On Thursday evening, President Donald Trump signed an executive order instructing federal agencies to contest state-level artificial intelligence regulations. The administration argues that emerging tech companies are burdened by a confusing array of state rules and need a more unified approach. However, legal analysts and startup leaders caution that this move could extend the period of legal ambiguity, leading to court disputes and leaving startups to navigate ever-changing state requirements while Congress debates a nationwide policy.
This executive action comes as efforts in Congress to halt state-level AI regulation have stalled, prompting a broader debate over whether federal standards should take precedence. Lawmakers from both parties warn that without a national framework, blocking state action could leave consumers unprotected and companies unchecked.
“This David Sacks-led executive order is a gift for Silicon Valley oligarchs who are using their influence in Washington to shield themselves and their companies from accountability,” said Michael Kleinman, U.S. Policy Director at the Future of Life Institute, an organization focused on mitigating risks from advanced technologies.
David Sacks, who serves as Trump’s advisor on AI and cryptocurrency policy, has been a prominent advocate for federal preemption of state AI laws.
Even those who support a national approach admit that the executive order does not establish a federal standard. State laws remain in effect unless blocked by the courts or suspended by the states themselves, meaning startups may face a prolonged period of regulatory uncertainty.
Sean Fitzpatrick, CEO of LexisNexis North America, U.K., and Ireland, told TechCrunch that states are likely to defend their authority to protect consumers in court, with these cases potentially reaching the Supreme Court.
While proponents believe the order could streamline AI regulation by centralizing legal challenges in Washington, critics argue that the resulting legal battles will create immediate obstacles for startups struggling to comply with conflicting state and federal requirements.
“Startups tend to focus on innovation and often lack comprehensive regulatory compliance programs until they reach a certain scale,” said Hart Brown, principal author of Oklahoma Governor Kevin Stitt’s Task Force on AI and Emerging Technology recommendations. “Building these programs is costly and time-consuming, especially in a rapidly changing regulatory landscape.”
Arul Nigam, co-founder of Circuit Breaker Labs, a company specializing in red-teaming for AI chatbots, echoed these concerns. He noted that the inconsistent state regulations particularly disadvantage smaller startups and questioned whether companies should self-regulate or follow open-source standards in the absence of clear federal guidance. Nigam expressed hope that Congress would act swiftly to establish a robust national framework.
Andrew Gamino-Cheong, CTO and co-founder of AI governance firm Trustible, warned that the executive order could undermine innovation and the broader goals of advancing AI. “Large tech firms and well-funded AI startups can afford legal counsel or hedge their risks, but uncertainty hits smaller startups hardest, especially those without access to significant funding,” he said.
He added that unclear regulations make it more difficult to sell AI solutions to risk-averse clients in sectors like law, finance, and healthcare, leading to longer sales cycles, increased operational complexity, and higher insurance costs. “Even the perception that AI is unregulated erodes trust, which is already fragile and could slow adoption,” Gamino-Cheong explained.
Gary Kibel, a partner at Davis + Gilbert, observed that while businesses would welcome a single national standard, “an executive order may not be the appropriate mechanism to override laws properly enacted by states.” He cautioned that the current uncertainty could result in either overly restrictive rules or a lack of regulation altogether, creating a “Wild West” scenario that benefits large tech companies able to weather the risks.
Morgan Reed, president of The App Association, urged lawmakers to quickly pass a comprehensive, targeted, and risk-based national AI policy. “We cannot afford a patchwork of state AI laws, and a drawn-out legal battle over the executive order’s constitutionality is not a better alternative,” he said.