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Trump Administration Rescinds Biden’s AI Diffusion Rule

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Two days before its scheduled effective date, the Department of Commerce’s Bureau of Industry and Security (BIS) announced the rescission of the Biden administration’s Artificial Intelligence (AI) Diffusion Rule on May 13. The Framework for Artificial Intelligence Diffusion, issued as an interim final rule on January 15, 2025, established new requirements under the Export Administration Regulations (EAR) for the export, reexport and in-country transfer of advanced computing integrated circuits (ICs). These requirements created new licensing and quota regimes for advanced AI chips, as well as a tiered framework for assessing export restrictions to diverse jurisdictions (discussed in our previous post here).

The Trump administration’s rescission of the AI Diffusion Rule aims to eliminate what it called “burdensome new regulatory requirements” that allegedly would have stifled American technological innovation and weakened diplomatic relationships with key strategic partners. Under Secretary of Commerce for Industry and Security Jeffrey Kessler noted that BIS will issue a replacement diffusion rule, but provided no timeline for its release. Nevertheless, as BIS’s announcement notes, the new rule should reflect the Trump administration’s “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.”

The rescission follows reports of pushback from major U.S. technology companies. Chief among their concerns were the potential fragmentation of supply chains and the risk of a competitive disadvantage vis-à-vis foreign firms due to heightened export restrictions.

BIS’s New Guidance on AI Export Controls
Alongside the rescission announcement, BIS issued three guidance documents to strengthen the U.S. export controls regime, all effective as of May 13: (1) a policy statement on controls applicable to advanced ICs and other commodities used to train Chinese AI models; (2) guidance on General Prohibition 10 (GP 10) on 3A090 ICs produced by the People’s Republic of China (PRC); and (3) guidance on preventing the diversion of AI supply chains.

  1. Policy Statement on AI Modeling:

The BIS Policy Statement on Controls that May Apply to Advanced Computing Integrated Circuits and Other Commodities Used to Train AI Models does not add any new export controls on AI model training for Chinese companies. Rather, it provides guidance on the activities that trigger a license requirement under EAR’s part 744 catch-all controls for China, Macau and other D:5 jurisdictions, such as:

    • The export, reexport or in-country transfer of advanced computing ICs and related commodities subject to EAR restrictions to foreign Infrastructure-as-a-Service (IaaS) providers (like data centers), where said providers would utilize these technologies or commodities to train AI models “for or on behalf of” these jurisdictions;
    • When there is “knowledge” of in-country transfers (defined as a change in end use or end user) of advanced computing ICs and related commodities subject to export controls. Note that this provision applies to ICs which are both already under the possession of parties such as IaaS providers, and which are utilized to train AI models “for or on behalf of” these jurisdictions for military-intelligence purposes or other prohibited end use activities like weapons of mass destruction development;
    • When a “U.S. person” supports or performs “any contract, service, or employment” with “knowledge” that such activity will assist the training of AI models “for or on behalf of” these jurisdictions.
  1. Guidance on GP 10 for “PRC 3A090 ICs”

GP 10 prohibits any person from taking almost any action involving an item subject to U.S. export controls with “knowledge” that a violation of EAR restrictions “occurred, is about to occur, or is intended to occur” in connection to 3A090 ICs. Particularly, the guidance establishes:

    • A presumption of an EAR restriction on all AI ICs under the 3A090 category designed by companies “located in, headquartered in, or with an ultimate parent company headquartered in” China;
    • Substantial criminal and administrative penalties to persons or entities that violate GP 10, except for those persons or entities that obtained BIS authorization for the export, reexport, and in-country transfer of these technologies;
    • A non-exhaustive list of chips presumptively subject to EAR restrictions, with the explicit case of Huawei’s Ascend chips (series 910B, 910C and 910D) as reference.
  1. Guidance on Preventing Advanced Computing IC Diversion

BIS’s Industry Guidance to Prevent Diversion of Advanced Computing Integrated Circuits provides a non-exhaustive list of red flags to identify export controls evasion. This document primarily focuses on diversion, or the re-export of controlled advanced ICs to China through a third country.

Moreover, it details recommended due diligence best practices to assist in determining potential diversion risks, including:

    • Assessments regarding the incorporation, ownership structure and headquarters location of potential customers;
    • End user and end use evaluations such as determining “whether the customer’s line of business is consistent with the ordered items,” in addition to requiring detailed end user and end use certifications of all parties in a transaction;
    • Notifications to potential domestic and foreign customers of existing EAR licensing requirements for technologies and products restricted for export, re-export or in-country transfer.

China’s Response and Potential Retaliatory Actions
Labeling BIS’s latest guidance as “unilateral bullying and protectionism,” China’s Ministry of Commerce warned that individuals or organizations within China that complied with, or assisted in the compliance of, the latest U.S. export controls on AI would be suspected of having violated Chinese laws and regulations, including the Anti-Foreign Sanctions Law (AFSL) of 2021.Potential countermeasures may include travel bans, deportations, or the freezing and seizure of assets.

Companies should also remain alert about potential supply chain disruptions arising from China’s potential imposition of export restrictions under its Export Control Law of 2020 and Foreign Trade Law of 2022.

Looking Ahead
The rescission of the AI Diffusion Rule signals a broader effort by the executive to unwind regulatory frameworks perceived as overly restrictive by the current administration, as well as by industry stakeholders.

Note, however, that BIS has not announced any rescission of the separate Advanced Computing Due Diligence Rule issued by the Biden administration in tandem with the AI Diffusion Rule. This interim final rule seeks to prevent “front-end fabricators” and Outsourced Semiconductor Assembly and Test companies from avoiding export controls on advanced computing ICs by misrepresenting their design performance capabilities. Particularly, it contains Note 1 to Export Control Classification Number 3A090, which establishes that chips developed using 16/14 nm or below are presumptively 3A090.a until proven otherwise (discussed in our previous post here).

Companies should expect BIS’s forthcoming replacement rule to continue the coverage of 3A090 advanced computing ICs under the EAR’s export control regime—though with a lighter regulatory touch compared to the Biden administration’s AI Diffusion Rule. The Trump administration may also potentially seek to restrict more broadly any IaaS offering utilizing advanced computing chips for companies in China or who are owned by Chinese parents, although rules along these lines have not yet been implemented. Additionally, as trade tensions between the United States and China mount in the technology sphere, companies must ensure their internal supply chain compliance toolkits remain up to date. This will help to avoid violating end user or end use restrictions for advanced ICs, which carry substantial administrative and criminal penalties.

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