Beyond Export Controls: Protecting American Investment in the Software Age

 

Robert J. May

July 16, 2025

 

Executive Summary

The rise of distilled open-source AI models and frontier reasoning LLMs positions itself as a two-pronged attack on the American AI curtain—exemplified by DeepSeek’s progression towards DeepSeek-v3, a mixture-of-experts (MoE) frontier LLM. While export controls on high-performance chips and closed-model weights remain vital towards AI security, adversaries and competitors are finding ways to work around rules set by the U.S.. DeepSeek focused on hardware compliance and software-centric strategies, using distillation from previous LLMs to fine-tune and repurpose open-source research. The circumventing of U.S. export controls, leveraging of software innovation, and changing policy stances on GPU manufacturers’ sale-controls all work together to lag policy responses to emerging foreign AI-development strategies. Implications for policy include:

  • Export Control Inconsistencies–The transition from the Biden to the Trump administration saw the return of country-to-country negotiations for advanced computing technology and AI, rescinding President Biden’s AI Diffusion rules. Policymakers should look into methods that allow for greater baseline permitting rules in order to streamline trade negotiations with other countries.
  • Software Protection Policy–Regulating AI software has been largely unattempted. Currently, catch-all provisions theoretically require licenses for software designed for model training when there is knowledge of potential military use. However, demonstrating knowledge about end-use through digital code or model weight changes is near impossible. Code repositories on GitHub, open-weight LLMs, and distillation pipelines fall outside any licensing regime. Policymakers should look into methods to regulate model-weight transfers.
  • Responding to Industry Changes–Abrupt changes in market competition and training strategies, seen by the arrival of DeepSeek, can be provoked through strict export controls and policymakers are slow to respond. Policymakers should look into the costs and benefits of strict export controls under the context of slow response times and policy workarounds.

 

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