Why Trump’s AI Executive Order Makes Business Compliance Harder, Not Easier
President Trump just signed an executive order aimed at eliminating state AI regulations.
The target: what the administration calls a “patchwork” of conflicting state AI laws that burden businesses with different compliance requirements across jurisdictions.
The weapon: federal preemption threatening to override state laws the administration deems “onerous” or conflicting with federal AI policy.
The stakes: $42.5 billion in BEAD broadband funding that states could lose if they maintain AI laws the Trump administration considers overly burdensome.
The order, signed during a ceremony where Trump declared “we have to be unified,” sets up the most significant federal-state conflict over technology regulation since Section 230 debates. Commerce Secretary Howard Lutnick, Senate Commerce Committee Chairman Ted Cruz, and White House AI Czar David Sacks attended the signing.
California Governor Gavin Newsom immediately pushed back, calling Trump and Sacks’ move “a con” and vowing California would continue “implementing commonsense safeguards” despite federal pressure.
I’ve been advising businesses on navigating conflicting state AI regulations for two years. Businesses hoped federal action would simplify compliance. Instead, they’re facing uncertainty about which laws apply, whether state regulations remain enforceable, and what happens when federal preemption challenges reach courts.
What the Executive Order Actually Does
AI Litigation Task Force: Creates a DOJ task force charged with identifying and challenging state AI laws that conflict with federal policy stating it’s U.S. policy “to sustain and enhance the United States’ global AI dominance through a minimally burdensome national policy framework for AI.”
BEAD Funding Restrictions: Restricts non-deployment funding from the $42.5 billion BEAD broadband program for states the administration determines have AI laws that are overly burdensome. This creates financial pressure for states to repeal or modify AI regulations.
FCC Preemption Proceeding: Requires the FCC to begin a proceeding within 90 days “to determine whether to adopt a federal reporting and disclosure standard for AI models that preempts conflicting State laws.”
FTC Policy Statement: Orders the FTC to “issue a policy statement on the application of the FTC Act’s prohibition on unfair and deceptive practices … to AI models.”
Legislative Recommendation: Directs the Special Advisor for AI and Crypto and the Assistant to the President for Science and Technology to jointly prepare legislative recommendations establishing a uniform federal policy framework for AI that preempts state AI laws conflicting with federal policy.
The order includes limited exceptions, stating that federal preemption wouldn’t override certain state laws including those related to child safety.
Which State Laws Are Targeted
The executive order doesn’t name specific state laws, but the timing and language make clear which regulations are in the administration’s crosshairs.
California has passed multiple AI-related laws including algorithmic discrimination requirements, automated decision-making disclosures, and AI safety standards. These represent the most comprehensive state AI regulatory framework in the country. Governor Newsom’s immediate opposition makes clear California intends to defend its regulations against federal preemption challenges.
Colorado passed sweeping AI regulations in 2024 affecting everything from insurance to employment decisions, creating compliance obligations that businesses argued were unworkable alongside conflicting requirements in other states.
New York City requires bias audits for AI hiring tools, creating compliance burdens specifically cited by businesses as examples of state regulatory overreach.
Illinois’ Biometric Information Privacy Act (BIPA) has generated hundreds of lawsuits and millions in settlements, making it a prime target for federal preemption efforts.
The administration’s language about “onerous” laws and “minimally burdensome” federal policy suggests aggressive interpretation of which state laws conflict with federal policy. This isn’t limited to obviously contradictory requirements—any state law the administration views as too burdensome could face preemption challenges.
The BEAD Funding Leverage
The most immediate impact comes from threatening to withhold BEAD broadband funding from states with AI laws the administration considers problematic.
The $42.5 billion BEAD (Broadband Equity, Access, and Deployment) program funds broadband infrastructure deployment in underserved areas. The executive order restricts “non-deployment funding” for states with allegedly burdensome AI laws.
California, New York, Colorado, and Illinois have invested years developing AI regulatory frameworks. Now they face potential loss of hundreds of millions in federal broadband funding if they maintain those regulations.
States will decide whether AI regulations are worth sacrificing broadband funding, or whether federal financial pressure forces regulatory rollbacks regardless of state policy preferences.
What “Federal Preemption” Actually Means
Federal preemption is the legal doctrine allowing federal law to override state law when the two conflict. The executive order sets up preemption challenges through multiple mechanisms.
