Microsoft Corporation MSFT has cautioned the Trump administration that the Biden-era “AI Diffusion Rule,” might inadvertently strengthen China’s rapidly expanding AI sector.
What Happened: In a company blog, Brad Smith, the Vice Chair & President of Microsoft highlighted the issues related to the AI Diffusion Rule. In the last days of Joe Biden’s administration, the U.S. government announced tighter restrictions on AI chip and technology exports, aiming to retain advanced computing power within the country while expanding efforts to limit China’s access.
However, it also classifies many significant U.S. allies and partners as Tier Two, restricting U.S. tech firms’ capacity to construct and grow AI data centers in these nations. The countries affected include Poland, Switzerland, Greece, Singapore, Indonesia, India, Israel, the UAE, and Saudi Arabia.
Microsoft expressed concern that this could result in an unexpected outcome: prompting Tier Two nations to explore other options for AI infrastructure and services, possibly to the advantage of China’s AI sector.
“Left unchanged, the Biden rule will give China a strategic advantage in spreading over time its own AI technology, echoing its rapid ascent in 5G telecommunications a decade ago,” stated the Satya Nadella-led company.
The tech behemoth also pointed out the irony of the situation, as the rule discourages what should rather be considered an American economic opportunity – the export of cutting-edge chips and advanced technology services. It further proposed that the Trump administration could take advantage of this opportunity to simplify the rule, ensuring it does not erode the trust of American allies or disrupt a well-functioning economic market.
Why It Matters: This development comes in the wake of President Donald Trump reportedly considering stricter measures on China’s semiconductor industry, a move seen as an extension of efforts initiated under the former President Joe Biden administration to curb China’s technological advancement.
Microsoft’s Smith told the Wall Street Journal these restrictions will have a substantial negative impact on the U.S. economy by discouraging other countries from engaging in business with the U.S. Smith believes that startups like DeepSeek, offering cutting-edge AI models at a much lower chip cost, have strong potential to provide an alternative in such a situation.
According to the Wall Street Journal on Thursday, the Trump administration officials are considering measures to tighten restrictions while streamlining export-control regulations.
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