Tuesday, the Department of Commerce (DOC) initiated a rescission of the Biden Administration’s AI Diffusion Rule, while announcing additional steps to strengthen export controls on semiconductors worldwide.
The AI Diffusion Rule was issued on January 15, 2025, with compliance requirements that were set to come into effect on May 15, 2025.
The Trump Administration and many industry participants contended the new requirements would stifle innovation and saddle companies with burdensome new regulatory requirements.
The AI Diffusion Rule also stood to complicate U.S. diplomatic relations with dozens of countries by downgrading them to "second-tier" status.
The Diffusion Rule established tiers of national eligibility, limiting the access of AI aspirants like the UAE & Saudi Arabia. As the President heads to Saudi this week, scrapping the rule will certainly please his hosts.
BIS plans to publish a Federal Register notice formalizing the rescission and will issue a replacement rule in the future.
Under Secretary of Commerce for Industry and Security Jeffery Kessler has instructed BIS enforcement officials not to enforce the Biden Administration’s AI Diffusion Rule, stating:
“The Trump Administration will pursue a bold, inclusive strategy to American AI technology with trusted foreign countries around the world, while keeping the technology out of the hands of our adversaries. At the same time, we reject the Biden Administration’s attempt to impose its own ill-conceived and counterproductive AI policies on the American people.”
In addition, BIS today announced actions to strengthen export controls for overseas AI chips, including:
• Issuing guidance that using Huawei Ascend chips anywhere in the world violates U.S. export controls. [Link]
• Issuing guidance warning the public about the potential consequences of allowing U.S. AI chips to be used for training and inference of Chinese AI models. [link]
• Issuing guidance to U.S. companies on how to protect supply chains against diversion tactics.[Link]
Guidance on General Prohibition 10
In a social media post, President Trump’s “A.I. and Crypto Czar” David Sacks, criticized the Biden Administration’s AI Diffusion Rule for overregulating GPU exports, arguing it hampers U.S. innovation by requiring licenses for sales to allies,
“There were several major problems with the Biden Diffusion Rule:
1. Overreach of Export Control Authority
First, the rule marked an unprecedented—and arguably unlawful—expansion of export control authority. Under the Export Control Reform Act (ECRA) of 2018, the President is empowered to restrict exports of dual-use technologies that have both civilian and military applications. That authority has been used to restrict the sale of advanced semiconductors to China, a policy with broad bipartisan support.
But the Diffusion Rule went significantly further. It required nearly all global sales of high-end GPUs—even to trusted allies—to obtain export licenses or fit into a narrow set of license exemptions. This forced much of the global data center and AI infrastructure industry to seek approval from Washington, creating a bottleneck that chilled legitimate, non-sensitive commerce.
2. Bureaucratic Allocation of Compute
The rule imposed detailed numerical caps on how many chips and how much computing power foreign entities could acquire and operate. This was a radical departure from market-based allocation principles, placing the U.S. government in the position of rationing compute power globally. It effectively turned Washington into a central planner for the global AI industry.
3. Alienation of U.S. Allies
The rule also strained relationships with key allies by arbitrarily dividing countries into compliance “tiers,” labeling many friendly nations as second-class partners. This kind of regulatory hierarchy undermines trust and risks pushing allies toward non-American technology alternatives.
4. Lack of Due Process
The Diffusion Rule was issued just five days before the end of the Biden administration without a meaningful public comment or review period. Given its sweeping scope, its retroactive elements, and the global compliance burden it imposed, this rollout was deeply flawed from both a procedural and practical standpoint. [Link to Post on X]
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