Experts have criticized President Joe Biden's new Interim Final Rule on Artificial Intelligence Diffusion, saying that the rule could hamper U.S. competitiveness.
The AI diffusion rule builds on existing semiconductor and AI export controls by adding controls on advanced computing chips and software, including closed AI model weights, or the training that shapes how AI systems think and respond to queries. It also creates new licensing expectations for companies. The AI diffusion rule aims to "keep advanced AI models out of the hands of malicious actors," according to the Department of Commerce's Bureau of Industry and Security.
Nvidia lambasted the AI diffusion rule. Ned Finkle, Nvidia's vice president of government affairs, said while "cloaked in the guise of an 'anti-China' measure, these rules would do nothing to enhance U.S. security."
Finkle's blog post described the AI diffusion rule as a "sweeping overreach" that imposes bureaucratic control on not just semiconductors, but also computers, systems, and software designed and sold globally.
"In its last days in office, the Biden administration seeks to undermine America's leadership with a 200-plus page regulatory morass, drafted in secret and without proper legislative review," Finkle wrote.
AI diffusion rule could create complexity, increase costs
The AI diffusion rule's updated controls for advanced computing chips require authorizations for exports, re-exports and transfers to a broader set of additional countries.
The rule categorizes countries into three tiers for semiconductor exports and exempts 18 allied countries, including South Korea and Japan, from restrictions. It also exempts chip orders with a collective computation power of up to 1,700 advanced GPUs from national chip caps and doesn't require a license.
Countries within the second tier, including China and Russia, are subject to the strictest restrictions. The third tier includes the expanded list of countries, many in the Middle East and Asia, and caps computing power they can buy.
The rule also imposes security conditions to mitigate the diversion of advanced computing chips. The move aims to close loopholes that countries of concern use to gain access to advanced computing chips, according to a news release from the Biden administration.
Olivier Blanchard, research director at The Futurum Group, applauded the administration's "road map" and guidance on semiconductor exports. The rule will slow the acquisition of advanced chips by countries of concern, he said.
"It creates this ecosystem of hierarchies -- safe, safest, not-so-safe," he said.
However, Forrester Research analyst Alvin Nguyen said the AI diffusion rule would likely significantly affect semiconductor companies' revenue.
"Putting restrictions where companies like Nvidia, AMD or Intel can't export to a country, and what they can ship out, is both less powerful and in more limited quantities, it's guaranteed to impact them financially in a negative fashion," Nguyen said.
That's extra money, that's extra vendors, that's extra complexity.
Alvin NguyenAnalyst, Forrester Research
The AI diffusion rule also challenges global companies wanting to streamline and consolidate marketing and buying processes for chips.
"What that means is redundant systems," Nguyen said. He said that would mean more complicated IT infrastructure and restrict buying to companies that can develop models to support each region. Nguyen said he's concerned about the "inefficiencies" the AI diffusion rule will cause.
"That's extra money, that's extra vendors, that's extra complexity," he said.
AI diffusion rule restricts closed AI models
The AI diffusion rule also adds new controls on the weights of AI models trained with 10^26 computational operations or more, according to BIS.
Though previous export controls implemented AI chip restrictions, the AI model restrictions are new, said Andy Thurai, vice president and principal analyst at Constellation Research.
"Open source models are excluded, which is strange," he said. The restriction applies to only commercially profitable companies -- those affected by the rule, such as Nvidia, AI model providers and hyperscalers, already strongly oppose it, he said.
OpenAI, on the same day the Biden administration released its AI diffusion rule, released an economic blueprint that details numerous policy proposals for how the U.S. can both capitalize on AI's benefits and safeguard national security through "common-sense rules" that focus instead on a free market to drive innovation.
Companies like Nvidia and OpenAI are contending with such rules on multiple fronts, not just in the U.S. The United Kingdom has also proposed increasing public control of AI computing power.
Tech companies' interests may differ from the U.S. and its allies, particularly as the U.S. looks to protect national security and "ride a very fine line of not harming competition, while trying to curtail the use of these same technologies," Futurum's Blanchard said.
Alan Pelz-Sharpe, founder of market research firm Deep Analysis, said that while national security concerns have driven the Biden administration to move forward with the AI diffusion rule, China remains a vast market for tech companies that they will continue to pursue.
"In big tech, government declarations often have little impact on day-to-day business," Pelz-Sharpe said. "They find ways to work around and circumvent them."
Competition with China
Nguyen said attempting to force countries like China to "play better with others" has already had the opposite effect on competition. U.S. export controls strengthened local competition in China against companies like Nvidia, AMD and Intel, he said.
The Information Technology and Innovation Foundation (ITIF) echoed concerns about the AI diffusion rule's impact on U.S. competitiveness. In a statement, ITIF vice president Daniel Castro said the AI diffusion rule is a further "misstep" by the Biden administration in addressing China's access to advanced AI models and semiconductors.
"By pressuring other nations to choose between the United States and China, the administration risks alienating key partners and inadvertently strengthening China's position in the global AI ecosystem."
BIS has already taken action against semiconductor companies selling chips to companies with connections to countries of concern, such as China. GlobalFoundries, based in Malta, N.Y., was fined $500,000 in November 2024 for shipping semiconductor chips to SJ Semiconductor, a company connected with a country of concern, without the proper license or authorization.
"Whenever you have something this important, this valuable, it's going to be a constant effort," Nguyen said.
Incoming Trump administration's impact on AI diffusion rule
The AI diffusion rule will take effect in 120 days, meaning incoming President Donald Trump may decide whether this rule remains.
Constellation Research's Thurai said he believes Trump may reverse the rule, particularly as companies like Nvidia express displeasure. Thurai said Trump could also use it as a negotiating tool to keep or take countries off the list, "the same way the tariff game is being played now."
While the Trump administration may aim to strike down such a rule advanced at the last minute of the Biden administration, it could also modify or amend the rule down the road to make it more amenable to Trump's interests, Futurum's Blanchard said.
Makenzie Holland is a senior news writer covering big tech and federal regulation. Prior to joining TechTarget Editorial, she was a general assignment reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.
