The United States is preparing to bin one of its most sweeping chip export frameworks in favour of something simpler and sharper. Under Donald Trump’s administration, the so-called “AI diffusion rule” looks set to be scrapped before it even takes full effect, with countries like Malaysia now at the centre of a high-stakes rewrite of global tech policy.
The AI diffusion rule, launched in the final stretch of Joe Biden’s presidency, introduced a labyrinthine system of export controls categorising over 40 countries into three tiers. These included Malaysia and Thailand — both flagged as potential conduits for restricted US technology reaching China. Malaysia’s inclusion wasn’t incidental; the country plays a key role in global semiconductor production, serving as both a critical assembly point and testing hub for chips used in AI development.
Trump’s incoming policy doesn’t soften on China. Existing bans on direct sales of advanced chips to Beijing, including Nvidia’s AI-dominant H20 model, remain firmly in place. But what changes is how the US deals with everyone else.
Rather than impose a one-size-fits-all framework, Trump’s team is shifting towards bilateral agreements. Nation-to-nation negotiations that offer tailored access in exchange for stronger compliance guarantees. This would allow countries like the UAE, Saudi Arabia and possibly Malaysia to strike bespoke chip trade deals, assuming they can show Washington they aren’t funnelling AI tech back to Beijing.
For Malaysia, the reprieve is temporary at best. Trump officials have indicated that nations previously flagged for diversion risk will still face scrutiny, and new restrictions are likely, even if the blanket rules are gone. It’s a reset — not a pardon.
Malaysia’s Ministry of Investment, Trade and Industry has acknowledged the US policy pivot and stressed the need for clarity and consistency. That’s a reasonable ask, considering companies like Oracle have already announced large-scale data centre plans in the country that would have run up against the now-defunct AI diffusion limits.
Trump’s revisionist approach may seem pro-industry, especially with chipmakers like Nvidia celebrating the rollback. But it also signals a return to transactional geopolitics, where tech access is negotiated, not granted. In practice, this could mean a flurry of confidential deals, each with their own stipulations, loopholes, and enforcement challenges.
There’s no doubt that the global chip landscape is changing, and Malaysia, as a key player in the semiconductor value chain, is caught between opportunity and obligation. It must balance its ambition to lead in AI and high-tech manufacturing with the risk of becoming a geopolitical middleman.
While the AI diffusion rule is headed for the shredder, what replaces it could be just as complex.
