On May 7, 2025, the Trump administration announced plans to rescind the "AI diffusion rule," a regulation introduced during the final days of the Biden administration that aimed to restrict the export of advanced artificial intelligence (AI) chips, particularly to China. The rule was set to take effect on May 15.

The AI diffusion rule sought to implement a three-tier licensing system and impose volume caps on chip exports to over 100 nations outside the G7 and Taiwan. A U.S. official deemed the regulation "unenforceable" and full of red tape, stating a revised rule would be drafted to allow U.S. technology to thrive while preventing adversaries' access.

Major tech companies, including Nvidia and AMD, expressed concerns that the AI diffusion rule would hinder U.S. innovation and competitiveness. Nvidia, for instance, argued that the regulation would benefit Chinese rivals like Huawei by limiting U.S. companies' ability to compete globally.

Following the announcement, Nvidia and AMD shares rose by 3% and 1.8%, respectively, indicating positive market reception.

The Trump administration's decision to rescind the AI diffusion rule reflects a shift toward policies that balance national security with economic interests. A Department of Commerce spokeswoman criticized the original rule as "overly complex and bureaucratic," stating that it would hinder American innovation.

The rescission occurs amid ongoing debates over the effectiveness of export controls in maintaining U.S. technological leadership. Critics argue that such controls may inadvertently accelerate competitors' innovation by forcing them to develop alternative solutions.

Additionally, reports suggest that despite existing export bans, advanced AI chips continue to reach China through smuggling and other means, raising questions about the enforceability of such regulations.

The rescission of the AI diffusion rule underscores the complex balance between national security and economic growth. The administration's move reflects a strategic shift to support U.S. technological innovation while addressing security concerns. Ongoing discussions are expected as policymakers and industry leaders navigate the evolving landscape of global technology and trade.