Microsoft Slams ‘Overly Complex’ AI Rules, Urges Immediate Reform
Microsoft pushes for changes to Biden-era AI chip restrictions, warning they could drive key U.S. allies toward Chinese alternatives.
Editorial Team (ET)May 7, 2025
Microsoft is calling on the Trump administration to rethink a controversial Biden-era rule that places strict limits on AI chip exports and data center expansion. The policy, known as the AI diffusion rule, was enacted in the final days of the Biden presidency and has drawn sharp criticism from tech leaders who argue it hinders innovation and weakens U.S. influence in the global AI race.
Microsoft President Brad Smith has been vocal in opposing the restrictions, describing them as overly complex and damaging to American businesses. In a blog post, Smith warned that the rule unfairly categorizes many key U.S. allies as second-tier nations, making it harder for them to access cutting-edge AI technology. This classification, he argued, could push them toward rival suppliers, including China.
The AI Diffusion Rule: A Barrier to Growth
The AI diffusion rule was designed to prevent advanced AI chips from reaching U.S. adversaries, particularly China, Russia, North Korea, and Iran. However, the policy also affects countries like Israel, Switzerland, India, and Singapore, which are now restricted from purchasing AI chips without special government approval. The rule also caps the size of data centers that U.S. companies can build in these so-called Tier Two countries, limiting their total computing capacity to just seven percent of a firm's global AI infrastructure.
Microsoft argues that this approach is not only restrictive but also counterproductive. By placing unnecessary limits on chip exports and AI data center expansion, the U.S. is effectively discouraging business with friendly nations while giving competitors an opportunity to fill the gap. Smith has emphasized that these restrictions could encourage allies to seek alternative AI solutions from China, weakening America’s position in the global tech industry.
A Growing Backlash from the Tech Industry
Microsoft is not alone in its opposition. Nvidia, a dominant player in AI chip manufacturing, has also expressed concerns about the Biden administration’s approach. In January, Nvidia’s Vice President of Government Affairs, Ned Finkle, warned that the restrictions could erode America’s technological advantage, making it harder for U.S. companies to maintain leadership in the field.
Under the current policy, Tier Two countries are only allowed to import a limited number of high-performance AI chips. They can acquire up to 50,000 Nvidia Hopper AI chips through 2027, with the possibility of doubling that amount if they reach a separate agreement with the U.S. government. While these limits are meant to prevent smuggling to restricted nations, critics argue they also create unnecessary trade barriers for trusted allies.
Smith has pointed out that Singapore, for example, has been a major source of AI chip smuggling to China, but rather than addressing this issue directly, the AI diffusion rule penalizes multiple nations indiscriminately. This broad approach, he contends, fails to recognize the different levels of risk posed by individual countries and instead lumps them together under an overly rigid framework.
Microsoft’s Push for Policy Changes
Microsoft is urging the Trump administration to revise the AI diffusion rule to make it more flexible and business-friendly. Smith has called for an end to the Tier Two classification, arguing that allies should not be treated as secondary partners when it comes to access to U.S. technology. He has also pressed for the removal of quantitative limits on AI chip exports and data center capacity, stating that such restrictions interfere with market-driven decision-making.
The core of Microsoft’s argument is that restricting access to U.S.-made AI technology does not stop the global AI race. Instead, it pushes key allies to look elsewhere, particularly toward China, which is aggressively expanding its AI capabilities. Smith has warned that if the U.S. does not act quickly to adjust its policies, it could inadvertently strengthen China’s position as a global AI powerhouse.
The Trump Administration’s Next Move
The Trump administration now has 120 days to review the AI restrictions before they take full effect. Microsoft and Nvidia are expected to continue lobbying for changes, arguing that an overly restrictive approach could hurt U.S. businesses while providing an opening for competitors.
With AI playing an increasingly critical role in global economics and security, the way the U.S. handles its technology exports will have far-reaching implications. The coming months will determine whether the administration chooses to maintain Biden’s strict controls or adopt a more flexible strategy that balances national security with economic competitiveness.
