On May 8, 2025, the Trump administration announced the revocation of the "AI diffusion rule," a regulation implemented during the final days of the Biden administration that restricted the export of advanced artificial intelligence (AI) chips. The administration plans to introduce a simplified global licensing system based on direct government agreements, replacing the previous tiered model.

The original AI diffusion rule, officially titled the "Framework for Artificial Intelligence Diffusion," was introduced in January 2025. It aimed to limit China's access to cutting-edge computing technologies to maintain U.S. leadership in AI and prevent military advancements by rival nations. The rule established a three-tier system for AI chip exports:

• Top-Tier Allies: Unrestricted access for 19 countries, including the United States, Australia, Canada, Japan, and the United Kingdom.
• Mid-Tier Countries: Capped supplies for approximately 150 countries.
• Adversarial Nations: Complete ban for countries such as China, Russia, Iran, and North Korea.

Critics, including industry leaders and international partners, argued that the rule was overly complex and could hinder American innovation. Nvidia's Vice President of Government Affairs, Ned Finkle, described the rule as a "sweeping overreach" that could derail global innovation and economic growth. The Semiconductor Industry Association (SIA) also expressed disappointment, stating that the policy was being "rushed out the door days before a presidential transition and without any meaningful input from industry."

In response to the criticism, the Trump administration decided to revoke the AI diffusion rule. A Department of Commerce spokeswoman described the original rule as overly complex and bureaucratic, asserting that it would hinder American innovation. The administration plans to implement a simplified global licensing system based on direct government agreements, replacing the tiered model. No specific timeline has been set for the new policy.

Following the announcement of the rule's revocation, Nvidia's stock experienced a 3% increase, reflecting investor optimism about the easing of export restrictions. However, shares dipped slightly in after-hours trading.

The revocation of the AI diffusion rule has several social and economic implications:

• Innovation and Competitiveness: Easing export restrictions may bolster U.S. semiconductor companies' global competitiveness, allowing them to maintain leadership in AI technology.

• International Relations: The original rule strained relations with mid-tier countries and allies who viewed the restrictions as detrimental to their technological development. The policy shift may improve diplomatic ties and foster international collaboration.

• National Security: While the revocation aims to support innovation, it raises concerns about preventing adversaries from accessing advanced technologies. The new licensing system's effectiveness in safeguarding national security interests remains to be seen.

The Trump administration's decision to revoke the AI diffusion rule and propose a new licensing system marks a significant shift in U.S. AI export policy. Balancing innovation, international relations, and national security will be crucial as the administration develops and implements the new framework.