The Department of Commerce (DOC) has slammed the brakes on the sweeping “AI Diffusion Rule,” yanking it just a day before it was due to bite. Meanwhile, officials have laid down the gauntlet with stricter measures to control semiconductor exports.
The AI Diffusion Rule, a piece of regulation cooked up under the Biden administration, was staring down a compliance deadline of May 15th. According to the folks at the DOC, letting this rule roll out would have been like throwing a spanner in the works of American innovation.
DOC officials argue the rule would have saddled tech firms with “burdensome new regulatory requirements” and, perhaps more surprisingly, risked souring America’s relationships on the world stage by effectively “downgrading” dozens of countries “to second-tier status.”
The nuts and bolts of this reversal will see the Bureau of Industry and Security (BIS), part of the DOC, publishing a notice in the Federal Register to make the rescission official. While this particular rule is heading for the shredder, the official line is that a replacement isn’t off the table; one will be cooked up and served “in the future.”
Jeffery Kessler, the Under Secretary of Commerce for Industry and Security, has told BIS enforcement teams to stand down on anything concerning the now-canned AI Diffusion Rule.
“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,” said Kessler.
“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.”
What was this ‘AI Diffusion Rule’ anyway?
You might be wondering what this “AI Diffusion Rule” actually was, and why it’s causing such a stir.
The rule wasn’t just a minor tweak; it was the Biden administration’s bid to get a tight grip on how advanced American tech – everything from the AI chips themselves to cloud computing access and even the crucial AI ‘model weights’ – flowed out of the US to the rest of the world.
The idea, at least on paper, was to walk a tightrope: keep the US at the front of the AI pack, protect national security, and still champion American tech exports.
But how did it plan to do this? The rule laid out a fairly complex playbook:
- A tiered system for nations: Imagine a global league table for AI access. Countries were split into three groups. Tier 1 nations, America’s closest allies like Japan and South Korea, would have seen hardly any new restrictions. Tier 3, unsurprisingly, included countries already under arms embargoes – like China and Russia – who were already largely banned from getting US chips and would face the toughest controls imaginable.The squeezed middle: This is where things got sticky. A large swathe of countries, including nations like Mexico, Portugal, India, and even Switzerland, found themselves in Tier 2. For them, the rule meant new limits on how many advanced AI chips they could import, especially if they were looking to build those super-powerful, large computing clusters essential for AI development.Caps and close scrutiny: Beyond the tiers, the rule introduced actual caps on the quantity of high-performance AI chips most countries could get their hands on. If anyone wanted to bring in chips above certain levels, particularly for building massive AI data centres, they’d have faced incredibly strict security checks and reporting duties.Controlling the ‘brains’: It wasn’t just about the hardware. The rule also aimed to regulate the storage and export of advanced AI model weights – essentially the core programming and learned knowledge of an AI system. There were strict rules about not storing these in arms-embargoed countries and only allowing their export to favoured allies, and even then, only under tight conditions.Tech as a bargaining chip: Underneath it all, the framework was also a bit of a power play. The US aimed to use access to its coveted AI technology as a carrot, encouraging other nations to sign up to American standards and safeguards if they wanted to keep the American chips and software flowing.
The Biden administration had a clear rationale for these moves. They wanted to stop adversaries, with China being the primary concern, from getting their hands on advanced AI that could be turned against US interests or used for military purposes. It was also about cementing US leadership in AI, making sure the most potent AI systems and the infrastructure to run them stayed within the US and its closest circle of allies, all while trying to keep US tech exports competitive.
However, the AI Diffusion Rule and broader plan didn’t exactly get a standing ovation. Far from it.
Major US tech players – including giants like Nvidia, Microsoft, and Oracle – voiced strong concerns. They argued that the rule, instead of protecting US interests, would stifle innovation, bog businesses down in red tape, and ultimately hurt the competitiveness of American companies on the global stage. Crucially, they also doubted it would effectively stop China from accessing advanced AI chips through other means.
And it wasn’t just industry. Many countries weren’t thrilled about being labelled “second-tier,” a status they felt was not only insulting but also risked undermining diplomatic ties. There was a real fear it could push them to look for AI technology elsewhere, potentially even from China, which was hardly the intended outcome.
This widespread pushback and the concerns about hampering innovation and international relations are exactly what the current Department of Commerce is pointing to as reasons for today’s decisive action to scrap the rule.
Fresh clampdown on AI chip exports
It wasn’t just about scrapping old rules, though. The BIS also rolled out a new playbook to tighten America’s grip on AI chip exports, showing they’re serious about guarding the nation’s tech crown jewels.
The latest clampdown includes:
- A spotlight on Huawei Ascend chips: New guidance makes it crystal clear: using Huawei Ascend chips anywhere on the planet is now a no-go under US export controls. This takes direct aim at one of China’s big players in the AI hardware game.Heads-up on Chinese AI model training: A stark warning has gone out to the public and the industry about the serious consequences if US AI chips are used to train or run Chinese AI models. The worry? That American tech could inadvertently supercharge AI systems that might not have US interests at heart.Guidance on shoring up supply chains: US firms are getting a fresh batch of advice on how to batten down the hatches on their supply chains to stop controlled tech from being siphoned off to unapproved destinations or users.
The Department of Commerce is selling today’s double-whammy – axing the rule and beefing up export controls – as essential to “ensure that the United States will remain at the forefront of AI innovation and maintain global AI dominance.” It’s a strategy that looks to clear the runway for domestic tech growth while building higher fences around critical AI technologies, especially advanced semiconductors.
This policy pivot will likely get a thumbs-up from some quarters in the US tech scene, particularly those who were getting sweaty palms about the AI Diffusion Rule and the red tape it threatened. On the flip side, the even tougher export controls – especially those zeroing in on China and firms like Huawei – show that trade policy is still very much a frontline tool in the high-stakes global chess game over who leads in tech.
The whisper of a “replacement rule” down the line means this isn’t the final chapter in the saga of how to manage the AI revolution. For now, it seems the game plan is to clear the path for homegrown innovation and be much more careful about who gets to play with America’s latest breakthroughs.
See also: Samsung AI strategy delivers record revenue despite semiconductor headwinds
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