Biden Battered Over AI Diffusion Policy

An eleventh-hour move by the Biden Administration to regulate how American AI technology is shared with the world is coming under fire from the nation’s tech sector.

According to the White House, the Interim Final Rule on Artificial Intelligence Diffusion (IFR) streamlines licensing hurdles for both large and small chip orders, bolsters U.S. AI leadership, and provides clarity to allied and partner nations about how they can benefit from AI. It added that it builds on previous chip controls by thwarting smuggling, closing other loopholes, and raising AI security standards.

The new rule is necessary, it maintained, “[t]o enhance U.S. national security and economic strength.”

“[I]t is essential that we do not offshore this critical technology and that the world’s AI runs on American rails,” it asserted. “It is important to work with AI companies and foreign governments to put in place critical security and trust standards as they build out their AI ecosystems.”

Stephen Kowski, field CTO of SlashNext, a computer and network security company in Pleasanton, Calif., explained that the rule attempts to strike an essential balance between protecting advanced AI capabilities and maintaining technological leadership.

“Given the increasing sophistication of cyberthreats and potential misuse of AI systems, securing AI infrastructure and computing resources is crucial,” he told TechNewsWorld. “Strong controls on AI chip exports can help prevent advanced capabilities from being used in ways that could compromise security or enable malicious activities.”

“Fundamentally, economic innovation and national security are intertwined,” added Jeff Le, VP for global government affairs and public policy at SecurityScorecard, a cybersecurity ratings company in New York City.

“The global competition on sourcing and compute is key for sustained progress in the AI race and pivotal to surpassing China’s ambitions,” he told TechNewsWorld. “There have been linkages with concerns about the Chinese backend and digital vulnerabilities that exist for American data and IP. Reducing the interdependence serves as a vital national security imperative and also allows us to bolster our supply chains, which represent significant vulnerability, as seen by China’s saber-rattling on Taiwan.”

Derailing Economic Growth

Critics of the rule, which is set to take effect in 120 days, contend it will do more harm than good.

“Today, companies, startups, and universities around the world are tapping mainstream AI to advance health care, agriculture, manufacturing, education, and countless other fields, driving economic growth and unlocking the potential of nations,” Ned Finkle, VP of government affairs at Nvidia, a major maker of chips used for AI applications, wrote in a company blog.

“Built on American technology, the adoption of AI around the world fuels growth and opportunity for industries at home and abroad,” he continued. “That global progress is now in jeopardy. The Biden Administration now seeks to restrict access to mainstream computing applications with its unprecedented and misguided ‘AI Diffusion’ rule, which threatens to derail innovation and economic growth worldwide.”

“In its last days in office, the Biden Administration seeks to undermine America’s leadership with a 200-plus page regulatory morass, drafted in secret and without proper legislative review,” he contended. “This sweeping overreach would impose bureaucratic control over how America’s leading semiconductors, computers, systems, and even software are designed and marketed globally.”

“And by attempting to rig market outcomes and stifle competition — the lifeblood of innovation — the Biden Administration’s new rule threatens to squander America’s hard-won technological advantage,” he argued.

“While cloaked in the guise of an ‘anti-China’ measure, these rules would do nothing to enhance U.S. security,” he added. “The new rules would control technology worldwide, including technology already widely available in mainstream gaming PCs and consumer hardware. Rather than mitigate any threat, the new Biden rules would only weaken America’s global competitiveness, undermining the innovation that has kept the U.S. ahead.”

Policy Gaps May Undermine US AI Leadership

Daniel Castro, vice president of the Information Technology and Innovation Foundation, a research and public policy organization in Washington, D.C., argued that the IFR raises serious concerns about its potential impact on U.S. competitiveness, global AI leadership, and international alliances.

“By pressuring other nations to choose between the United States and China, the administration risks alienating key partners and inadvertently strengthening China’s position in the global AI ecosystem,” he said in a statement.

“Confronted with such an ultimatum, many countries may opt for the side offering them uninterrupted access to the AI technologies vital for their economic growth and digital futures — and currently, only one country is threatening to cut them off from these technologies.”

