“While there is a strong consensus in support of President Donald Trump’s goal of having the US be the dominant global force in AI, he faces opposition from both sides of the aisle and the states as to how he is pursuing this objective.” — Howard Schweitzer, CEO, Cozen O’Connor Public Strategies
The Cozen Lens
- President Trump issued an executive order that seeks to block state AI laws, but his own party is divided over the issue.
- The Trump administration’s decision to approve the sale of Nvidia’s H200 semiconductors to China represents a significant departure from the previous consensus in Washington on sales of advanced chips to China.
- The Trump administration is pursuing efforts to decrease its reliance on Chinese critical mineral supply chains not only through a whole-of-government approach domestically but also the uncharacteristically multilateral support of allies and partners abroad.
Who Gets to Regulate AI?
A New Executive Order. President Trump signed an executive order (EO) last week in an effort to preempt state regulation of AI.
- The EO aims to advance “a minimally burdensome national policy framework for AI” and tasks federal agencies with taking actions to block “onerous and excessive” state AI laws. It directs the Department of Commerce to evaluate state laws for alignment with the White House’s vision.
- Trump’s order directs Attorney General Pam Bondi to set up an AI Litigation Task Force to challenge state AI laws in the courts on the basis of unconstitutional regulation of interstate commerce, teeing up legal battles over the future of AI regulation. It also calls on the Federal Communications Commission and Federal Trade Commission to take steps relating to preemption of state AI laws.
- The White House seeks to leverage federal funding to bring states into compliance on AI. The EO directs agencies to evaluate whether to make states’ AI laws a condition of receiving federal discretionary grant funds and specifically instructs the Department of Commerce to make remaining federal broadband funding under the Infrastructure Investment and Jobs Act of 2021 conditional on state AI laws.
The GOP’s Split. Republicans aren’t unified on the question of AI regulation and federal preemption.
- While California is perhaps best known for its stringent tech regulations, both red and blue states alike have enacted AI laws. For example, this year California passed a major AI safety law and Texas enacted a bill putting AI guardrails in place.
- Trump’s drive to avoid a patchwork of state AI rules has divided his MAGA movement. For example, Steve Bannon criticized the EO as “entirely unenforceable” on social media. While pro-innovation figures in the administration currently have Trump’s ear on AI, this doesn’t necessarily reflect the base as a whole.
- Governor Ron DeSantis (R-FL), Trump’s erstwhile rival for the 2024 GOP presidential nomination, recently unveiled an AI Bill of Rights proposal and has attacked the idea of preempting state rules. Governor Spencer Cox (R-UT) called for “an alternative AI executive order focused on human flourishing” in a post on X.
What’s Next? Trump’s vision of a single federal standard from AI faces obstacles to becoming reality.
- In the absence of congressional action on AI, states have taken the lead. The EO calls for legislation on an AI policy framework (with exceptions including children’s safety and AI infrastructure). Such a proposal has steep odds given opposition from Democrats and a lack of unity among Republicans.
- Trump’s EO is likely to be the target of legal challenges, which could delay or inhibit implementation.
Where to Draw the Line on Chips Exports?
A Reversal on Semiconductor Export Controls. President Trump’s announcement that the US would approve licenses allowing Nvidia to sell its H200 chips to China represents a significant break with the previous consensus on export control policy in Washington.
- Trump’s decision follows a prolonged debate within the Trump administration between more traditional China hawks who favored maintaining the current status quo and those pitching this new approach. While some in the latter camp would have been comfortable allowing even more advanced chips to be sold to China, approving sales of the H200 was seen as a compromise, as they are about 18 months behind the most advanced chips sought by American companies.
- While these two factions agree on maintaining the US’s advantage in advanced technologies, they disagree on how to do so. Those pushing for the sale of more advanced chips, like AI and Crypto Czar David Sacks, have argued that the US would be better served if China became more reliant on American technology.
- Trump’s deal with Nvidia does not come without a catch: the US is expected to receive a fee equivalent to 25 percent of the revenue from each sale, similar to the 15 percent fee Trump and Nvidia agreed to earlier this year on sales of the company’s less-advanced H20 chips. Payment for this is expected to be made when the chips are shipped from Taiwan to the US for inspection by the Commerce Department’s Bureau of Industry and Security as part of a security review, before then being shipped on to China.
New Pitfalls Emerge. This approach to advanced semiconductor sales to China is not without risks, as it relies on Chinese demand for the chips, and the proposed fee for Nvidia’s sales could face legal tests.
