Specifically, the committee recommended that the State Department assess whether the distillation attacks violate laws like the Economic Espionage Act and the Computer Fraud and Abuse Act. They also want “adversarial distillation” clearly defined and officially categorized as a controlled technology transfer, which would make it easier to restrict fraudulent Chinese access to models.

If such steps were taken, the US could prosecute bad actors and impose heavy financial penalties that might dissuade Chinese firms from treating “serious violations as a tolerable cost of doing business,” the committee’s report said.

China slams accusations as “pure slander”

Kratsios’ memo threatening a crackdown comes ahead of Donald Trump’s highly anticipated meeting with China’s president Xi Jinping next month.

Trump has claimed that the meeting will be “special” and “much will be accomplished.” However, at least one analyst told the South China Morning Post that the war in Iran means that Trump has “lost almost all his bargaining chips” at a time when the US and China are seeking to stabilize a trade relationship that has been tense since Trump took office.

China seems unlikely to tolerate Kratsios’ allegations. Liu Pengyu, a spokesperson for the Chinese embassy in Washington, DC, told FT that the White House accusations were “pure slander.”

“China has always been committed to promoting scientific and technological progress through cooperation and healthy competition,” Pengyu said. “China attaches great importance to the protection of intellectual property rights.”

Whether Trump will side with AI firms that want to see China cut off from their models and sanctioned for distillation attacks has yet to be seen. Trump has, in the past, been accused of making big concessions to China on export control matters that experts have claimed threaten US national security and the economy, as US firms claim the distillation attacks do.

Some of Trump’s concessions may need to be reversed to fight the alleged “industrial espionage.”

Chris McGuire, a technology security expert at the Council on Foreign Relations, told FT that “Chinese AI firms are relying on distillation attacks to offset deficits in AI computing power and illicitly reproduce the core capabilities of US models.” To stop them, the US may need to tighten export controls that Trump loosened, such as allowing Nvidia chip sales to China so long as the US gets a 25 percent cut. That bizarre deal made “no sense” to experts who warned that Trump’s odd move could have opened the door for China to demand access to America’s most advanced AI chips.