"There Is No Day After Tomorrow"; Bessent Warns Of Consequences To Losing AI Arms Race To China

Authored by Arthur Zhang via The Epoch Times,

Treasury Secretary Scott Bessent said the United States cannot afford to fall behind China in artificial intelligence, warning that a Chinese lead would outweigh other U.S. advantages.

"Beating China - there is no day after tomorrow if China wins at this," Bessent said on Sept. 9 at Breitbart News's "State of the Economy" event in Washington.

"If they were to pull ahead of us on AI, then nothing else matters."

Bessent made the remarks while answering a question about opposition to data centers and the need to expand the infrastructure required for AI development.

On the same day, the National Security Agency, Cybersecurity and Infrastructure Security Agency, and FBI issued a joint advisory accusing six China-based AI companies of conducting industrial-scale campaigns to extract capabilities from U.S. frontier AI models.

The agencies named DeepSeek, Moonshot AI, Alibaba, MiniMax, StepFun, and Z.AI, saying the companies had extracted billions of tokens through millions of requests to frontier models including Claude, GPT, Gemini, and Grok since at least late 2024.

Agencies Detail Model Distillation

Knowledge distillation is a machine learning technique in which one model is trained using the outputs of another. The technique is commonly used legitimately, including to develop smaller or less expensive models.

The advisory alleged, however, that the six companies engaged in "aggressive, malicious, and targeted" distillation at an industrial scale to extract restricted proprietary functions and capabilities from U.S. models. The NSA said the companies were systematically extracting U.S. model capabilities to train their own systems.

According to the advisory, the companies distributed their activity across model providers, cloud platforms, and other infrastructure to avoid detection. Some used third-party services to relay requests to U.S. models, allowing them to bypass geographic restrictions and other safeguards, the agencies said.

The agencies assessed that the alleged activity took place "likely with Chinese government awareness." The advisory did not state that Chinese authorities directed the individual campaigns.

It said DeepSeek had allegedly conducted an organized campaign since at least late 2024 to obtain reasoning capabilities, specialized optimizations, and other functions for use in its R1 and V3 models. The agencies also attributed large-scale distillation activity to Alibaba's Qwen models and to models developed by the other four companies.

The agencies said such activity could allow Chinese AI developers to narrow the technology gap while avoiding some of the computing power, electricity, foundational research, and other costs required to independently develop frontier models. The advisory stated that advances in Chinese AI models could also expand military and cyber capabilities.

Beijing rejected the allegations on Sept. 9. Chinese Foreign Ministry spokeswoman Mao Ning said China's AI development came from domestic technological development and international cooperation.

The Sept. 8 advisory urged American AI companies and infrastructure providers to improve detection of suspicious activity and strengthen coordination across model developers, cloud providers, and application programming interface providers to counter large-scale distillation campaigns.

Earlier Warnings From US AI Companies

The federal advisory follows earlier accusations by American AI developers.

Anthropic said in February that it had identified industrial-scale campaigns by DeepSeek, Moonshot AI, and MiniMax involving more than 16 million exchanges with Claude through approximately 24,000 fraudulent accounts.

The accounts violated its terms of service and regional access restrictions, Anthropic said. It also said that while distillation is a legitimate training method, competitors can misuse it to acquire capabilities developed by other companies without bearing comparable development costs.

OpenAI separately told the House Select Committee on the Chinese Communist Party in February that it had observed activity indicating continued attempts by DeepSeek to distill capabilities from OpenAI and other U.S. frontier models, including through increasingly obfuscated methods intended to make the activity harder to detect.

Data Centers and the AI Race

Bessent tied the competition with China to the U.S. buildout of data centers and other infrastructure needed for AI.

He said the United States currently has the lead because of its technology companies, advanced chips, financing, and startup ecosystem, but argued that development could not be paused.

"We can't pause," Bessent said. "You can't, because the Chinese won't pause."

He criticized technology companies for failing to engage adequately with communities affected by new data-center construction.

Bessent also alleged that some opposition to data-center development involved Chinese "agitprop." He did not identify specific examples for that assertion during the discussion.

He gave data-center developers, hyperscalers, and major AI companies a "D-minus" for community outreach and said they needed to do a better job explaining their projects and potential benefits to residents.