U.S. AI Export Regulation Update
Trump’s Changes, May 15th Deadline & Liberation Day
April 4th, 2025 - By now, all our clients, prospective clients and partners will be familiar with the Biden administration’s Interim Final Ruling (IFR) “Framework for Diffusion of AI” export regulation and the burden of applying for NVEU (National Validated End User) authorization. You will be heartened to know that the AI industry and multiple countries have been lobbying to soften the regulation, and that the Trump administration is hard at work to simplify what they acknowledge is a complex regulation. However, our clients are advised not to be lulled into complacency. This update describes what’s known about the Trump administration’s progress and the factors they are considering. A follow-on update will present several scenarios that our clients should factor into their scenario planning. This update also assesses the impact that Liberation Day will have on the May 15th deadline.
During his senate confirmation hearing (footnote 6), Jeffrey Kessler - the new head of the agency charged with implementing the IFR (U.S. Bureau of Industry and Security, or BIS) – said “It’s a very complex and bureaucratic rule. So that’s one of the things that I’d like to review when I go in.” The industry has also been hard at work lobbying to influence the administration’s effort to improve the IFR. Recently, Nvidia hired Stewart Barber, a Republican government affairs exec and ex advisor to Ivanka Trump. Both Nvidia and Oracle have been outspoken against the Biden rule, and both have recently joined the Information Technology Industry (ITI) Council, a trade group representing most major tech firms to push for an unambiguous stance against the AI diffusion rule. From our sources, we know that Microsoft has also been active, highlighting the urgency and importance for the Trump administration to avoid “strategic misstep in the global AI race” as described in the blog post by Microsoft’s Vice Chair and President, Brad Smith (footnote 7). As international hyperscalers, both Microsoft and Oracle are chafing at the rules that limit their plans to centralize their AI cloud resources within a country to serve a region (e.g. Malaysia as a hub for Southeast Asia) and the burden of UVEU (Universal Validated End User) compliance.
Foreign governments have also been lobbying. After meeting U.S. Secretary of State Marco Rubio in February, Sheikh Tahnoon bin Zayed – the UAE’s national security adviser and brother of the country’s president – met with Trump cabinet officials to advocate against the IFR’s restrictions on the UAE (footnote 8). The UAE is vying to become a powerhouse for AI, and it didn’t hurt that the Sheik announced funding from Abu Dhabi-based MGX for the $100 billion AI infrastructure venture unveiled by Trump. In Poland, after meeting with Trump and team in February, President Andrzej Duda told a local TV station that Trump responded by saying “the matter [AI regulations impact to Poland] needs to be dealt with”. Similarly, according to a report by Bloomberg (footnote 9), Israeli PM Netanyahu’s advisers raised concerns about the IFR ahead of Netanyahu’s DC visit in February. In their case, Israel is working to enact a law which would bring its export control standards in line with Tier-1 countries, but they also admit that promotion to Tier-1 may require a quid pro quo with the Trump administration. Similarly in Malaysia - per a March 23rd Financial Times report (footnote 10) - the government is planning to tighten regulations on AI chips to stem the illicit flow to China. However, in their case, it was due to pressure from the U.S. versus a proactive lobbying effort to obtain relief from the AI export regulation.
STREAMLINE - One of Trump’s pillars is deregulation. For example, hours after he took office, he rescinded Biden’s executive order on AI Safety. But for the AI Diffusion Framework, the Trump administration is past the halfway point between when the regulation became effective and the May 15th deadline for companies to become compliant. The criteria to simplify is clear. Kessler’s comments reflect the complexity of constraining and monitoring Total Processing Performance (TPP) compute shipments, the offsetting impact of DeepSeek’s efficient use of GPUs, and the real impact of reduced BIS staffing due to DOGE. However, the Trump administration must balance this with three other factors:
OPTICS – In the now infamous Signal group chat about the US attack on the Houthi’s, Pete Hegseth texted: “I think messaging is going to be tough no matter what – nobody knows who the Houthis are – which is why we would need to stay focused on: 1) Biden failed & 2) Iran funded.” For Trump’s cabinet, simple messaging and optics are paramount where Trump cannot look weak versus Biden. Via our sources, and, also reported by Bloomberg (footnote 9), the current message from key officials is to “streamline and strengthen” the AI regulation. Accordingly, one option not being considered – according to Bloomberg’s contacts - is a wholesale repeal. And going counter to other vendors, Anthropic – also a member of the ITI Council - published a blog stating: “We advocate for tightening export restrictions …. controlling H20 chips, requiring government-to-government agreements for countries hosting large chip deployments, and reducing no-license-required thresholds.” The last phase refers to the low volume (< 333 GPU/yr) exception depicted in the earlier diagram. Other officials have floated the idea of reverting to two tiers where countries are either in the favored Tier-1 category or clumped together with China and subject to stricter (but simpler) controls on allowable, lower-performance GPU exports (e.g. Nvidia’s dumbed-down H20). Countries now complaining about Tier-2 status would fare even worse in this scenario if they ended up in this category.
