Microsoft (NASDAQ:MSFT) is pushing the Trump administration to simplify and ease restrictions on the export of advanced U.S. AI chips, arguing that the current system could hurt U.S. AI leadership and benefit China's AI ambitions, according to a blog post by Vice Chair and President Brad Smith on Thursday.

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The Biden-era AI Diffusion Rule, which limits AI chip exports to many fast-growing markets, places key U.S. allies like India, Switzerland, and Israel in a restrictive second-tier category. Microsoft warns that this could drive these countries to seek AI technology from China instead, ultimately undermining U.S. interests.

Smith argued that the rule echoes China's rise in 5G a decade ago, warning that if unchanged, it would hand China a strategic advantage in AI development. He also noted that the rule contradicts two key Trump administration goalsboosting U.S. AI leadership and reducing the trade deficit.

However, Microsoft does support parts of the rule, such as keeping strict controls on AI chip sales to China, Iran, and North Korea and ensuring that AI technology is deployed in secure, trusted data centers.

In an interview with The Wall Street Journal, Smith said China is using these restrictions as leverage, telling other countries they "can't rely on the U.S." for AI infrastructure, a narrative he says is harmful to both American business and foreign policy.

This comes as the Trump administration is reportedly planning to toughen AI chip restrictions on China, further escalating U.S.-China tech tensions.