Trump should block Biden’s AI “gift” to China, Microsoft argues

Microsoft is pushing the Trump administration to change last-minute export controls implemented by Joe Biden on his way out of office that were largely designed to limit access to advanced AI chips so that less surplus could find its way into the hands of China or other foreign adversaries.

Considered critical for US national security, the AI Diffusion rule divides the world into three tiers. At the top are countries that can access US-made AI chips without restrictions, including key chip ally Taiwan and 17 other countries. Access is completely restricted for about 20 countries in the bottom tier, including China, Russia, and North Korea. But stuck in the middle tier are 150 countries that must endure artificial limits on computing supply chains that are kept at least a generation behind US technology accessible by the top tier.

In a Thursday blog, Microsoft President Brad Smith warned that the rule will hurt US businesses by placing heavy restrictions on some of America's "friends"—including countries like Switzerland, Poland, Greece, Singapore, India, Indonesia, Israel, the UAE, and Saudi Arabia. He cautioned that the rule makes "uncertain" their "ability to buy more American AI chips in the future," and this will inevitably force US allies to seek supply chains outside the US. And "it’s obvious where they will be forced to turn" if Trump doesn't intervene, Smith suggested.

"If left unchanged, the Diffusion Rule will become a gift to China’s rapidly expanding AI sector," Smith wrote.

Trump has until mid-May to revise the rule, and it seems likely that Microsoft's plea won't fall on deaf ears. Sources linked to the Trump administration told The Wall Street Journal that Trump's team is currently fielding industry feedback and "weighing steps to strengthen the restrictions while simplifying the export-control rules," the sources said.

Experts agree with Microsoft

For Microsoft, the rule could threaten its business in countries like Poland, where Smith confirmed he just struck a $700 million deal to expand Microsoft’s datacenter infrastructure. Around the world, Microsoft plans to invest $80 billion to build AI infrastructure in 2025 alone, like many other tech companies committing to "unprecedented" levels of AI investments to keep the US ahead in the AI race.

Microsoft clearly wants assurances that these plans won't be disrupted if allies cannot easily access even older versions of US-made advanced AI chips. The nonpartisan nonprofit Brookings Institute analyzed the rule back in January and neatly summarized the tension prompting Microsoft's pushback, saying:

The US government will subject the approximately 150 middle-tier countries to an artificial scarcity of US-supplied advanced computing chips, and then will anoint a small set of US companies to dole a limited number of these chips out to entities concentrated in a few of those countries.

Critics have suggested that startups will struggle under the AI rule and may even have to pay more for advanced chips than big companies, which are more likely to be granted leniency. In many ways, the rule also "undermines" other Trump priorities, like reducing the national deficit and promoting the US as a global AI leader, Smith said. If the rule comes into force unchanged, Smith warned, Trump risks setting the US up to lose the global AI race by giving China a "strategic advantage in spreading over time its own AI technology, echoing its rapid ascent in 5G telecommunications a decade ago."

Importantly, the Brookings Institute noted that countries broadly blocked from US chips didn't just risk stifling their own AI progress but also "their broader efforts to advance their computing infrastructure more generally, with impacts that will cascade across nearly every sector of society." Because of the risks of alienating so much of the world by clamping down on their access to computing technologies, the Brookings Institute has urged that "a far better approach would be to shelve" the rule rather than revise it.

"Countries including Brazil, India, Israel, and the UAE are eminently capable of ramping up investments aimed at securing new ways to access increased computing capacity," the Brookings Institute said. "Preventing companies in middle-tier countries from relying on the US to supply computing chips is a surefire way to push them into building non-US alliances that include stronger technology ties with China."

The rule could also complicate the global AI landscape in ways the US may not anticipate, the Center for Strategic and International Studies (CSIS), a bipartisan, nonprofit policy research organization, forecast last week. It could "breed resentment, not cooperation" in tier-two countries that will likely "bristle at the fact that their AI ambitions depend on Washington’s goodwill and that they are being deliberately kept a generation behind the frontier," CSIS wrote. And it could drive more open source AI like DeepSeek to be key to development in tier-two nations, perhaps further endangering US global leadership in AI, CSIS suggested.

"Ironically, the AI Diffusion Framework, meant to lock in American advantage, may instead midwife the very outcome it sought to prevent—an alternate AI stack and increased open-source development where China, as its most prolific contributor, emerges as the de facto leader," CSIS reported.

China wooing countries targeted by rule, Microsoft says

But according to Smith, some parts of the rule should be preserved, like datacenter restrictions, including "qualitative provisions" that "ensure that AI technology components are deployed in certified, secure, and trusted datacenters." That part of the rule, Smith suggested, "helps reduce the risk of chip diversion to China."

And other parts of the rule can be strengthened, Smith wrote, such as ensuring the Commerce Department has resources to enforce it and "expedite approvals" for any countries in the middle tier who may appeal to either move into the top tier or limit tier-two restrictions.