The Trump administration is mulling over discarding the Biden-issued framework for Artificial Intelligence Diffusion (FAID) and replacing it with a country-specific agreement model.

Now, the objectives of both these systems are the same, i.e., to restrict the global access of US-made advanced semiconductors. The US obviously doesn’t want advanced AI chips to be concentrated in the hands of rival nations, who may end up outperforming it in artificial intelligence innovation and development.

To achieve this, the FAID has divided the globe into three tiers:

• Tier 1: This consists of 18 key US partners, such as the Five Eyes, major NATO allies such as France, Germany, and Italy, and critical semiconductor ecosystem partners such as Japan, South Korea, and Taiwan. These countries could freely import advanced AI chips from the US.
• Tier 2: Around 120 countries in this tier were subjected to the validated end-user program, where caps would be placed on the number of semiconductors they could import.
• Tier 3: Countries like Russia, China, and North Korea were banned entirely from importing these chips.

The FAID is due to be imposed from May 15. However, the Trump government hasn’t backed it yet. And now, there are plans to do away with this system altogether.

Reason Behind the Shift

Instead of pre-defining the quantity of semiconductors each country can import from the US, the Trump administration wants to move to an individual agreement system where the US has a different understanding with each country.

Besides the fact that the ideologies of the two governments (the Biden and the Trump governments) do not match, there’s another reason for this proposed change.

Individual agreement puts more bargaining power in the hands of the US and lets it micromanage access to advanced semiconductors throughout the world. These AI chips will also be crucial in trade discussions and negotiations with the US.

It would not be an exaggeration to say that the US government has understood its power in the form of these AI chips, and it does not want to squander it by enforcing FAID.

A crucial point to note is that China and Russia had no impact on this proposed policy switch, since they were already in the restricted category under FAID. The US government now wants to have the upper hand in trade discussions with other countries as well.

Experts say this change would hit tier two countries in the FAID the hardest. Under FAID, these countries could have imported around 1,700 of Nvidia’s H100 chips without any express licensing requirement.

However, the proposed change wants to bring this number down to just 500, beyond which countries would require a specific license and express agreement.

To put it more philosophically, this is a classic example of why the rich keep getting richer and the poor keep getting poorer.

Why This Move Could Backfire?

This entire exercise is being done to maintain America’s supremacy in artificial intelligence. However, it could easily backfire and put Trump on the back foot.

Imagine if a developing country like India is restricted to only 500 advanced AI chips from the US. What would it then do? Explore other markets! A search that would eventually take them to China.

China is a close competitor of the US in artificial intelligence. As per Nvidia CEO Jensen Huang, China isn’t too far behind the US when it comes to AI chip development.

China is right behind us. We’re very, very close. – Jensen Huang

Remember, not a long time ago, China shook the entire world by releasing DeepSeek. It’s an AI model built at a fraction of the cost of premium models like ChatGPT. Not to mention that it also claimed to outperform them. Nvidia shares tanked 17% in a single day, and investors lost $589B.

The reason was simple: DeepSeek built something as powerful as ChatGPT (or Gemini) without an extravagant infrastructure cost and, most importantly, the advanced US-made AI chips.

Who’s to say that China can’t do the same with AI chips as well? Reportedly, Huawei’s 910B AI chip claims to outperform Nvidia’s A100. Research by the Center for Security and Emerging Technology at Georgetown University found these two chips to be ‘roughly comparable.’

For all we know, it’s just a matter of time before China develops its own version of the H100 chips as well. Going by its track record, it may also do it at a cheaper cost. Now, the US can gatekeep its AI chip tech all it wants, but it may not be able to kill China’s innovation and fast-paced development.

Other countries will turn to China for AI chip needs, and the US may be left behind with expensive semiconductors and lose out on the cost battle.

What’s to Come Next?

There are still a couple of weeks before the FAID comes into force. This gives the government plenty of time to think of an alternative and its repercussions. Even if no policy decision is made as of now, FAID can certainly be put on hold until the brainstorming is done.

However, as we have seen with the whole tariff fiasco, other countries certainly won’t sit quietly and watch. They may retaliate with their own export-restrictive policies, which could trigger a fresh trade war.