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As Trump 2.0 toughens US’ AI export policies, the US-China tech war intensifies, testing alliances and sparking a global race for technological supremacy
Image Source: Getty
This article is part of the series—Raisina Edit 2025
‘America first’ was never a slogan – it was a policy doctrine. As Donald Trump returns to the White House for his second term, the question is not whether Artificial Intelligence (AI) export controls will be retained but how they will evolve.
The Biden administration designed the ‘Small Yard, High Fence’ policy. While the small yard comprises advanced technologies such as quantum computing, semiconductor manufacturing equipment, and advanced AI chips, the high fence denotes strict controls over the export of these technologies to adversaries, primarily the People’s Republic of China (PRC).
Despite export restrictions, PRC’s Deepseek launched its R1 AI bot in January 2025, which sent shockwaves through the global AI industry—competing head-to-head with ChatGPT. Deepseek’s launch proved the PRC’s capability to develop advanced AI models despite the AI export controls introduced by the United States. President Donald Trump expressed his concern by calling the launch of Deepseek’s AI the ‘wakeup call’ to US tech firms.
While the small yard comprises advanced technologies such as quantum computing, semiconductor manufacturing equipment, and advanced AI chips, the high fence denotes strict controls over the export of these technologies to adversaries, primarily the People’s Republic of China (PRC).
With Trump 2.0, the AI race is set to intensify, which might fuel techno-nationalism and stricter AI export controls. The upcoming policy change will impact not only the PRC but also the US key partners like India and Australia, presenting both opportunities and risks. As AI technology becomes the new arms race, it is no longer about who builds the tallest fence but who remains inside it.
The Biden administration’s ‘Small Yard, High Fence’ approach is more about precision blocking than an outright ban on technology exports. The strategy sought to restrict the trade of only critical technologies such as advanced AI chips, semiconductor manufacturing tools, and quantum computing while keeping other trading alternatives open.
This strategy immensely evolved from September 2022 to January 2025. The October 2022 and October 2023 export controls aimed to trap the PRC in a technological cul-de-sac by blocking the trade of high-performance AI chips like Nvidia’s A100 and H100 and semiconductor manufacturing tools to prevent the PRC from building its own advanced AI chips. Yet, the PRC was quick to find loopholes in the strategy. Chinese AI firms used larger quantities of weaker AI chips to maintain computing power. For instance, Scale AI’s Chief Executive Officer (CEO) Alexander Wang claimed that Deepseek has a large stockpile of over 50,000 Nvidia H100 chips which was bought in bulk before its ban in September 2022.
Chinese AI firms used larger quantities of weaker AI chips to maintain computing power.
The Biden administration revised the policy in 2024 and 2025. It introduced stricter controls to close the loopholes previously exploited by the PRC, such as restrictions on exporting AI model weights, which help countries train their AI. Another major revision in the policy is the regulation of cloud access to services from US-headquartered companies, which allowed PRC companies to access AI technology by renting access in Southeast and West Asia.
The most striking shift of this strategy was the use of export controls as a diplomatic tool. The AI diffusion Framework announced in January 2025 classified countries into three tiers – trusted allies (Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Republic of Korea, Spain, Sweden, Taiwan, and the United Kingdom), neutral states (India, Saudi Arabia, and the United Arab Emirates, etc.), and adversaries (PRC, Russia, North Korea and Iran). These tiers will have different levels of access to US AI technology, where the trusted allies are cleared for export, neutral states will face fewer restrictions, and adversaries will face heavy sanctions on the AI tech trade. This move is targeted to secure the position of the US as the hegemon and the leader in AI technology.
Despite various revisions, the strategy has faced backlash, especially from chip makers. It is argued that these rules will limit the revenue of chip makers like Nvidia, which relies on Chinese markets. European Union (EU) also expressed concern with the tier system as the countries in trusted allies only cover 10 of 27 EU members. With Trump returning to the Oval Office, the question persists: Will the yard get bigger, the fence taller, or both?
Despite various revisions, the strategy has faced backlash, especially from chip makers.
Trump 2.0 signals a hard pivot from Biden’s policies – one that widens the yard, builds a taller fence, and takes a more aggressive stance on protecting US technological supremacy. The launch of Deepseek’s R1 AI model was a trigger point and a ‘wake-up call’ for the US Government. It reduced Nvidia’s market capitalisation by US$ 600 million, leading to criticism of Biden’s policy of being too lenient, and urged a stricter policy to curb the PRC’s AI progress.