Moreover, Castro added, the IFR’s narrow focus on regulating closed-weight AI models while leaving open-weight equivalents unaddressed creates a glaring and counterproductive imbalance.

“U.S. companies developing proprietary AI models will face stringent regulatory burdens that foreign competitors can evade by leveraging open-source alternatives,” he explained. “This policy undercuts American firms in the global market and fails to meaningfully mitigate the risks the regulation purports to address.”

“Instead of bolstering national security or safeguarding U.S. technological leadership, the administration’s approach risks enabling rivals to accelerate their advancements and surpass the United States in this crucial domain,” he contended.

“The administration’s initial restrictions on chip exports were misguided, and the IFR compounds this misstep,” he added. “Instead of correcting course, the administration persists with counterproductive policies that undermine U.S. leadership in AI while granting rivals a clearer path to dominance. The United States should be working to solidify its position as the global leader in AI by fostering innovation, strengthening alliances, and ensuring the broad availability of U.S. technology to legitimate users worldwide.”

“A strategy rooted in competitiveness — not containment — will best serve America’s interests in the digital economy of the future,” Castro maintained.

Short-Term Gains, Long-Term Losses

While agreeing with the underlying objectives of the IFR, University of Pennsylvania Professor of Engineering Benjamin Lee disagrees with the approach taken to pursue those objectives. “Sustaining U.S. leadership in artificial intelligence — both the hardware architectures and the software models — is essential for national security and economic strength,” he told TechNewsWorld.

However, Lee pointed out that U.S. leadership means that its companies build a hardware and software ecosystem that forms the foundation for global AI computation. “Although administration rulings and export controls produce a narrow, short-term advantage, they may produce a broader, long-term loss to American technological leadership,” he said.

“In the short-term, export controls will slow some countries’ deployment of the most advanced GPUs and the largest AI data centers,” he explained. “But in the long-term, export controls will cause other countries to develop their own hardware architectures or software models.”

“Much of this technology rests on openly published resources or code, lowering barriers to building alternatives to the American technology, if needed,” he continued. “Export controls may also give the United States less visibility into the technological state-of-the-art in other countries.”

“Ten years ago, similar export controls on Intel CPUs that aimed to slow Chinese growth in high-performance scientific computing led to a burst of computer engineering within China,” he added. “U.S. experts now have less visibility into the state of Chinese supercomputing.”

Unintended Consequences of AI Lock-In Policies

The IFR is trying to establish “lock-in” at the national level, asserted Rob Enderle, president and principal analyst of the Enderle Group, an advisory services firm in Bend, Ore.

“While lock-in — the practice of forcing customers to use only your technology — can work over a short period, as IBM showcased for several decades, it can also create a trend away from your technology, which is also what happened to IBM and could now happen to the U.S.,” he told TechNewsWorld. “This move, while tactically sound, is strategically suicidal for AI technology in the U.S. long term.”

“I think the rule was well-meaning but poorly thought through by people who either don’t understand the technology or the market in which the technology operates,” he added. “It will likely hurt U.S. AI interests and safety in the long term in exchange for questionable short-term benefits, making U.S. companies unable to compete with their foreign counterparts during a time when U.S. tech is superior and assure it won’t be that way long-term.”

“China’s capabilities are increasing faster than the U.S.’s largely due to China’s government taking a far more aggressive stance on assisting with tech advancements,” Enderle said. “If the U.S. doesn’t respond appropriately, the tech market will follow oil, trains, electronics, and automobiles to other countries, most likely China.”

Kris Bondi, CEO and co-founder of Mimoto, a threat detection and response company in San Francisco, added that one of the most frustrating things about decrees from any administration is that they tend to be all or nothing. “Regulations are needed, but they should be on access, monitoring, and the usage of AI,” she told TechNewsWorld.

“While I agree that the use and protection of AI is critical for U.S. national security and economic strength, this form of isolationism will undermine innovation,” she said. “Not every advancement is produced on U.S. soil. Instead of protecting, the bubble this rule will create will limit the ability of the U.S. to evolve and compete on a global scale.”