Biden's restrictions on AI chip exports are intended to prevent misuse of the technology. However, large companies fear high costs and loss of market, while excluded countries express concern over limited access to advanced technologies
As the Biden administration is ending its term, one of its last acts, the recent interim final rule (IFR) for a new "Export Control Framework for Artificial Intelligence (AI) Diffusion," is sparking heated debate in the technology sector.

What does the export control framework provide for artificial intelligence (AI) deployment?
To address national security concerns, including the potential misuse of AI to develop weapons of mass destruction or enable harmful activities, this regulatory framework developed by the Bureau of Industry and Security (BIS), an agency of the U.S. Department of Commerce, imposes strict licensing requirements for AI technology exports.
In particular, this standard:
places country-specific caps, along with, as mentioned, a licensing regime on semiconductor exports that would have a particular impact on GPU chips that underpin key AI applications, such as the development of large language models (LLMs);
determines where to ship U.S. chips essential for AI;
determines where to build the data centers that create AI, with a preference for the United States and its allies.
However, major domestic vendors including Oracle, Microsoft, Amazon, and Meta argue that such a regulatory framework is overly pervasive as it would impose excessive burdens, limit innovation, and consequently encourage the ceding of market leadership to China.
"Not only does it limit China's access to advanced technologies, pushing U.S. companies to innovate and develop alternatives; it also limits the global market share of U.S. companies and encourages China to accelerate its technological advances, altering the global technology landscape and intensifying technology competition between the U.S. and China," said Charlie Dai, vice president, principal analyst at Forrester.
Subject of the Interim Final Rule (IFR)
The new Interim Final Rule (IFR), which runs more than 200 pages, includes the establishment of a mandatory global licensing requirement for AI technology and GPUs (GPUs are electronic circuits capable of performing high-speed mathematical calculations) that is linked to country-specific limits on U.S. exports of these technologies.
Twenty trusted countries (Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Republic of Korea, Poland, Spain, Sweden, Switzerland, Taiwan, and the United Kingdom) would be exempted from the export limits. But for the more than 140 non-exempt countries (a list that includes some of America's most important allies such as Israel and Singapore; key trading partners such as Brazil, India, Indonesia, Malaysia and Mexico; and other allies such as Saudi Arabia and the United Arab Emirates), the regulations create an exemption from the Low Processing Performance (LPP) license, essentially allowing certain levels of GPUs to be shipped to these nations on a limited country-specific basis.
To handle the challenge posed by U.S. companies sending artificial intelligence systems to their subsidiaries operating in foreign countries or to the data centers they manage, regulations would establish a Universal Validated End User (UVEU) regime that would allow trusted partners (such as U.S. hyperscalers) to receive faster access to GPUs, but only on the condition that they comply with FedRAMP High (Federal Risk and Authorization Management Program) requirements-a technical certification designed to protect the federal government's most sensitive unclassified data. Specifically, it is a government-wide program that provides a standardized approach regarding security assessment, authorization, and ongoing monitoring for cloud products and services.
In 2022, Congress codified FedRAMP as "a government-wide program that provides a standardized, reusable approach to security assessment and authorization for cloud computing products and services that handle unclassified information used by agencies."
Effects of regulations on enterprises
The implications for businesses are far-reaching. Under the new framework, companies that rely on GPUs for cloud services or artificial intelligence development could experience cost increases, supply chain issues, and delays in accessing cutting-edge technologies.
For cloud providers, compliance costs associated with bringing data centers up to stringent security requirements could create additional burdens.
"For companies, the export control regulatory framework could disrupt GPU supply chains, causing project delays and increased operating costs and forcing companies to invest in alternative technologies, potentially impacting their competitiveness and profitability," Forrester's Dai said.
Cloud providers "would face challenges in complying with complex regulations, risk losing market share as customers seek alternatives, and may be restricted in innovation due to detour of resources to regulatory compliance," he said.
While the framework aims to strengthen oversight, critics worry that it risks straining international partnerships and stifling global AI collaboration.
Oracle's criticism
Oracle criticized the framework in a blog post, saying it will disrupt U.S. leadership in cloud, chips, and AI instead of focusing on high-risk targeted activities.
"The Framework introduces so many new acronyms into what we might best call the Confusion Framework that it is hard to keep them in mind: AIA, ACM, LPP, DC VEU, UVEU, NVEU, TPP, ACA. The Framework identifies 20 AIA (Artificial Intelligence Authorization Countries) that enjoy modestly better regulatory treatment than the rest of the world, but at the same time creates a regulatory quagmire for cloud providers to even serve some of our closest allies. In one confusing action, the BIS retroactively regulates global cloud GPU deployments; restricts the global market for U.S. cloud and chip vendors; sets volume restrictions; tells 20 countries that they can only be trusted if they agree to new unilaterally imposed terms-including certification and semi-annual reporting requirements-and likely pushes the rest of the world toward Chinese technology, which CCP will be only too happy to exploit to catch up with the U.S.," Oracle said.