In January 2025, Trump signed the ‘America First Trade Policy’ executive order, directing the Commerce and State Department to ‘identify and eliminate loopholes in existing export controls’ of strategic goods, software and technology to strategic rivals. This can further expand to include more Chinese AI startups in the ‘Entity list’ to block them from partnering with US firms. This signals that the Trump administration is moving towards upgrading sanction measures to prevent the PRC from ‘jumping the fence’.
The Trump administration has begun taking action against the export of lower-quality AI chips, which were out of Biden’s policy framework. AI chips such as Nvidia’s H800 and H20, which Chinese firms imported in large volumes as an alternative to high-end chips to develop their AI, will likely be restricted for export in the future. However, these restrictions may lead to further backlash from chip makers (Nvidia and Intel), negatively impacting their revenue and market capital.
The administration could also introduce measures to restrict the PRC from ‘jumping the fence’ through virtual cloud purchases using platforms such as Amazon Web Services and Microsoft Azure. The administration may restrict US-based cloud firms from offering AI model training services to Chinese firms, closing a major loophole exploited by the PRC under Biden’s policies.
AI chips such as Nvidia’s H800 and H20, which Chinese firms imported in large volumes as an alternative to high-end chips to develop their AI, will likely be restricted for export in the future.
In January, the Biden administration introduced an AI diffusion framework to regulate AI model weights. The Trump administration could take a step further and propose policies banning the export of pre-trained AI models above a certain performance threshold. The framework also stated the three-tier classification of countries to regulate the export of AI technology. Trump could potentially alter the list as the EU expressed discontent with Biden’s policies involving only 10 out of 27 countries in the cleared-to-export list. The EU is looking up to the Trump administration for reform and adding more EU members to the list. Besides the EU, possible additions could be Singapore and Israel, as both countries are US allies militarily and economically and have significant investments in AI technology.
Under the Biden administration, AI export control policies place India in the middle tier and Australia in the first tier. Historically, Australia is a treaty ally of the US and part of the AUKUS (Australia-United Kingdom-United States) alliance, which provides a robust technology-sharing mechanism. This places Australia in a much safer position regarding AI technology sharing than India.
India is a partner of the US but also shares a strong partnership with Russia and Iran, which places India out of the closest and trusted allies list, leading to restrictions on AI technology collaboration. The US, under Biden, has supported India’s semiconductor ambitions. In September 2024, India and the US signed an agreement to set up a semiconductor fabrication unit in India, which will supply advanced chips to US armed forces and Indian defence forces.This agreement is a part of Indo-US cooperation under the Indo-Pacific Economic Corridor and the CHIPS Act, which supports India’s semiconductor manufacturing capabilities.
Australia is a treaty ally of the US and part of the AUKUS (Australia-United Kingdom-United States) alliance, which provides a robust technology-sharing mechanism.
Under the Trump administration, India’s relations regarding AI technology sharing might change. During Trump’s first tenure, the US-India partnership saw notable economic and strategic cooperation milestones.. In Trump 2.0, India’s position in the middle tier is unlikely to move up to the close allies list. However, there is potential for increased investments in the semiconductor manufacturing sector.
For Australia, AI collaborations are expected to remain unchanged. However, while Australia enjoys first-tier status, its deep economic ties with China, with bilateral trade exceeding US$327 billion as of 2023, could complicate compliance with any expanded AI sanctions under the Trump administration.
As Trump takes charge, the AI exports will shift from containment to confrontation. Biden’s ‘Small Yard, High Fence’ policy was a precision-targeted approach to contain China’s AI ambitions, while Trump’s possible ‘Guarded Garden, Unscalable Wall’ policy will lead to an aggressive crackdown, targetting advanced chips and closing more loopholes that allowed the PRC to access US AI tech. However, stricter regulations could backfire, pushing the PRC to look inside and invest heavily in its domestic semiconductor industry while harming US tech firms by restricting their access to the vast Chinese market.
At this stage, the AI race is no longer about who builds the fastest chips or the most innovative models but who controls the game’s rules. The question remains: Will Trump’s policy keep threats out or innovation trapped within?
Erin Watson is Managing Director at Griffith Asia Institute and Baker & York, Australia
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Erin Watson is Managing Director at Griffith Asia Institute and Baker & York, Australia ...
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