President Donald Trump issued an executive order on Thursday evening, instructing federal agencies to oppose state AI regulations, arguing that startups require relief from a “patchwork” of diverse rules. However, legal experts and startups warn that this order could prolong uncertainty, initiating court battles that leave new companies grappling with evolving state requirements while awaiting a potential single national framework from Congress.
The order, titled “Ensuring a National Policy Framework for Artificial Intelligence,” directs the Department of Justice to establish a task force within 30 days to challenge specific state laws on the basis that AI constitutes interstate commerce and thus falls under federal jurisdiction. It further grants the Commerce Department 90 days to compile a list of “onerous” state AI laws, an evaluation that could impact states’ eligibility for federal funding, including broadband grants.
Additionally, the order mandates the Federal Trade Commission and Federal Communications Commission to explore federal standards capable of overriding state regulations and directs the administration to collaborate with Congress on creating a unified AI law.
This order arrives amidst a broader initiative to curtail disparate state-level AI rules, following the stagnation of congressional efforts to pause state regulation. Lawmakers from both parties have argued that, without a federal standard, preventing states from acting could leave consumers vulnerable and companies largely unchecked.
Michael Kleinman, U.S. Policy head at the Future of Life Institute, which aims to mitigate severe risks from advanced technologies, stated, “This executive order, championed by David Sacks, benefits Silicon Valley’s powerful elite who leverage their Washington influence to avoid accountability for themselves and their corporations.”
As Trump’s top advisor for AI and crypto policy, Sacks has been a prominent advocate for the administration’s push to preempt state AI laws.
Even those advocating for a national framework concede that the order does not establish one. With state laws still enforceable unless courts block them or states halt their implementation, new businesses might encounter a prolonged period of adjustment.
Sean Fitzpatrick, CEO of LexisNexis North America, U.K., and Ireland, informed TechCrunch that states are expected to litigate to protect their consumer safeguards, with these legal challenges possibly reaching the Supreme Court.
While proponents suggest the order might lessen ambiguity by concentrating the AI regulation debate in Washington, critics argue the ensuing legal disputes will immediately hinder startups as they try to manage divergent state and federal requirements.
Hart Brown, a key author of Oklahoma Governor Kevin Stitt’s Task Force recommendations on AI and Emerging Technology, explained to TechCrunch that “startups, focused on innovation, generally lack comprehensive regulatory governance until they achieve a size that necessitates such a program. Implementing these programs can be costly and demand considerable time, especially within a rapidly evolving regulatory landscape.”
Arul Nigam, co-founder of Circuit Breaker Labs, a startup specializing in red-teaming for conversational and mental health AI chatbots, also voiced similar worries.
Nigam conveyed to TechCrunch the uncertainty regarding whether AI companion and chatbot firms need to self-regulate, emphasizing that the varied state AI laws adversely impact smaller startups in his sector. He questioned, “Are there open-source standards they should follow? Should they proceed with development?”
He further expressed optimism that Congress might now accelerate the process of enacting a more robust federal framework.
Andrew Gamino-Cheong, CTO and co-founder of AI governance firm Trustible, told TechCrunch that the Executive Order (EO) would negatively impact AI innovation and its objectives: “Major tech companies and large AI startups have the financial resources to employ legal counsel to navigate these issues or simply mitigate risks. This uncertainty disproportionately harms startups, particularly those without easy access to substantial funding,” he explained.
He also noted that legal vagueness complicates sales to cautious clients such as legal departments, financial institutions, and healthcare providers, leading to longer sales cycles, more system work, and higher insurance expenses. Gamino-Cheong stated, “Even the belief that AI lacks regulation will diminish public confidence in AI,” which is already low and jeopardizes its widespread acceptance.
Gary Kibel, a partner at Davis + Gilbert, indicated that while businesses desire a unified national standard, “an executive order may not be the appropriate mechanism to nullify laws properly established by states.” He cautioned that the existing uncertainty presents two stark possibilities: overly stringent regulations or complete inaction, both of which could foster a “Wild West” scenario benefiting large tech companies capable of enduring risks and delays.
Concurrently, Morgan Reed, president of The App Association, pressed Congress to swiftly implement a “comprehensive, focused, and risk-aware national AI framework. We cannot tolerate a disparate collection of state AI laws, and an extended legal battle challenging the Executive Order’s legality is no improvement.”