"The main problem with the deployment framework is that the global commercial cloud has been built continuously and globally over the past two decades. Large investments have been made. Commitments have been made to customers. Location decisions are driven by infrastructure such as energy and bandwidth. Many critical questions seem to go unanswered or not even considered before an RFI is issued. How do you reconcile the rule with sovereign clouds distributed around the world with prior authorization from the U.S. government? What about regulated customers, such as banks, deploying cloud in their own data centers? What about a national health system? Does technology refresh count toward national caps? What about data centers co-located and managed by others? Will existing data centers all have to meet U.S. government requirements of UVEU FedRAMP High?" added Oracle.
"What Congress accomplished with the $280 billion CHIPS Act is thwarted, with this rule reducing the global chip market for U.S. companies by 80 percent and handing it over to Chinese competitors," Ken Glueck, executive vice president of Oracle, blogged. According to him, the framework would more appropriately be called the "Export Control Framework for the Advancement of Alibaba, Huawei, Tencent and SMIC."
The critical position of Nvidia and the Information Technology and Innovation Foundation
An Nvidia spokesman said the new standard would threaten U.S. economic growth and leadership. "Every data center is being accelerated and every business and application is incorporating mainstream AI. The worldwide interest in accelerated computing for everyday applications is a huge opportunity for the United States to cultivate, boosting the economy and adding U.S. jobs." A last-minute rule restricting exports to most of the world would be a major policy change that would not reduce the risk of misuse, but would threaten U.S. economic growth and leadership."
Strong criticisms have also been raised by the Information Technology and Innovation Foundation (ITIF). According to Vice President for Global Innovation Policy Stephen Ezell, “The proposed regulations misunderstand a key element of the way AI chips are used to develop LLMs and work on other computational challenges: GPUs scale both up and down, meaning that their capacity comes from running many GPUs simultaneously to address a computational challenge. Therefore, controlling GPUs makes little sense when a competitor can achieve parity by simply adding more, albeit less powerful, GPUs to solve the computing challenge. In other words, even if Chinese-made GPUs do not perform as well as U.S.-made GPUs in the short term, Chinese companies (or those of other competitors) will be happy to provide the computing power needed to address customer challenges, frustrating the administration's goal of limiting global AI processing while damaging U.S. companies' leadership in global AI computing technology and market share.” “In addition, the regulatory framework would introduce significant compliance challenges that would likely be intractable. First, it would be extraordinarily difficult (if not nearly impossible) for companies to know whether exporting a product would bring a country above the compute limit, unless there is an onerous process whereby a U.S. government agency reviews all sales and aggregates sales information from across the industry (including those of foreign companies). Even the current export licensing process for artificial intelligence chips, which applies only to certain countries (and China), is unpredictable, costly and time-consuming; therefore, extending this process globally would be highly impractical, and this would apply to any country-level cap, no matter how high it is,” Ezell added.
"The Biden administration is trying to force other countries to choose sides-the U.S. or China-and will probably find that if it issues this ultimatum, many will choose China. After all, only one of these countries is actively threatening to cut them off from the valuable AI chips they will need to compete in the digital economy. The next administration should focus on improving U.S. competitiveness in AI by expanding market access for U.S. AI chips and technologies and limiting the influence of its geostrategic competitors in the sector. The vast majority of uses of these chips will be for legitimate and lawful purposes, and the goal should be to capture and retain as much of this market as possible. In addition, the U.S. should counter efforts by China and Russia, which have recently launched a network of AI alliances among BRICS countries, to offer their allies and partners access to AI data, models, and computing resources," the ITIF concluded.
The reservations of ITI and Semiconductor Industry Association lobbyists
The Information Technology Industry Council (ITI), a powerful lobbying group representing industry giants such as Amazon, Microsoft and Meta, also issued a harsh warning note. In a letter addressed to Commerce Secretary Gina Raimondo, ITI CEO Jason Oxman condemned the eleventh-hour administration's push to finalize the rule, arguing that it would impose arbitrary limits on U.S. companies' ability to engage in foreign markets. "Rushing the completion of a complex and consequential rule could have significant negative consequences," Oxman said in the letter obtained by Reuters. The ITI stressed that while recognizing the importance of national security concerns, "the potential risks to U.S. global leadership in AI are real and must be taken seriously."