QUID PRO QUO – Trump has learned by now - by virtue of the AI discussions with the UAE, Israel (as described above) and likely other governments – that relief from the AI export regulation is another card in the negotiation of trade and investment balance between the U.S. and individual countries. And it is well known that Trump and his administration love holding the cards. This doesn’t bode as well for Southeast Asian countries, India nor Latin America where most countries have a trade surplus with the U.S. On the other hand, countries in the Middle East - that can offer investments in the U.S. – may seem to fare better and may offer to “buy” their way into Tier-1 status. However, certain members of Trump’s cabinet may balk at the national security risks and point to the recently expanded U.S. entity list (footnote 12), a blacklist that prohibits U.S. companies from exporting to identified companies, that included four companies based in the UAE. Regardless of the use of these cards post “Liberation Day” (4/2/25), if Trump and his cabinet like holding these cards, it argues in favor of maintaining a tiered system for AI exports… especially if the regulatory complexity is borne by the foreign countries and not by the U.S.
CHINA DIGITAL SILK ROAD – The Trump administration prioritizes America First with no focus nor funding for anything amounting to a new Marshall plan. But that doesn’t mean the Trump administration doesn’t care about blunting BRIC, China’s Belt-and-Road or China’s Digital Silk Road Initiatives. As an example from January (before the lead up to Liberation Day), Trump threatened tariffs to dissuade BRIC nations from replacing the U.S. dollar (footnote13). And with the current AI export regulation, Biden might have just handed Trump a relatively cheap gift to blunt China’s Digital Silk Road initiative - a formidable initiative with companies like Huawei and ZTE having long targeted the Global South, dangling state-backed loans, discounted hardware, training and technical help. In early 2024, Microsoft and the Biden administration announced a deal for a $1.5 billion Microsoft investment into the UAE-based AI and data center firm G42 which forced the firm to sever ties to China’s Huawei (footnote 14). Inspired by this deal, the authors of the Biden AI export regulation included similar “expulsion” concepts in the form of the regulatory requirements for the National Validated End User (NVEU) authorization required by Tier-2 companies. Ironically, critics of this rule include Microsoft (footnote 7): “The unintended consequence of this approach is to encourage Tier Two countries to look elsewhere for AI infrastructure and services. And it’s obvious where they will be forced to turn. If left unchanged, the Diffusion Rule will become a gift to China’s rapidly expanding AI sector.” In fact, since Deepseek’s announcements in January, an AI boom has been happening in China with a flurry of LLM innovation announcements (Alibaba, Baidu, Tencent, Bytedance) using the still-legal-to-export Nvidia H20 GPUs, and AI cloud expansion into the global south continues apace (e.g. Alibaba Cloud announced AI expansion in Malaysia in March 2025 (footnote15)).
SUMMARY - While the AI industry and multiple countries have been lobbying Trump’s administration to seek relief from the diffusion framework, any softening of the regulation is far from certain. At time of publication, the May 15th deadline is only six weeks away. On the other hand, most of Trump’s cabinet will be consumed by the fallout from Liberation Day, and an extension of the deadline is possible (like Trump’s extension of the TikTok deadline). But the optics wouldn’t look good - e.g. “Trump administration delays Biden’s efforts to curb China’s progress on AI” - so clients shouldn’t count on any schedule relief. In the next Aiolian update, we’ll combine additional information and insights to describe several scenarios for how the administration will modify the current AI export regulation. We provide these update and analyses to enable our clients to do educated planning and scenario considerations. Our mission at Aiolian International is to help developing nations and their local companies create sovereign AI infrastructure while navigating the evolving US regulations for AI technology exports. We provide a unique three-pillar combination of AI cloud strategic planning, regulatory consulting and IFR authorizations, and systems for regulatory compliance. Please don’t hesitate to contact us if you have questions.
References:
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1 - For “License Exception Low Processing Performance (LPP)”. See the new section § 740.29 of the US Export Regulations
2 - Calculation based on Nvidia Blackwell B200 with 20,000 FP4 TFLOPs = 80,000 TPP. US AI export regulation limits low volume imports to 26.9M TPPs
3 - Per-country authorization and allocations as described in new section § 742.6 of the US Export Regulations
4 - Based on same B200 stats as above. US AI export regulation limits each country to 790M TPP cumulative over three years
5 - The National Validated End User (NVEU) authorization described in new section § 748.15 of the US Export Regulations
6 - BIS Chief Kessler Nomination Hearing, Washington Tariff & Trade Letter, Feb 27th, 2025.
7 - “The Trump administration can avoid a strategic misstep in the AI global race”, Brad Smith - Vice Chair & President, Feb 27th, 2025.
8 - “Top UAE official to press US on ability to buy more Nvidia AI chips”, Al Arabiya News, March 14th, 2025.
9 - “Tech Chiefs, Foreign Leaders Urge Trump to Rethink AI Chip Curbs”, Bloomberg, March 25th, 2025.
10 - “Malaysia to crack down on Nvidia chip flows under US pressure” Financial Times, March 23rd, 2025.
11 - “Anthropic’s Recommendations to OSTP for the U.S. AI Action Plan”, Anthropic Blog, March 6th, 2025.
12 - “Additions and Modifications to the Entity List”, A Rule by Industry and Security Bureau, March 28th, 2025.
13 - “Trump repeats tariffs threat to dissuade BRICS nations from replacing US dollar”, Reuters, January 30th, 2025.
14 - “Microsoft-G42 deal positive because it cut Huawei ties, White House official says”, Reuters, June 24th, 2024.
15 - “Alibaba Cloud’s latest AI offerings fuel Malaysia’s AI future”, Astro Awani, March 3rd, 2025.