> there’s a chance frontier models get sponsored by the USG and are never released publicly so they can’t be distilled and then what?

That premise hinges on one implicit assumption: Chinese advances are due to distillation ONLY and that Chinese model providers cannot keep advancing if they do not distill, which is a very big if. If Chinese models keep advancing in such a scenario, and they almost certainly will, they will overtake publically available models by US providers and China will dominate the LLM industry.