The race to develop artificial intelligence (AI) capabilities will play a decisive role in the “New Cold War” with China.

America currently enjoys a multi-year lead in cutting-edge AI technologies. This lead is protected by export controls that prevent China from obtaining America’s best technology and slow its progress in developing AI with dual-use civilian and military capabilities.

However, those controls need updating. AI is developing so quickly that America needs a framework to govern the sale of advanced AI semiconductor chips and model weights, promoting the diffusion of U.S. technology to good actors while denying it to adversaries like China.

The Biden administration attempted to create such a framework but it needed substantial reworking. Last month, the Trump administration rescinded the Biden-era “AI Diffusion Rule,” arguing that its regulations were too burdensome and that its “tiered” system would have alienated key U.S. diplomatic partners.

However, it must now act urgently to replace it with a superior framework to protect one of America’s last remaining technological advantages over China. Such a framework is consistent with the Trump administration’s America First Trade Policy and America First Investment Policy, both of which signaled greater technology restrictions for China.

The stakes couldn’t be higher. President Trump’s former Deputy National Security Advisor Matt Pottinger believes that “AI will likely become the most powerful and strategic technology in history,” and that “nations that are first to build powerful AI systems will gain a strategic advantage.” Energy Secretary Chris Wright has aptly likened the AI race to a modern-day Manhattan project.

The administration has already signaled that limiting China’s access to advanced AI chips is a priority, moving early on to further restrict exports of AI-related technologies to Chinese entities. In February remarks to the AI industry, Vice President JD Vance called for a robust strategy to safeguard America’s technological edge in AI:

(A)uthoritarian regimes have stolen and used AI to strengthen their military, intelligence, and surveillance capabilities…This administration will block such efforts, full stop. We will safeguard American AI and chip technologies from theft and misuse, work with our allies and partners to strengthen and extend these protections, and close pathways to adversaries attaining AI capabilities.

Even staunch advocates of proliferating U.S. AI technology like “AI Czar” David Sacks acknowledge the U.S. government “must take aggressive steps to prevent advanced semiconductors from being illegally diverted into China.”

To date, U.S. export controls have blocked Chinese companies from purchasing the cutting-edge semiconductor chips needed to develop AI models, the tools needed to make those chips, and some of the AI models themselves. These controls have hindered China’s ability to develop and scale the technologies it needs to expand its own AI ecosystem or offer a comparable non-U.S. alternative to the world.

Due to these controls, China’s most cutting-edge domestic chips are production-constrained and lower-performing, lagging years behind U.S. competitors.

To be sure, export controls are no panacea: they’re frequently violated and often time-limited. China is working overtime to develop substitutes that will lessen its dependence on the U.S. and render export controls ineffective.

But, if carefully designed and well-enforced, export controls can also be highly effective. They can slow China’s AI progress for at least a few years, enabling the U.S. to retain an edge during a period of critical AI breakthroughs.

Recently, China has expended significant effort and enormous amounts of capital trying to circumvent these export controls and develop alternatives, underscoring the efficacy of the controls.

Sadly, Western companies have created entire industries devoted to helping Chinese AI firms evade U.S. export controls by selling access to restricted chips through the cloud. Meanwhile, China is “using shell companies to set up data centers in countries that can still import advanced U.S. chips.”

These threats will grow as U.S. technology proliferates. On a trip to the Gulf in May 2025, Trump announced massive new sales of AI chips—totaling tens of billions of dollars of value—to regional partners like the United Arab Emirates and Saudi Arabia. While a potential boon for U.S. tech firms, the Gulf’s concerning and increasingly widespread tech ties to China reinforce the need for robust security protocols tied to the sale of advanced chips.

For example, the UAE’s national technology giant, G42, has deep ties to blacklisted Chinese entities like Huawei and Beijing Genomics Institute (BGI). G42 CEO Peng Xiao has also served as the executive director of a Chinese subsidiary firm fined by the State Department for violating export controls.

Congress is increasingly determined to act. The House Select Committee on the CCP recently introduced the Chip Security Act to “stop advanced U.S. AI chips from falling into the hands of adversaries like the Chinese Communist Party.” It requires location verification for exporting advanced AI chips and enforces mandatory reporting on potential diversion from chipmakers. Last year, the House of Representatives passed legislation to extend export controls to cloud services.

There is an urgent need for the Trump administration to complement these legislative initiatives with executive branch action that effectively address U.S. national security concerns while also ensuring the competitiveness of America’s tech sector and enabling the diffusion of American, rather than Chinese, technology to trusted global partners.

By adopting a superior AI diffusion rule, the Trump administration can produce an all-American AI revolution, one led by American companies using American technology on American soil. That’s a quintessentially America First policy.

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Jeff M. Smith is the Director of the Asian Studies Center at The Heritage Foundation. Bryan Burack is Heritage’s Senior Policy Advisor on China and the Indo-Pacific.

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