Overview
On May 13, 2025, the Trump administration announced it would rescind and replace the Biden administration’s AI Diffusion Rule. The announcement was made on the eve of the rule’s compliance date, May 15. The rule would have imposed the first-ever export controls on AI model weights and a worldwide license requirement for certain advanced computing integrated circuits (ICs). The Trump administration asserted that the rule would have stifled American innovation and undermined US diplomatic relations. The Department of Commerce’s Bureau of Industry and Security (BIS) will not enforce the rule as the administration completes its rescission and works on a replacement rule.
Under Secretary of Commerce for Industry and Security Jeffrey Kessler said that the administration “will pursue a 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.” This follows other indications from the administration that it will pursue an AI growth agenda, while simultaneously strengthening regulation of AI from a national security perspective.
In connection with its rescission of the Diffusion Rule, BIS issued three significant new guidance documents regarding AI-related national security risks, particularly with respect to Chinese technology firms.
Given the issuance of the guidance documents and the administration’s stated intent to publish a replacement for the Diffusion Rule, the rescission of the rule suggests a change in strategy with respect to AI export controls, but does not reflect a broad retreat from the aggressive use of AI export controls to protect America’s national security interests in the AI sector.
Prior to the Diffusion Rule, there were already a significant number of highly complex export controls targeting ICs used in the AI sector. Those rules are unaffected by the rescission of the Diffusion Rule and, indeed, the new guidance, discussed below, indicates that the administration intends to interpret those rules broadly and enforce them aggressively.
The AI Diffusion Rule
The AI Diffusion Rule imposed a sweeping set of export controls targeted at technology central to advanced AI. The rule primarily imposed a worldwide licensing requirement on the export of certain advanced computing ICs and AI model weights. The rule created three tiers of countries based on risk of diversion and misuse: 19 low-risk destinations, 25 embargoed destinations (most notably, China), and a middle tier with all other countries. BIS adopted a licensing policy under the rule in which exports of advanced computing ICs to low-risk destinations were generally unrestricted, exports to embargoed destinations were effectively prohibited, and exports to all other countries were approved up to a certain limit. Several prominent US AI and technology firms publicly criticized the restriction for impeding American businesses without addressing the national security concerns, although other AI companies publicly supported the rule.
New Guidance from the Trump Administration
In conjunction with the rescission of the AI Diffusion Rule, BIS also issued three significant new guidance documents. We summarize each of the guidance documents below.
Guidance on the Risks of Using Certain Advanced Chinese ICs
BIS issued guidance on the application of General Prohibition 10 (GP10) of the Export Administration Regulations (EAR) to certain advanced computing ICs manufactured in China. GP10 prohibits engaging in a broad range of activity involving any item subject to the EAR and exported, reexported, or transferred (in-country) with knowledge that a violation of US export controls has occurred, is about to occur, or is intended to occur. Prohibited activity involving such items includes, among other things, selling, transferring, exporting, storing, using, loaning, or disposing of the item.
In the guidance, BIS warns that certain Chinese advanced computing ICs “were likely developed or produced in violation of US export controls” and thus, companies using or otherwise dealing with these ICs risk violating US export controls under GP10. The guidance provides an illustrative list of chips for which BIS will presume that a GP10 restriction applies. BIS asserts that these chips are either designed with certain US software or technology, or produced with semiconductor manufacturing equipment that is the direct product of certain US-origin software or technology or both. In other words, BIS asserts (i) that these Chinese chips are subject to the EAR, and (ii) that their design or production likely involved one or more violations of the EAR. Accordingly, BIS is cautioning businesses that engaging in activity covered under GP10 without authorization could result in an enforcement action.
It is important to note that EAR jurisdiction follows items subject to the EAR anywhere those items are located worldwide and does not require involvement of a US person or activity within the United States. Therefore, BIS’s guidance indicates that any company, anywhere in the world, using or dealing with the chips referenced in the guidance document could be subject to potentially significant penalties under the EAR.
Guidance on the Risks of Using US Chips for Training Chinese AI Models
BIS also issued guidance indicating that providing access to advanced computing ICs and commodities subject to the EAR for training AI models used for military-intelligence and weapons of mass destruction (WMD) end uses in China (and other Country Group D:5 countries and Macau) may trigger a license requirement. The guidance provides several examples, including:
- The export of advanced computing ICs subject to the EAR to a data center provider when the exporter knows that the data center will use these items to conduct training of AI models for, or on behalf of, a company headquartered in China.
- A US person performs any contract, service, or employment when there is knowledge such activity will be used for or may assist the training of AI models for, or on behalf of, a company headquartered China.
Finally, the guidance notes that foreign parties that act contrary to US national security and foreign policy interests by training AI models that could support military-intelligence or WMD end uses for, or on behalf of, parties in China, Macau, or other Country Group D:5 countries may be added to the Entity List, even where no violation of the EAR occurs.
The guidance emphasizes the breadth of the “knowledge” standard under the EAR, which includes not only positive knowledge that the circumstance exists or is substantially certain to occur, but also an awareness of a high probability of its existence or future occurrence.
Guidance on Preventing the Diversion of Advanced Computing ICs
In addition, BIS published a list of eleven transactional and behavioral red flags that industry should be aware of related to the diversion of advanced computing ICs. BIS also provided a list of due diligence actions that companies should take in evaluating new customers and evaluating data centers or other “infrastructure as a service providers.” Companies engaged in relevant conduct may wish to update their compliance program to reflect these red flags and diligence standards. Companies receiving relevant items should also be prepared to answer diligence questions of the type outlined in the guidance.
What’s Next?
The AI industry, in the US and abroad, will be closely watching as the Trump administration considers its export controls strategy for AI. There is speculation that the administration may include AI chip controls in its ongoing bilateral trade negotiations. In particular, the policy shift may be an opportunity for countries excluded from the AI Diffusion Rule’s “low-risk” category to secure more favorable access to advanced AI technology. Still, there is significant uncertainty regarding when the administration will issue a replacement for the Diffusion Rule and what the details of that rule will be.
In the meantime, the new guidance, coupled with the robust AI-related export controls that predated the Diffusion Rule, mean industry should continue to be highly vigilant when engaged in relevant conduct.
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For more information regarding this development or the application of export controls to your activities please contact a member of our Export Controls Practice or AI Practice.
