The U.S. Department of Commerce on Tuesday formally scrapped the Biden-era “Artificial Intelligence Diffusion Rule,” a sweeping regulation that would have placed tiered restrictions on the export of advanced American-made AI chips to dozens of countries. The rule was due to take effect on May 15, 2025.
The reversal, announced just days before the implementation date, marks a sharp policy shift under the Trump administration, which is now pushing for more targeted and bilateral agreements rather than blanket export controls.
“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 Jeffrey Kessler, U.S. Secretary of Commerce for Industry and Security.
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What the Biden Rule Sought to Do
The AI Diffusion Rule, first introduced in January 2025, aimed to restrict the global export of high-performance AI chips, especially to nations the U.S. considers adversarial, such as China, Russia, Iran, and North Korea. The rule proposed a three-tier system, classifying countries based on perceived risk and alignment with U.S. strategic interests:
- Tier 1, which included allies like Japan and South Korea, would have faced no restrictions.
- Tier 2, including countries like Mexico and Portugal, would have seen AI chip export restrictions for the first time.
- Tier 3, comprising countries like China, Russia, and Iran, would have faced even tighter restrictions than the current regulations allow.
The goal, according to the Biden administration at the time, was to slow the proliferation of high-end U.S. semiconductors capable of training and running advanced AI models that could be used in military, surveillance, or authoritarian systems abroad.
Trump Administration’s New Direction
The Department of Commerce has now halted enforcement of that rule and said it will issue a replacement in the coming months. The new approach is expected to focus on direct negotiations and country-specific frameworks rather than imposing universal restrictions.
On Tuesday, the Department issued interim guidance for U.S. companies and chipmakers. The guidance reinforced existing bans on exports involving Huawei’s AI chipsets.
“Using Huawei’s Ascend AI chips anywhere in the world violates U.S. export rules,” the Commerce Department reminded companies.
It also issued warnings on the consequences of letting U.S. chips be used in China to train AI models and urged firms to bolster security protocols against the diversion of sensitive hardware.
The policy reversal has been met with relief from American chipmakers, particularly NVIDIA and AMD, whose products had been at the center of the proposed rule. NVIDIA’s high-end graphics processing units (GPUs) are widely considered the gold standard for AI training and deployment.
Following the announcement, NVIDIA stock surged more than 3% to $130.15 by market close, while AMD saw a 1.8% gain. The market response underscores investor optimism about restored export opportunities and reduced regulatory friction in international sales.
“At a time of platform shifts, you kind of want to make sure you lean into even the new design wins, and you just don’t keep doing the stuff that you did in the previous generation,” Microsoft CEO Satya Nadella said in January, during an earlier earnings call when discussing AI growth and go-to-market strategies.
While Nadella was speaking in the context of Microsoft’s own AI cloud ambitions, the statement aligns with a broader industry push to keep pace with rapid innovation rather than be hampered by broad regulatory limitations.
Rising Stakes in the Global AI Race
The stakes in global AI development have risen dramatically over the past two years. The United States has increasingly tightened controls over technology exports to China, especially after growing concerns that advanced AI chips could be used for military modernization and surveillance.
The Biden administration’s AI rule was part of a broader national security framework, building on earlier chip export bans that were already in place. However, critics had warned that the overly broad scope of the new rule could backfire, pushing neutral countries toward Chinese suppliers or prompting retaliation against U.S. tech interests abroad.
The Trump administration appears to be betting on diplomacy and strategic alliances as a better pathway to securing America’s technological edge by shifting to bilateral arrangements.
While the Commerce Department has not released details on the replacement rule, officials have signaled that it will involve direct coordination with foreign governments and allow more case-by-case discretion.
“We reject the Biden Administration’s attempt to impose its own ill-conceived and counterproductive AI policies on the American people,” said Secretary Kessler.
In the meantime, companies are being asked to continue complying with existing export laws, particularly concerning entities on the Commerce Department’s Entity List, which includes firms like Huawei and Chinese military-linked research institutions.
The Department has not indicated a timeline for the new rule’s release, but industry stakeholders are likely to lobby for a framework that balances national security with the flexibility to remain globally competitive in a fast-moving AI race.