On February 27, 2025, Microsoft President and Vice Chair Brad Smith urged the Trump administration to revise the Biden-era AI Diffusion Rule. Microsoft supported blocking adversaries from obtaining advanced AI technology, but argued that the rule’s country tiers, quotas and compliance burden could make trusted allies wary of U.S. suppliers and give Chinese providers an opening.
The policy changed before the rule’s main requirements began. The Commerce Department rescinded the framework and ordered non-enforcement on May 13, 2025. That did not end every U.S. restriction on advanced AI chips: May 31, 2026 guidance confirmed that certain pre-existing licensing requirements still apply to entities tied to Country Group D:5 countries or Macau.
What Microsoft asked the Trump administration to change
Smith’s request was for a narrower, simpler system—not unrestricted exports. Microsoft wanted the administration to:
- Reconsider the worldwide, tiered structure of the AI Diffusion Rule.
- Keep safeguards against diversion to China and other adversaries.
- Give trusted allies predictable access to U.S. chips, cloud capacity and data-center investment.
- Reduce the complexity and uncertainty that could discourage American companies from building infrastructure overseas.
Microsoft’s February 27 statement is the primary record of that position: Microsoft’s policy statement.
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Smith warned that if customers could not rely on American AI infrastructure, they might turn to Chinese suppliers. That was Microsoft’s strategic forecast, not proof that a switch had already occurred.
What the AI Diffusion Rule would have done
The Biden administration announced the framework on January 13, 2025, and issued the rule on January 15. It covered advanced-computing chips, certain closed AI model weights and the data centers capable of operating them. The framework combined licensing, quantity limits, security obligations, approved-operator authorizations and exceptions; it was not a blanket worldwide ban.
Its broad structure divided destinations into three practical groups:
Close allies and partners
A relatively small group received more favorable treatment and pathways for approved deployments.
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Second-tier destinations
Many countries faced quotas, additional authorizations or compliance requirements. Microsoft cited Switzerland, Poland, Greece, Singapore, India, Indonesia, Israel, the United Arab Emirates and Saudi Arabia as examples of allies or partners it said were treated this way. The list was illustrative, not a complete inventory.
High-risk and arms-embargoed destinations
These destinations faced the strictest controls because of diversion and national-security concerns.
The Bureau of Industry and Security described the framework’s purpose and exceptions in its January announcement: BIS overview of the AI diffusion framework. The principal compliance requirements were scheduled for May 15, 2025, but the government instructed officials not to enforce the new requirements two days before that date.
Why Microsoft objected to second-tier treatment
For a cloud company, the issue was larger than shipping individual processors. International customers may depend on Azure capacity, Microsoft-hosted models, infrastructure partnerships and locally operated data centers. If access appears temporary or politically uncertain, a customer may choose a different supplier before a long-term facility is built.
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Microsoft said it planned to invest $80 billion in AI infrastructure during 2025, with more than half remaining in the United States. That was the company’s announced spending plan, not an independently audited final expenditure. Its argument was that overseas revenue and deployments help sustain the broader investment program.
Smith compared the risk to China’s earlier gains in 5G: rules intended to protect U.S. interests could, in his view, make Chinese infrastructure more attractive. The commercial logic is straightforward:
- U.S. providers need dependable international markets for cloud and AI services.
- Customers need confidence that approved capacity will remain available.
- Uncertainty can push governments and companies toward alternative suppliers.
- Lost deployments can create lasting technology ecosystems that are difficult to displace.
Contemporaneous coverage of Microsoft’s country examples and argument appears at Thurrott.
Why the government wanted controls
BIS treated advanced AI computing as strategically sensitive. Frontier-model training requires large clusters of advanced chips, and those systems can support military planning, logistics, surveillance and other capabilities. Controls were intended to reduce the chance that chips or model weights would reach adversaries through intermediaries, overseas data centers or nominally independent customers.
