Introduction
Former President Donald Trump is reportedly preparing to halt the Biden administration’s AI diffusion rules, set to take effect on May 15, 2025.
According to Bloomberg and Reuters, Trump’s decision to delay this regulation could reshape the U.S. chip export strategy, potentially affecting semiconductor companies, global relations, and AI advancements. The move has raised questions on how U.S. leadership in AI and semiconductor innovation will evolve under new policies.
Here’s what industry experts and analysts are forecasting if the AI diffusion rules are scrapped.
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Key Takeaways
Shift from Tiered System: Trump’s administration may replace the current three-tiered chip export system with a more flexible global licensing approach based on government-to-government agreements.
Focus on Chip Diversion: New export policies could target countries like Malaysia and Thailand for diverting chips to China, complicating supply chain operations.
Middle East Repercussions: Countries such as Saudi Arabia and the UAE, which have faced restrictions, could benefit from better AI chip terms under the new rules.
NVIDIA’s Optimism: Semiconductor giants like NVIDIA are likely to gain from the policy shift, as the removal of the AI diffusion rule could enhance U.S. competitiveness in the AI sector.
Ongoing Challenges: Despite these changes, trade restrictions, particularly on China, could still impact NVIDIA’s ability to meet demand in the Chinese market.
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Background: Biden’s AI Diffusion Rules
The AI diffusion rule, announced in late 2024, was designed to control the export of AI chips based on a three-tier framework. Under the rule, Tier 1 countries such as Canada, Japan, and South Korea had near-unrestricted access to advanced AI chips. Tier 2 countries, including Saudi Arabia and Malaysia, faced export limits, while Tier 3 nations like China and Russia were effectively barred from accessing cutting-edge U.S. AI technologies.
However, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) criticized the rule as overly complex, suggesting a need for a more straightforward policy that would foster AI development without compromising national security.
Revisiting the AI Diffusion Rule
Biden’s AI diffusion rule was intended to impose a tiered control system on chip exports. The three-tier structure categorized countries as follows:
- Tier 1 (Key Allies): Nations like Australia, Canada, Japan, South Korea, and the Netherlands had near-unrestricted AI chip access.
- Tier 2 (Limited Access): About 120 countries, including UAE and Saudi Arabia, faced AI compute deployment limits (capped at 7% of global company totals).
- Tier 3 (Restricted): Countries like China, Russia, Iran, and North Korea faced severe AI chip restrictions.
According to the Center for Strategic and International Studies (CSIS), this classification aimed to balance AI innovation with national security. However, the U.S. Commerce Department’s Bureau of Industry and Security recently criticized the rule as overly restrictive.
No More Tiered System: A Global Licensing Approach
Under the Biden administration’s proposed rule, the U.S. would impose a tiered control system on chip exports. Countries like Australia, South Korea, and Japan (Tier 1) had near-unrestricted access to U.S. AI chips, while Tier 2 countries faced limitations, and Tier 3 nations such as China and Russia were completely blocked from receiving advanced chips.
According to the Center for Strategic and International Studies (CSIS), the tiered system caused friction with several countries, especially in Southeast Asia.
Trump’s team, however, is looking to replace the system with a more flexible licensing approach. This new strategy could be based on bilateral agreements between governments, allowing more tailored restrictions that could better address the geopolitical landscape.
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Chip Diversion Concerns
In addition to these changes, Trump’s administration is reportedly targeting chip diversion activities, particularly in countries like Malaysia and Thailand.
These nations allegedly re-export U.S. chips to China, enabling their use in AI applications despite existing restrictions.
The new policies could tighten oversight of global chip movements, complicating supply chains for companies relying on these regions.
A global licensing system may reduce diversion risks by allowing for more stringent checks on chip exports, making it harder for advanced technologies to end up in restricted hands.
Middle East Moves: Potential Benefits for the UAE and Saudi Arabia
Trump’s decision to delay the AI diffusion rule comes as he prepares for a visit to the Middle East. Countries like the UAE and Saudi Arabia, which were previously placed in Tier 2, faced limitations on deploying AI chips to no more than 7% of their global total.
This restriction significantly stymied their ability to attract AI investments and develop local data center infrastructures.
With the potential scrapping of the rule, the Middle East could see more favorable terms, allowing countries in the region to access advanced AI chips and boost their technological ambitions.
According to Bloomberg, Trump’s visit may even result in new government-to-government agreements for chip exports, further improving relations and opportunities for AI growth.
However, while these changes could be beneficial, it’s important to note that many Middle Eastern nations have already faced export controls on chips since 2023.
This means that although delays in the AI diffusion rule may ease some restrictions, they will not automatically lift existing licensing requirements for firms like NVIDIA.
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NVIDIA: Gaining from the Policy Shift?
Semiconductor companies, particularly NVIDIA, have expressed relief at Trump’s decision to revisit the AI diffusion rule. The company has been vocal about the negative impact of the Biden administration’s policy, which would have imposed restrictions on exporting advanced GPUs critical for AI and machine learning applications.
In an interview with CNBC, a NVIDIA spokesperson noted that “America will have a once-in-a-generation opportunity to lead the next industrial revolution” by revising the AI diffusion rule. This would help generate high-paying jobs, stimulate infrastructure growth, and reduce the U.S. trade deficit, the spokesperson emphasized.
Both AMD and NVIDIA CEOs have criticized the AI diffusion rule, with Lisa Su of AMD calling for a balance between security and access, and Jensen Huang of NVIDIA warning that the rule could shut U.S. companies out of the rapidly growing Chinese AI market. According to CNBC, the Chinese AI market could be worth $50 billion in just a few years, making it a vital component of NVIDIA’s global strategy.
Despite the positive outlook, NVIDIA continues to face challenges with the ongoing U.S. export ban on its H20 AI chips to China. This ban has resulted in a $5.5 billion quarterly charge, highlighting the complex trade dynamics that continue to affect the semiconductor industry.
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Conclusion
The potential scrapping of the AI diffusion rules marks a significant shift in U.S. chip export policy. While the move could offer opportunities for countries in the Middle East and Southeast Asia, it also raises concerns about chip diversion and ongoing geopolitical tensions. As Trump considers a new licensing approach, the semiconductor industry, including companies like NVIDIA, may stand to benefit, but challenges related to export controls on China remain a significant hurdle.
With the AI market expected to grow rapidly in the coming years, the future of U.S. leadership in AI and chip innovation hinges on the success of these policy changes.
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