Chaos in Artificial Intelligence (AI) Policies

On May 7, 2025, the US Department of Commerce spokeswoman announced that the Framework for Artificial Intelligence Diffusion (“AI Diffusion Rule”), issued in January by President Biden, will be replaced by a “much simpler rule.” Indeed, the regulation is highly complex and was set to take effect on May 15, 2025.

The release of Biden’s AI Diffusion Rule, just days before the end of his presidency, caused significant turmoil. Understanding the regulation and its implications for relevant technology companies has proven to be a major challenge. Notably, it was surprising to see Israel categorized in “Tier 2,” rather than among the closest US allies.

At this point, there is no information on what will replace Biden’s regulation—or when. Presumably, pressure from US companies played a role. However, it is more plausible that the timing of the announcement is related to President Trump’s planned trip to the Middle East, specifically to Saudi Arabia and the UAE. These countries, also placed in Tier 2, were undoubtedly concerned about the limitations imposed on them by the AI Diffusion Rule, particularly restrictions on the export of chips and AI models from the US.

Another valid reason for postponing the rule’s implementation is the practical need for preparation and staffing for enforcement. The US Bureau of Industry and Security (BIS), under the Department of Commerce, is responsible for these tasks, including licensing and compliance (see a discussion on this here.)

This brings us to the recently submitted budget for Fiscal Year (FY) 2026 by the Office of Management and Budget—President Trump’s first proposed budget of his second term. While the budget introduces significant cuts to many agencies and programs, it increases BIS funding by more than 50% “to protect the Nation’s technological competitiveness and counter threats from China” (see here, page 24).

The proposed budget deals a blow to critical institutions such as the National Science Foundation. Its language is strikingly critical, especially regarding funding for climate initiatives, clean energy, and more. However, it clarifies: “Funding for Artificial Intelligence and quantum information sciences research is maintained at current levels.” (ibid., page 38). Similarly, while it reduces climate-related funding at the Department of Energy’s Office of Science, it affirms: “The Budget maintains US competitiveness in priority areas such as high-performance computing, artificial intelligence, quantum information science, fusion, and critical minerals.” (ibid., page 21).

The key question now is whether maintaining current funding levels for AI basic research is sufficient for the US to retain its global leadership. In the long run, an environment of deep cuts in science and technology poses risks to talent development, knowledge creation, and sustained innovation.

Meanwhile, in Israel, there will be a loud sigh of relief if the Trump administration does indeed scrap the AI Diffusion Rule. There is hope for an improved position under the replacement regulation. However, such improvement is less likely unless Israel stops delaying the development and publication of a national AI strategy—one that includes proper safeguards and is coordinated with the US Government.