US AI Firms Warn China Is 'Distilling' Their Models as Rivals Question Whether Silicon Valley Can Keep Its Edge

A widening dispute over "distillation"—the practice of training cheaper models on the outputs of costlier ones—is fueling doubts about whether a handful of Silicon Valley companies can keep frontier artificial intelligence knowledge locked behind their walls. A Bloomberg Opinion column published July 13, 2026 argues that Washington's alarm over Chinese AI misses a more fundamental point: the expensive moats US labs have built appear to be leaking, as global competitors extract and repackage the capabilities American firms spent tens of billions of dollars to develop.