How do President Trump's State AI Plans Impact Businesses?

AI regulation in the US has become a point of contention between federal and state governments recently. 

In the absence of a comprehensive national framework, numerous states have moved to establish their own rules for the technology – an approach that has created a complex regulatory environment for businesses operating across the country.

In response to this, a newly proposed executive order from US President Donald Trump aims to prevent individual states from creating their own regulations for AI systems. 

The move could be a step towards addressing concerns from technology companies that have lobbied against what they see as an unworkable patchwork of state-level rules.

Trump wrote on his social media platform Truth Social: “We are beating ALL COUNTRIES at this point in the race, but that won’t last long if we are going to have 50 States, many of them bad actors, involved in RULES and the APPROVAL PROCESS”.

Federal approach to AI regulation

A draft version of the executive order reveals a firm approach to centralising control. 

The document includes provisions that would direct the US Attorney General to file lawsuits against states to overturn existing AI legislation. 

It also suggests instructing federal regulators to withhold broadband grants and other funding from states that have enacted their own AI laws.

This action follows previous executive orders during Trump’s second term that reversed safety standards for AI systems put in place by the Biden administration. 

He also removed restrictions on AI technology exports, which could signal a preference for deregulation over government oversight. 

This approach has major implications for how AI is developed and deployed on a national scale.

Legal authority and state pre-emption

The legal standing of a president to override state legislation through executive action is not clear. 

Constitutional authority for pre-empting state laws typically rests with Congress not the executive branch.

Travis Hall, Director for State Engagement at the Center for a Democracy and Technology (CDT), a think tank focused on technology policy, says: “The president cannot pre-empt state laws through an executive order, full stop.

“Pre-emption is a question for Congress, which they have considered and rejected, and should continue to reject.”

Congress has previously considered legislation to prevent states from regulating AI. 

The effort was abandoned after opposition from consumer advocacy organisations and child safety groups. These groups argued that blocking state laws would remove the only existing regulatory oversight of AI systems in the country.

The technology sector and state-level rules

The rise in state-level AI regulation comes from a void at the federal level. 

According to the National Conference of State Legislatures, all 50 states and US territories introduced AI legislation this year, with 38 states passing approximately 100 laws related to AI. 

These frameworks often require AI companies to test their models for potential risks before deployment, strengthen consumer privacy protections and prohibit deepfake content that could affect electoral processes.

In response, technology companies have voiced their concerns. 

OpenAI has lobbied federal regulators and the White House to block state-level AI laws, arguing that navigating different regulations across states creates operational challenges. 

The venture capital firm Andreessen Horowitz, which invests in AI companies, has also been vocal on the issue. The firm contends that the regulatory burden falls disproportionately on smaller companies.

“That imbalance threatens the competitive dynamism that is so important to American innovation,” the company declares.