The United States has intensified its technological standoff with China, focusing on cutting-edge semiconductors crucial for artificial intelligence (AI). On May 12, the U.S. Commerce Department announced the rescission of the “AI Diffusion Rule,” a policy initially implemented under the Biden administration to control the export of advanced AI chips. This move signifies a strategic shift under President Donald Trump, aiming to directly target Chinese tech giants like Huawei while recalibrating U.S. export controls to bolster domestic innovation and maintain global technological leadership.
The “AI Diffusion Rule,” set to take effect on May 15, would have established a three-tiered system regulating AI chip exports based on the recipient country’s trustworthiness. Trusted nations would have enjoyed unrestricted access, while countries like China faced stringent controls or outright bans. The Commerce Department argued that this rule could have inadvertently stifled American innovation and strained diplomatic relations with numerous countries. By rescinding it, the Trump administration aims to implement a more focused approach that directly addresses the challenges posed by China’s technological advancements.
Central to the U.S. strategy is the renewed focus on Huawei, China’s leading tech conglomerate. The Commerce Department’s statement emphasized that utilizing Huawei’s Ascend chips, particularly the advanced Ascend 910C processors, violates U.S. export controls. These chips are integral to Huawei’s CloudMatrix 384 AI chip cluster, which reportedly surpasses Nvidia’s NVL72 system by 67% in overall compute power and offers over three times the memory capacity, albeit with higher energy consumption and operational costs due to less mature software support.
The U.S. warns that employing American-built AI chips to train Chinese AI models could have “potential consequences,” signaling a stringent enforcement of export controls to prevent U.S. technology from bolstering China’s AI capabilities.
Under President Biden, the U.S. emphasized multilateral coordination with allies to restrict China’s access to advanced technologies. In contrast, President Trump’s administration is adopting a more selective and bilateral approach. Marina Zhang, an associate professor at the University of Technology Sydney’s Australia-China Relations Institute, notes that this strategy is flexible enough to accommodate allies’ demands and protect U.S. firms’ global market positions while aggressively targeting specific Chinese companies like Huawei through unilateral measures.
Despite perceptions of President Trump as a leader less inclined toward alliances, this policy shift includes efforts to forge new AI-focused partnerships with allies, indicating a nuanced approach to international collaboration.
Beijing has condemned Washington’s actions as “bullying” and an abuse of export controls aimed at suppressing China’s technological progress. However, these restrictions have galvanized China’s efforts to achieve self-reliance in AI and semiconductor technologies.
Chinese AI startup DeepSeek has emerged as a formidable player, developing a chatbot with performance comparable to U.S. competitors at a fraction of the cost. The company’s DeepSeek-R1 model was reportedly trained for $6 million, significantly less than the $100 million spent on OpenAI’s GPT-4 in 2023. DeepSeek’s success underscores China’s capacity to innovate under pressure and its commitment to reducing reliance on foreign suppliers.
Similarly, Alibaba’s Qwen family of large language models has gained prominence, with the latest Qwen 3 model released in April 2025. These developments highlight China’s strategic focus on building domestic AI capabilities to counteract U.S. restrictions.
The U.S. crackdown on AI chip exports has significant ramifications for American tech companies. Nvidia, a leading AI chipmaker, has criticized the Biden-era export controls as a failure, citing a substantial decline in market share in China from 95% to 50%. The company anticipates a $5.5 billion hit due to the new restrictions, particularly affecting its H20 chip designed for the Chinese market. Nvidia CEO Jensen Huang praised the Trump administration’s move to scrap certain AI export curbs, advocating for a more nuanced approach that balances national security with commercial interests.
Advanced Micro Devices (AMD) also expects up to $800 million in losses due to the tightened export controls. These financial impacts underscore the delicate balance the U.S. must maintain between safeguarding national security and supporting its domestic tech industry’s global competitiveness.
In a bid to strengthen alliances and expand the global AI infrastructure, President Trump announced a significant partnership with the United Arab Emirates (UAE) during a recent Middle East trip. The agreement allows the UAE to import 500,000 Nvidia H100 chips annually, facilitating the construction of a massive 10-square-mile, 5-gigawatt data center in Abu Dhabi. This initiative, led by Emirati firm G42 and involving several U.S. tech companies, aims to position the UAE as a regional AI hub while reinforcing U.S. influence in the Middle East.
However, some experts express concerns that exporting advanced AI chips to Gulf states could undermine U.S. national and economic security. Critics argue that such moves may inadvertently facilitate access to U.S. technology by adversarial nations and erode domestic tech ecosystems.
The U.S.-China technological rivalry, particularly in the realm of AI and semiconductor development, has entered a new and intensified phase. The Trump administration’s targeted approach to export controls reflects a strategic effort to curb China’s technological ascent while bolstering domestic innovation and international partnerships.
China’s rapid advancements in AI, exemplified by companies like DeepSeek and Alibaba, demonstrate its resilience and determination to achieve self-sufficiency. As both nations navigate this complex landscape, the global community watches closely, recognizing that the outcomes of this technological contest will have far-reaching implications for international relations, economic stability, and the future of innovation.
