Summary

The Biden Administration's "Export Control Framework for Artificial Intelligence Diffusion" is poised to be one of the most destructive regulations to hit the U.S. technology industry. The Bureau of Industry and Security's proposed Interim Final Rule (IFR) is a complex and overbroad attempt to regulate AI and GPUs in the name of national security, disrupting U.S. leadership in cloud, chips, and AI. While everyone agrees on the need to control certain high-risk uses of GPUs, such as developing weapons of mass destruction and frontier AI models, the Diffusion Framework misses the mark by a wide margin.

Instead of targeting specific high-risk activities, the Framework imposes a global licensing requirement for AI technology and GPUs, shrinking the market for U.S. cloud and chip suppliers by 80% and handing it to China. The rule introduces a confusing array of new acronyms and regulatory requirements, including the AIA (Artificial Intelligence Authorization) countries, UVEUs (Universal Validated End Users), and LPP (Low Processing Performance) license exceptions. These regulations will fundamentally change the economics of data center deployment worldwide and stifle innovation across industries that rely on AI as a feature of commercial clouds.

The Diffusion Framework was issued without industry consultation or a public comment period, just days before a new administration takes over. The IFR, set to go into effect a mere 60 days after publication, will turn the U.S. cloud industry upside down. By retroactively applying draconian new regulations to largely unregulated public, commercial cloud, the rule will strangle emerging business models and likely hand most of the global AI and GPU market to Chinese competitors. In short, this regulatory overreach will cost the U.S. its critical technology leadership while failing to address the specific national security concerns it claims to target.

Let that sink in.