The ongoing US-China rivalry has escalated with the US accusing China of large-scale intellectual property theft in artificial intelligence (AI). A memo from Michael Kratsios, director of the White House Office of Science and Technology Policy, asserts that Chinese entities are using 'model distillation' to replicate advanced US AI systems, a practice that could be classified as intellectual property theft. This shift in focus from tariffs to technology control signals a new phase in the competition, with potential sanctions and export controls on critical AI hardware like Nvidia chips. Despite the US leading in AI performance, particularly in reasoning and multimodal systems, the gap in areas like natural language understanding is narrowing. The Stanford University Institute for Human-Centered Artificial Intelligence reports that the difference in performance between leading US and Chinese AI models has decreased significantly. Both nations are also increasing state involvement in AI, with the US expanding export controls and China tightening regulatory oversight. As the rivalry deepens, the future of AI development may hinge on who can better manage talent, energy resources, and technological infrastructure.