the latest flash point for the administration over AI, after China’s Moonshot AI lab last week released its Kimi K3 model that rivals the top US models from Anthropic and OpenAI.

In recent days, senior White House officials have discussed possible measures to stop China’s AI labs from developing their models by training them on US models, a practice known as distillation, the people say.

The White House is expected to take some sort of presidential action after Anthropic last month alleged the Chinese tech company Alibaba had carried out the “largest known distillation attack” against it to date. This action is not currently expected to take the form of an executive order, according to one of the people.

A White House spokesperson did not comment on the reporting in this story.

The White House has been taking distillation attacks especially seriously. It announced on Wednesday that Moonshot had developed Kimi K3 by distilling Anthropic’s Claude Fable 5 model, and Treasury secretary Scott Bessent told Fox Business that covert distillation could lead to sanctions, describing it as “IP theft.”

While proposals have been making the rounds inside the White House, no formal request for input has been transmitted yet to the Commerce Department, which has its own ideas, according to two people familiar with deliberations.

The Commerce Department has increasingly emerged as an influential part of the intra-administration split over AI, in part because it oversees export controls through the Bureau of Industry and Security.

Lutnick has contemplated ways to create incentives for top US labs to create their own open weight models to counterbalance China, and has spoken with leaders at a number of AI labs in recent weeks, the people add.

Lutnick appears to be straddling a middle ground of regulation—he imposed export controls on Anthropic to bring them to heel—but has been more freewheeling than Cairncross, one of the people said.

Earlier this month, the biggest AI issue for the administration was Anthropic’s Claude Mythos and Fable 5 models, because of their ability to find vulnerabilities in government systems and critical infrastructure.

But policy headaches with AI have only escalated with the rise of so-called open weight models from China—models that have few to no safeguards to prevent hacking government systems and can be downloaded and used by anyone.

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