White House Weighs First Step Toward Replacing AI Diffusion Rule

Forbes

21 hours ago

AFP via Getty Images
When the White House determined it would pursue an alternative to the Biden administration's AI Diffusion Rule in May, the Commerce Department indicated that it would replace the restrictions with a 'bold, inclusive strategy.' While this new regulation has yet to emerge, the first indication that the Trump administration plans to make good on this statement has appeared, with the White House considering new restrictions on semiconductor imports to Malaysia and Thailand, according to Bloomberg.
Under this potential rule, semiconductor imports to Malaysia and Thailand would be subject to the same licensing requirements as China and the over 40 other countries to which the Biden administration expanded the restrictions in 2023. The motivation for the change is not necessarily about limiting Malaysia's and Thailand's access to the advanced chip due to national security concerns, but worries about chip smuggling from these countries to China. Similar restrictions are already in place in several other Southeast Asian countries, including Vietnam, Cambodia, and Laos.
The timing for when this change could take place has yet to be confirmed, and the exact changes have also not been finalized. The update could happen as soon as later this month, but it is also possible that this timeline could be stretched out beyond that, too, especially if there are to be any changes to the planned restrictions. So far, there has not been a significant public lobbying pushback yet since the Bloomberg report, which could be a sign that few changes will be needed and the restrictions will be announced soon. The update will likely be made in the form of an interim final rule, allowing it to take effect almost immediately after being formally published.
While this is far from a complete overhaul of the Biden administration's AI Diffusion Rule , if the Trump administration moves forward with these limits on Malaysia and Thailand, it would be a signal of intent that it is serious about replacing these restrictions. While this change would not offer much insight into what the new system might look like, it does show that it will likely not be a total overhaul of the current regime. The Trump administration had previously indicated that it planned for the new process to have a greater focus on bilateral deals, as reported by Bloomberg, which is much more consistent with President Trump's preferred methods of negotiating. This revision does not appear to reflect that, but it also does not preclude the possibility of the approach being further refined in the future.
One crucial change expected in the restrictions targeting Malaysia and Thailand that was not in the AI Diffusion Rule is provisions to mitigate the immediate impact on companies with significant business operations in these countries that rely on semiconductor imports, such as Oracle. These include a transition period that would allow companies headquartered in the US and certain friendly nations to continue shipping the otherwise restricted chips without a license for a few months after the rule takes effect. Additionally, the regulations would include measures intended to minimize supply chain disruptions, given these countries' significant roles in the semiconductor supply chain, particularly in packaging. The reported inclusion of these business-friendly provisions may explain why the reported proposal has not sparked as much backlash from industry participants as the AI Diffusion Rule did, as covered by The Wall Street Journal.