The “AI Diffusion Rule,” which was announced on Jan. 13 by the last administration, divides countries into three tiers with varying restrictions on American AI chip imports. While close allies like Canada and the UK face few limits, many partners, including India, Switzerland, and Israel, fall into the second tier with significant restrictions on how many chips they can order. A third tier of rivals like China and Russia are completely cut off.
Microsoft’s critique
Microsoft Vice Chair and President Brad Smith didn’t mince words. The rule “undermines” US AI leadership and will ultimately give “China a strategic advantage,” he wrote in a blog post. Smith argued that the rule’s restrictions on allies would backfire, forcing countries to look elsewhere for AI infrastructure — likely to China. While Microsoft waited until now, Nvidia criticized the rule immediately after it was announced, saying that it “threatens to derail innovation and economic growth worldwide.”
The goal of Biden’s export controls has been clear: prevent China from accessing cutting-edge AI infrastructure needed to train and deploy top models while maintaining sales to friendly markets. While Biden’s chip controls began in 2022, the AI Diffusion Rule represents the broadest attempt to prevent advanced computing power from reaching China.
What the Diffusion rule accomplishes
Xiaomeng Lu, director of geo-technology at Eurasia Group, sees the rule as “a move to alienate US allies and partners.” While the Trump administration might tighten rules for China, it could potentially relax them for other countries, she says.
Jeremy Mark, a nonresident senior fellow at the Atlantic Council's GeoEconomics Center, said the implementation seemed rushed. ”As with any wide-reaching policy that is put together in a rush, there will be unintended consequences.”
Jacob Feldgoise, a data research analyst at Georgetown University’s Center for Security and Emerging Technology, questions the primary assumptions of all of Biden’s export controls on chips. “They assume that compute scaling will continue and that algorithmic improvements can’t substitute for compute,” he said. “If those assumptions break down, the controls will further struggle to control the spread of AI capabilities.”
The loopholes in the plan
The Biden export controls haven’t worked as expected. The Chinese company DeepSeek has claimed that it has trained an industry-standard model with much fewer chips than top US labs, though the US is currently investigating whether it had access to restricted chips.
Meanwhile, Chinese buyers have been circumventing the export rules anyway. On Sunday, the Wall Street Journal published an investigation that found Chinese firms ordering Nvidia’s Blackwell AI chips through third parties in neighboring countries. And underground markets across China have long sold Nvidia chips sourced from unknown places.
What Trump could do
Mark said thatTrump could “tighten restrictions on technology sales to China even more than Biden” but said it’s impossible to tell what will come through as policy and what is posturing for future negotiations.
Feldgoise believes further tightening on China is likely, but notes that softening the policy on other countries could undermine that effort. “The challenge with loosening controls on other countries is that doing so would likely undermine the administration's objective of cracking down on chip smuggling to China.”
Domestic chip production and cutting off China will likely remain priorities under Trump, continuing two rare areas of bipartisan agreement. Silicon Valley has been ingratiating itself with the Trump administration in recent months and, on this front, hopes that deregulation in key areas could clear the way for better sales around the world.
