The U.S. government has struggled to reckon with AI export controls since overturning the Biden-era AI Diffusion Rule in early 2025 . The AI Diffusion Rule is still in effect, though the Commerce Department has said it won't enforce the rule in the interim. In March, the Commerce Department issued a statement about a tiered licensing structure for advanced AI chip exports. The rule was revoked a little over a week later due to pushback from the U.S. AI industry.
This mismatch of Biden-era rules and Trump-era proposals has created uncertainty about the administration's plans to curb exports to China. Meanwhile, Taiwan has taken action against alleged smugglers of Nvidia's most advanced AI chips to China. In July, one Nvidia employee was detained in Taiwan on suspicion of falsifying documents , and just days ago, the Taiwanese government indicted nine people in relation to Supermicro servers being smuggled to China.
Export controls are mainly governed by 2022-era rules, which restrict Chinese access not just to advanced AI chips, but also advanced semiconductor manufacturing tools, such as EUV lithography machines. Current U.S. House members have called on the Trump administration to enforce the export controls that Joe Biden introduced as the end of his term in early 2025.
According to The Information, one of the driving forces behind the proposed rule is Moonshot's Kimi K3 model. Director of the White House Office of Science and Technology Policy Michael Kratsios posted on X in July, alleging that Moonshot used distilled U.S. models to train Kimi K3 through Nvidia-equipped servers in Thailand.
US closes loophole that allowed Chinese-owned subsidiaries located outside China to buy AI chips
China is considering export controls on AI technologies, including banning local companies from using TSMC, report claims
Trump administration reportedly reviving push to ban Chinese AI models following Kimi K3 launch, citing cybersecurity
We have information that Moonshot AI distilled Anthropic’s Fable for the development of its K3 model. To do this they developed a sophisticated internal platform to conduct large scale distillation against U.S. models, allowing them to quickly switch between multiple methods of… July 22, 2026
If the Commerce Department moves forward with the rule, it's sure to face legal challenges. An attorney at the firm Baker McKenzie told The Information that it's "widely acknowledged" that the Commerce Department can't enforce a regulation on remote access. The department instead has, traditionally, regulated the transportation of physical goods.
Still, the Commerce Department could crack down on remote access through other avenues. Namely, through know-your-customer checks. The Biden administration put these checks into effect with the Foundry Due Diligence Rule in early 2025, shortly before Joe Biden left office, but the Trump administration has said it won't enforce the rule.
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Reference reading
- https://www.tomshardware.com/tech-industry/policy/SPONSORED_LINK_URL
- https://www.tomshardware.com/tech-industry/policy/new-us-export-controls-reportedly-target-chinese-access-to-remote-ai-servers-trump-admins-cut-down-ai-diffusion-rule-could-be-shared-with-industry-as-soon-as-september#main
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