The Semiconductor Industry Association (SIA) also issued a statement expressing reservations, further amplifying the industry's growing unease. At the heart of the administration's initiative is a strategic goal: to prevent advanced artificial intelligence technology from enhancing China's military capabilities. "ASI and its member companies share the U.S. government's commitment to safeguarding national security. However, we are deeply concerned about the unprecedented scope and complexity of this potential rulemaking, which was developed without industry input and could significantly undermine U.S. leadership and competitiveness in semiconductor technology and advanced artificial intelligence systems," the statement reads. "We are respectfully opposed to such a rapid and significant policy change at this time of transition and without meaningful consultation with industry." In the absence of such consultation, we urge the Administration to issue a proposed rule or defer the policymaking process to the incoming Trump Administration to ensure an adequate opportunity for government and industry leaders, along with our global partners, to thoughtfully address this critical issue."
"It appears that AI is about to become more explicitly nationalist and aligned with foreign policy. This could accelerate the AI sovereignty initiatives already underway. Think of this as a similar discussion between walled garden and open-source," said Abhishek Sengupta, Practice Director at Everest Group, noting that the move could further align AI developments with domestic and foreign policy agendas. Sengupta cautioned that while the United States may leverage AI diplomacy to attract new allies, it risks losing others to emerging global AI alternatives. "In the long run, this could have a serious negative effect on the competitiveness of U.S.-based AI offerings," he added.
Other side effects of the new regulations
Restrictions on access to high-end chips could also push opposing nations to innovate more efficient algorithms, Sengupta noted, citing China's DeepSeek as an example. "DeepSeek relied on NVIDIA's H800 chips, which have lower performance than NVIDIA's cutting-edge offerings limited to the Chinese market. The result? A more computationally efficient LLM that outperformed popular industry names such as ChatGPT-4o and Llama 3.1 in several benchmarks and cost only $5.5 million," he explained.
"The establishment of a system of globalized national limits for AI calculation is as misguided an idea as the U.S. government's attempt to control food (or pharmaceutical) prices," Ezell said. "It is also clear that the Biden administration is trying to impose these rules in the last days of its term, preventing the next administration from considering the central challenge and how to respond to it. The Export Control Framework for the deployment of artificial intelligence represents a flawed policy that should be immediately withdrawn and replaced with a better approach in the next administration, based on broader consultation and stakeholder input."
Supporters of the regulation
For supporters of the regulation, controlling AI exports is a necessary step to prevent misuse by foreign adversaries. The administration cites China's AI and semiconductor ambitions as the driving force behind the rule. "We need to play hardball with our adversaries on AI," Brad Carson, president of the nonprofit organization Americans for Responsible Innovation, said in a statement. "The Chinese Communist Party will exploit any loophole to get their hands on AI technology, so it is critical to stop the flow of this technology to China and its military allies. Big Tech will complain about the new regulatory framework, but at the end of the day stopping the rapid advancement of AI technology for U.S. adversaries is a national security imperative."
“The United States has a national security responsibility to preserve and extend American AI leadership, and to ensure that American AI can benefit people around the world. Today, we are announcing a rule that ensures frontier AI training infrastructure remains in the United States and closely allied countries, while also facilitating the diffusion of American AI globally,” said National Security Advisor Jake Sullivan. “The rule both provides greater clarity to our international partners and to industry, and counters the serious circumvention and related national security risks posed by countries of concern and malicious actors who may seek to use the advanced American technologies against us.”
“AI has been rapidly progressing over the last decade and will only grow more powerful, resulting in the emergence of highly capable models with significant dual-use applications,” said Under Secretary of Commerce for Industry and Security Alan F. Estevez. “This rule will protect national security and advance U.S. foreign policy by ensuring the responsible diffusion of frontier AI technology across the world.”
“Export controls provide a unique tool to address the quintessential dual-use nature of artificial intelligence,” said Acting Assistant Secretary of Commerce for Export Administration Matthew Borman. “Through today’s actions, we ensure the secure spread of AI capabilities, countering the potential for their use in weapons systems and other military activities contrary to U.S. national security. By doing so, we are creating paths that enable trusted partners to use this advanced technology for the benefit of civil society.”
The framework reflects the Biden administration's continued efforts to hinder Chinese technological development in semiconductors and artificial intelligence, and comes just weeks before the expected swearing-in of President-elect Donald Trump, who is expected to maintain a tough stance on China.
Efficacy
The regulation was announced by the Biden-Harris administration on Jan. 13.
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