- Early indications from Beijing are that it plans “to limit access” to the new chips, requiring buyers to be approved by the government. While this is less aggressive than the country’s response to the US’s approval of sales of Nvidia’s H20 chips, it highlights China’s interest in fostering demand for domestic alternatives. The increased performance of these options, particularly from Huawei, was part of the reason for the Trump administration’s decision.
- While this new deal’s fee resembles the past agreement Trump struck with Nvidia, that prior deal was never implemented due to a lack of Chinese demand, meaning this framework remains untested. Experts have questioned how the White House will structure this, so it is not a tax on exports, which is unconstitutional. Nvidia CEO Jensen Huang has said work on drafting these rules has been underway since that first agreement, but nothing has been released publicly.
Congress Flexes Its Muscles. As this debate was underway in the Trump administration, Congress sought to become more actively involved, introducing new legislation to address the issue.
- The new bill, the SAFE Chips Act, from Senators Pete Ricketts (R-NE) and Chris Coons (D-DE), would codify current export controls, thereby blocking Nvidia from selling its H200 chips to China. This measure is likely to encounter an uphill battle, with expected opposition from House Republican leadership and the White House, leaving it likely to face the same fate as the GAIN AI Act, not becoming law.
- Still, most members in Congress tend to be more hawkish toward China than the White House’s current stance, as shown by the outcry over Trump’s reversal on the H200s, which could mean that if there is a change in control of the House after next year’s midterm elections, these bills may have a better chance of being sent to Trump’s desk. The measures would likely be vetoed, which raises the question of whether enough Republicans would be willing to buck the president in his final two years in office and override his veto.
Trump Embraces Friendshoring on Critical Minerals
The Most Critical of Minerals. One of the White House’s premier geoeconomic initiatives is diversifying away from Chinese critical minerals supply chains and investing in their own.
- The majority of the highest-profile Trump administration actions around the critical mineral industry have involved the president’s expanding domestic investments, with these companies at the center of several of these deals. The funding for these transactions has come from a variety of sources, underscoring the White House’s whole-of-government approach to reviving the sector’s domestic facilities, including the Department of Defense’s new plans to build its own small-scale refineries.
- There is a good reason to believe these types of investments will only continue and increase in the months ahead as more funding becomes available to the agencies leading these transactions, with Jarrod Agen, executive director of the National Energy Dominance Council, saying this will be the Trump administration’s approach moving forward. The White House’s expansion into this industry has also been met with a growing allocation of private capital to the sector, with venture capitalists setting a record with $600 million in investment.
- The most politically difficult aspect of this initiative for the Trump administration is that achieving results is likely to take years, and relatively few, if any, achievements will be seen by the end of his presidency, let alone before the midterm elections next year. Japan’s efforts to reduce its reliance on China for rare earths, a subset of critical minerals, offer a cautionary tale on how this is possible. Still, as Japan has found, there are limits to how much and how quickly one can wean itself off Chinese supply chains, capping the amount of national security risk that can be reduced. This makes it possible, then, to reduce China’s leverage through its position in these supply chains, but it is unrealistic to eliminate that leverage.
A Little Help From My Friends(horing). While state investment in private firms has attracted significant attention, less has been paid to the Trump administration’s efforts to encourage foreign leaders to follow the White House’s lead and create supply chains for critical minerals that are less reliant on China.
- The US hosted a White House conference late last week with eight other countries to renew efforts to build supply chains for critical minerals that are less dependent on China. Five of these countries signed on to a statement with the US, called the Pax Silica Declaration, building on programs started during President Trump’s first term and continued during the Biden administration. A particular focus are the minerals needed for AI and semiconductors, which are seen as the technologies the White House is most focused on competing with China for leadership in.
- Not all of these deals have looked the same, ranging from non-binding agreements with Southeast Asian countries to a framework with Australia that looks to invest $3 billion over the next six months. Last week’s summit aimed to spur these overseas initiatives further, and the US will likely encourage other foreign capitals to financially support the sector’s development. While there is an America First ethos within the White House, this effort to mobilize a broader coalition to address this particular issue recognizes that the US cannot counter China’s dominant position in these critical mineral supply chains without a multilateral approach. Of course, Trump will want to keep the US at the center of this work and advantage American companies to the extent he can. However, it is a notable break from the emphasis on bilateral relationships that has been a hallmark of Trump’s time in office.
