WASHINGTON — Depending on who’s talking, the outgoing Biden administration’s recently announced “Interim Final Rule” regulating high-tech exports will either protect America’s lead in AI tech from Chinese copycats or cripple the American AI industry by ceding the global market to China.
Publicly announced on Monday after months of build-up and debate, the new rule divides the world into three zones with varying levels of access to US tech. It’s an attempt to simplify routine exports of high-powered chips while simultaneously closing loopholes that China and other adversaries could exploit to steal cutting-edge AI components and know-how.
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“We have a national security responsibility to do two things,” National Security Advisor Jake Sullivan told reporters Sunday: “First, to preserve, protect and extend American AI leadership, particularly vis a vis strategic competitors; and second, ensure that the benefits of American AI are spread to people around the world, including the global build-out of data centers to run AI applications.”
Critics, however, say this will all backfire horrifically. They argue the rule will tie US exports up in regulatory knots so tight they won’t be able to compete for sales with China, whose industry will then get to dominate the international market in AI. (That’s arguably how Chinese drones flooded the globe after the US limited exports of unmanned aircraft technology).
The draft AI rule “will go down as one of the most destructive to ever hit the U.S. technology industry,” Oracle VP Ken Glueck seethed in a Jan. 5 blog post, evidently having read a near-final draft. “[It’s] a highly complex and wildly overbroad attempt to regulate Artificial Intelligence and GPUs [that will] shrink the global chip market for U.S. firms by 80 percent and hand it to the Chinese.” And as soon as the rule officially went public, the Information Technology & Innovation Foundation (ITIF) expressed “serious concerns,” the Semiconductor Industry Association said it was “deeply disappointed,” and leading chipmaker NVIDIA appealed directly to incoming President Trump.
“The first Trump Administration laid the foundation for America’s current strength and success in AI, fostering an environment where U.S. industry could compete and win on merit without compromising national security,” NVIDIA government affairs chief Ned Finkle wrote on Monday. “In its last days in office, the Biden Administration seeks to undermine America’s leadership with a 200+ page regulatory morass.” (The actual PDF clocks in at 168 pages, suggesting Finkle, like Glueck, didn’t see the exact same version).
But the new rule says “interim” in the title for a reason: The actual final rule on export of AI tech will be decided by the incoming Trump administration.
So which way will the returning president likely jump?
“It’s very difficult to say,” UPenn professor and Council on Foreign Relations fellow Michael Horowitz, who served under Biden as senior Pentagon policy official with a special focus on AI, said in an interview with Breaking Defense.
That’s because of the competing factions in and around the incoming administration, rather than between political parties. As in the recent intra-GOP battles over H-1B visas, Trump could either side with the protectionist, anti-China instincts of his MAGA base or the deregulatory, globally-exporting agenda of tech-sector allies like Elon Musk.
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“If Trump’s focused mostly on restricting [China], they’d probably be favorable,” Horowitz said. “If they find industry concerns more persuasive, you could imagine them rolling back at least some of the regulations.”
Apparently aware of worries from industry leaders — and having been publicly skeptical of export controls on China herself — Commerce Secretary Gina Raimondo emphasized the “very long” 120-day public comment period. “We hope that the next administration takes full advantage of those 120 days,” she told reporters Sunday.
That’s a much longer period for public comments than usual for such regulations, said Horowitz.
“My understanding is that comment period was lengthened given industry concerns, which means that the incoming Trump administration will have ample time to get industry feedback and decide if they wish to make changes,” said Horowitz, who wrote his own explainer on the interim rule for CFR.
The draft regulation currently online [PDF] is168 pages. But what’s actually in it?
The Devils In The Details
In brief, the proposed rule divides the countries of the world into three concentric circles of ever-decreasing trust:
Eighteen close allies and partners, like Japan and France, get to join the inner circle, judged not just friendly to the US but sufficiently disciplined in their own export controls that they won’t buy American tech only to let it leak to third parties like Beijing.*
“No restrictions apply to chip sales” to those nations, an official summary says. A company based in these inner-circle countries, or in the US itself, can also use those US chips to build data centers in other inner-circle or even second-tier states, up to certain relatively high limits — if the company can prove it follows National Security Agency “best practices,” which qualifies it as a “Universal Validated End User” (UVEU). The complex and binding nature of those requirements, however, is one of critics’ greatest concerns.
The vast majority of countries fall in the middle ring, which the rule subjects to additional controls on cutting-edge exports while trying to streamline existing regulations on routine commerce. Any given company, agency, or other organization (“end user”) in such a country would now be allowed to import a substantial amount of computing power without restriction: It’s “the equivalent of 1,700 of today’s most advanced AI accelerator chips (e.g. Nvidia H100s) each year,” a White House background paper says, “[worth] tens of millions of dollars of chips for each entity.”
A company based in these countries can also use US AI tech to build data centers in any other such country, under strict limits, if it qualifies as a “National Validated End User” (NVEU, a less privileged status than UVEU). Again, this requires following US security rules.
Finally, 22 nations** subject to US arms embargoes fall in the outer ring, beyond the pale of acceptable importers. These countries would remain subject to all existing export controls, without enjoying any of the new exemptions. In addition they would now be forbidden from importing the most high-end closed-source AI models. (Open-source models are, by definition, freely available to all and their distribution can’t be controlled.)
In effect, the Biden administration argues, the new regulation makes most AI exports easier for most buyers and sellers in most countries, exempting them from current export controls, while tightening safeguards on the most powerful technologies going to the most dangerous countries.
One anonymous senior official told reporters: “What we have done here is actually going to enable the build-out by removing what had been, you know, in many cases, fairly long delays in licensing for even smaller quantities of chips.”
* The 18 trusted allies and partners subject to the fewest restrictions under the draft rule are Australia, Belgium, Britain, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, South Korea, Spain, Sweden, and Taiwan.
** Besides China, which includes Hong Kong and Macau, the 22 blacklisted states are Afghanistan, Belarus, Burma, Cambodia, Central African Republic, Congo, Cuba, Eritrea, Haiti, Iran, Iraq, North Korea, Lebanon, Libya, Nicaragua, Russia, Somalia, South Sudan, Syria, Venezuela, and Zimbabwe