The US Commerce Department has quietly withdrawn a controversial draft regulation that would have given Washington unprecedented leverage over the global AI chip market. The proposed rule, which required foreign buyers of advanced semiconductors to match every dollar spent building local AI infrastructure with equivalent investments in the United States, effectively vanished from regulatory tracking systems without formal announcement.
According to a US official cited by Reuters, the proposal had never progressed beyond an early draft stage and therefore did not represent a finalized policy direction. The withdrawal marks a tactical retreat from one of the Trump administration's more aggressive approaches to controlling artificial intelligence development abroad.
The abandoned framework would have been punishing for international competitors. Export licenses granted to Cerebras and Nvidia to supply AI hardware to Saudi Arabia and the United Arab Emirates reportedly required the country to match every dollar spent on domestic AI infrastructure with a dollar invested in AI infrastructure in the U.S. If similar conditions were applied to other markets, companies deploying accelerators from AMD, Cerebras, Nvidia, and other vendors would have effectively faced their costs doubling.
This context matters. The Commerce Department is pursuing a fundamentally different strategy from the one it inherited from the Biden administration. In May, the Department of Commerce announced a rescission of the Biden Administration's AI Diffusion Rule. That rule, issued in January 2025, created a tiered system dividing countries into three categories with varying restrictions on chip exports.
The Trump administration's critique cuts both directions. Commerce's Bureau of Industry and Security released a statement saying that the Biden administration's AI Diffusion Rule would have "stifled American innovation," burdened companies with regulatory requirements and undermined U.S. diplomatic relations. Yet the administration's own draft proposal, now shelved, might have done exactly that to American companies seeking international markets.
The tech industry largely celebrated the withdrawal. NVIDIA said in a statement last week that "with the AI Diffusion Rule revoked, America will have a once-in-a-generation opportunity to lead the next industrial revolution and create high-paying U.S. jobs, build new U.S.-supplied infrastructure, and alleviate the trade deficit." But even this optimism comes with caveats. Sam Altman, CEO of OpenAI, testified on May 9 that "if the sort of mental model is winning diffusion instead of stopping diffusion, that directionally seems right," but cautioned: "that doesn't mean there's no guardrails."
What remains unresolved is Washington's central dilemma: how to maintain American dominance in AI technology whilst allowing allied and friendly nations enough access to prevent them from developing independent capabilities or turning to Chinese alternatives. The Commerce Department specifically noted that it was looking into formalizing the approach under which Cerebras and Nvidia were allowed to supply their AI accelerators to companies in the Middle East.
The U.S. government is still working on a new set of export rules for AI hardware developed in America. Officials have signalled that replacement regulations will draw lessons from bilateral negotiations with Saudi Arabia and the UAE, where countries agreed to invest in American AI infrastructure without the sledgehammer approach of mandatory cost-doubling. Whether such an approach can satisfy both security hawks and industry executives remains uncertain.