The Department of Commerce (DOC) has abruptly rescinded the “AI Diffusion Rule,” just a day before its scheduled implementation. Simultaneously, the department announced stricter measures to control semiconductor exports.
What was the ‘AI Diffusion Rule’ anyway?
Intended to regulate the flow of advanced American AI technology, including chips, cloud computing access, and ‘model weights,’ the rule aimed to balance US AI leadership, national security, and tech exports. It proposed a three-tiered system for nations, with varying levels of restrictions. Tier 1 nations (close allies) faced minimal restrictions, Tier 3 (embargoed countries) faced the toughest, and Tier 2 (including many developing nations) would have seen new limits and scrutiny, particularly on importing high-performance chips for large computing clusters. The rule also introduced caps on chip quantities and strict controls on storing and exporting AI model weights, using technology access as leverage for international cooperation on US standards.
Why the Reversal?
According to DOC officials, the rule would have imposed “burdensome new regulatory requirements” on tech firms and risked damaging international relationships by effectively classifying dozens of countries as “second-tier.” US tech companies, including giants like Nvidia, Microsoft, and Oracle, had voiced strong concerns, arguing it would stifle innovation, create red tape, hurt competitiveness, and might not effectively prevent adversaries from accessing technology. Many countries also resented the “second-tier” designation, fearing it could push them towards seeking AI technology elsewhere.
Fresh Clampdown on AI Chip Exports
Alongside the rescission, the BIS rolled out new measures. These include explicitly prohibiting the use of Huawei Ascend chips anywhere under US export controls, issuing a warning about the consequences of using US chips to train or run Chinese AI models, and providing guidance to US firms on securing supply chains to prevent controlled tech diversion. The DOC frames these actions as necessary to ensure the US remains a leader in AI innovation and maintains global AI dominance, focusing on domestic growth while strengthening controls around critical technologies like advanced semiconductors.
While this move might be welcomed by some in the US tech sector concerned about the scrapped rule’s regulatory burden, the intensified export controls, particularly targeting China and firms like Huawei, underscore that trade policy remains a key tool in the global competition for technological leadership. The mention of a potential “replacement rule” suggests this policy area remains under active development.
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