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The January 15 measures also strengthened semiconductor and foundry due-diligence requirements. The government’s rationale and related controls are described by BIS at its advanced-computing controls announcement.
Microsoft did not reject that rationale. Its disagreement was about calibration: how to preserve security while avoiding rules so broad or complicated that they reduce U.S. companies’ competitiveness among friendly countries.
Timeline: from appeal to rescission
| Date | Event |
|---|---|
| January 13, 2025 | BIS announces the responsible AI diffusion framework. |
| January 15, 2025 | The rule is issued; major compliance requirements are set for May 15. |
| February 27, 2025 | Brad Smith publishes Microsoft’s call for a simpler, narrower approach. |
| May 13, 2025 | Commerce rescinds the Biden-era framework and directs BIS not to enforce its new requirements. |
| May 31, 2026 | BIS clarifies that certain earlier D:5- and Macau-related licensing requirements remain in force. |
The rescission announcement is available from the Commerce Department. It also said the department planned a replacement framework and additional measures concerning overseas AI chips, Chinese AI models, Huawei Ascend chips and supply-chain diversion.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What still matters for companies in 2026
“The AI Diffusion Rule was rescinded” does not mean “all AI-chip export controls disappeared.” BIS guidance dated May 31, 2026 says a pre-existing license requirement continues for certain advanced-computing items destined for entities headquartered in Country Group D:5 countries or Macau. The rule can also reach an entity located elsewhere when its ultimate parent is headquartered in one of those jurisdictions. Read the BIS May 31, 2026 guidance for the stated scope.
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That ownership test is important for cloud and data-center planning. A facility’s physical location alone may not determine whether a transaction needs a license. Companies must also review the end user, ultimate parent, model or chip involved, destination, and any applicable entity-list or end-use restrictions.
Practical checks for an infrastructure buyer
- Identify whether the transaction involves an advanced-computing item, a model weight, cloud capacity or a physical data-center deployment.
- Check the customer’s headquarters and ultimate ownership, not only the server’s location.
- Confirm whether a license, exception or approved-operator authorization applies.
- Document end-user and diversion controls before committing to a long-term deployment.
- Obtain current advice from export counsel or BIS for a specific transaction; cloud availability is not the same as export authorization.
The policy trade-off in plain English
| Priority | Potential benefit | Potential cost |
|---|---|---|
| Tighter controls | Reduce adversaries’ access to advanced chips and computing clusters; limit diversion; protect military and intelligence advantages. | More licensing friction and a risk that allies view U.S. suppliers as unreliable. |
| Easier access for trusted allies | Support U.S. cloud exports, overseas data-center investment and customer confidence. | More exposure to diversion, weak end-user checks or infrastructure controlled through third countries. |
An ally is not automatically low-risk, and cloud access is not identical to ownership of a processor. Effective policy has to distinguish among hardware shipments, hosted services, model weights, data-center operators and the people or entities ultimately controlling them.
What Microsoft’s appeal means now
Microsoft’s request was a February 2025 intervention in a live policy debate, not a description of the final rule. The administration later abandoned the Biden-era diffusion framework, which substantially addressed Microsoft’s complaint about that framework’s complexity and breadth. At the same time, the United States retained a broader strategy of licensing and controlling sensitive AI and semiconductor transactions.
Frequently Asked Questions
Did Microsoft ask the U.S. to remove all AI-chip export controls?
No. Microsoft supported restrictions aimed at preventing adversaries from obtaining advanced AI technology. It asked for targeted relief and simpler rules for trusted allies and partners.
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Not categorically. The framework used quotas, licensing, security requirements and exceptions, so treatment depended on the country, item, customer and authorization.
Are U.S. AI-chip export restrictions gone in 2026?
No. The specific Biden-era AI Diffusion Rule was rescinded, but BIS says certain pre-existing licensing requirements still apply to advanced-computing items involving D:5- or Macau-linked entities.
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