China's cheap open-source AI models are winning over US companies, and Washington's threatened crackdown could backfire badly on American business.

• Moonshot's Kimi K3 now beats top US models and costs a fraction as much, and Chinese models have grabbed most of the world's AI usage in 18 months.
• US firms are switching to Chinese AI to cut costs, so a ban would force them onto much pricier American options.
• Treasury Secretary Bessent is floating sanctions over claims China copied US models, a line that's hard to draw and would spook other countries too.
• China's likely answer is to give its models away even more freely — and it can squeeze US chip plans by cutting off rare earths.

Outlook: US-China AI talks in September look tense, with China negotiating from the stronger hand.