Controversial “AI diffusion rule” to be replaced as White House shifts to bilateral licensing model
The Trump administration will rescind the Biden-era Framework for Artificial Intelligence Diffusion, a sweeping regulation aimed at restricting global access to advanced U.S.-made AI chips, and replace it with a simpler export control regime, officials confirmed Wednesday.
The decision marks a major policy reversal in Washington’s approach to AI supply chains and comes just days before the original rule was set to take effect on May 15. Issued in January by the U.S. Department of Commerce during the final days of Joe Biden’s presidency, the rule sought to safeguard U.S. chip dominance by controlling the international flow of high-end semiconductors and model weights.
But in a statement this week, the Department of Commerce under President Trump described the rule as “overly complex, overly bureaucratic,” and said it “would stymie American innovation.” The administration plans to replace it with a “much simpler rule that unleashes American innovation and ensures American AI dominance.”
Tiers out, bilateral deals in?
Sources familiar with the administration’s internal discussions say officials are weighing scrapping the current “three-tiered” model, which divides countries based on access rights to AI chips. Under the existing framework:
- Tier 1 countries (17 close allies and Taiwan) have unrestricted access;
- Tier 2 countries (about 120 others) face capped access;
- Tier 3 countries (including China, Russia, Iran, North Korea) are barred altogether.
Instead, the Trump team is exploring a bilateral licensing model where chip access is negotiated directly between governments. Former Commerce Secretary Wilbur Ross suggested this structure would align with Trump’s broader trade philosophy: “There are some voices pushing for elimination of the tiers,” he said Tuesday, calling the new approach “still a work in progress.”
A licensing-based system could give the U.S. added leverage in trade negotiations, allowing American chip access to be used as a bargaining chip in broader diplomatic or commercial deals.
Possible changes to volume thresholds
Among other revisions under consideration is a reduction in the exemption threshold for chip exports that don’t require licenses. Currently, orders equivalent to fewer than 1,700 Nvidia H100 chips bypass licensing requirements and only require notification. One source said the Trump administration is looking to lower that threshold to 500 chips, tightening control over mid-size exports.
Mixed industry response
The original rule drew criticism from chipmakers and cloud providers, including Oracle and Nvidia, who warned it could hinder U.S. competitiveness by pushing foreign buyers toward Chinese alternatives.
Ken Glueck, EVP at Oracle, said the original tiering didn’t make sense, pointing to examples like Israel and Yemen being grouped together in Tier 2. “Wouldn’t surprise me they’re going to take a new look at this,” he said. “I expect the rule to be modified in a significant way.”
Meanwhile, Republican lawmakers have echoed industry concerns. Seven GOP senators sent a letter to Commerce Secretary Howard Lutnick in April urging the rule be scrapped, warning it would drive customers to “unregulated cheap substitutes” from China.