Express preemption: If Congress passes legislation explicitly stating that federal AI law preempts conflicting state laws, those state laws become unenforceable. The executive order directs development of legislative recommendations including express preemption language.
Conflict preemption: Even without express preemption language, federal law can override state law when compliance with both is impossible or when state law stands as an obstacle to accomplishing federal objectives. The DOJ task force will likely pursue conflict preemption arguments against state AI laws.
Field preemption: Federal law can occupy an entire regulatory field, preventing states from regulating in that area even when state laws don’t directly conflict with federal requirements. This is the most aggressive preemption theory and least likely to succeed for AI regulation.
The executive order’s language about “minimally burdensome national policy framework” and maintaining U.S. “global AI dominance” sets up conflict preemption arguments. The administration will argue that state AI regulations—even when not directly contradicting federal law—create burdens that conflict with federal policy objectives.
The Legal Challenges Coming
This executive order guarantees years of litigation over federal preemption of state AI laws.
States will argue the executive order exceeds presidential authority by purporting to preempt state laws without congressional authorization. Preemption traditionally requires congressional action, not executive orders. Courts will determine whether the president can direct agencies to pursue preemption without statutory authority.
The order directs the FCC and FTC to take actions that may exceed their statutory authority. The FCC’s authority to regulate AI is questionable given AI isn’t telecommunications. The FTC’s authority is broader but still faces limits. Agencies pursuing preemption beyond their statutory authority face legal challenges.
Using BEAD funding to pressure states to repeal AI laws faces constitutional limits on federal spending conditions. The Supreme Court has held that spending conditions must be related to the federal program’s purpose. Courts will determine whether AI regulation relates sufficiently to broadband deployment to justify withholding BEAD funds.
States have traditional police powers to regulate for health, safety, and welfare. AI regulation affecting employment, housing, insurance, and consumer protection falls within traditional state authority. Federal preemption of these areas faces heightened scrutiny from courts concerned about federalism.
Expect California, New York, Colorado, Illinois, and other states with AI regulations to file lawsuits challenging the executive order’s constitutionality within weeks.
What This Means for Your Business
The executive order creates uncertainty rather than clarity for businesses trying to comply with AI regulations.
Don’t assume state laws are gone: Federal preemption challenges take years to resolve through litigation. State AI laws remain enforceable until courts rule otherwise. Businesses that stop complying with state requirements based on the executive order face enforcement actions and lawsuits while preemption challenges work through courts.
Compliance obligations multiply: Instead of simplifying compliance, the executive order adds federal requirements (FCC reporting standards, FTC guidance) on top of existing state obligations. Businesses now navigate state laws that may or may not be preempted, plus federal requirements that may or may not be upheld in court.
Enforcement uncertainty increases: The DOJ task force will pursue preemption challenges, but those challenges take years. Meanwhile, state attorneys general will continue enforcing state AI laws. Businesses face conflicting signals about which laws to follow, and which agencies will bring enforcement actions.
Strategic decisions get harder: Should businesses invest in compliance with state AI laws that might be preempted? Should they ignore state requirements based on potential federal preemption that might not succeed? These decisions involve millions in compliance costs and significant legal risk.
The California Showdown
Governor Newsom’s immediate opposition sets up a direct federal-state confrontation over AI regulation. California has the most comprehensive state AI regulatory framework in the country. It also has the largest economy, the most significant tech industry, and the strongest political will to resist federal preemption.
Expect California to file lawsuits challenging every aspect of the executive order, from constitutional authority to agency overreach to spending conditions. If California successfully defends its regulations against federal preemption, other states will maintain their AI laws. If California loses, state AI regulation effectively ends.
What Businesses Should Do Now
Continue complying with state AI laws: State requirements remain enforceable until courts rule otherwise. Non-compliance based on the executive order creates legal exposure while preemption challenges work through litigation.
Monitor federal agency actions: The FCC proceeding and FTC policy statement will create new federal requirements. Track these developments and prepare for additional compliance obligations layered onto existing state requirements.
Document compliance efforts: Whether state laws ultimately survive preemption challenges or not, businesses need records showing good faith compliance efforts during the uncertainty period. Documentation protects against enforcement actions from state attorneys general who continue enforcing AI laws during litigation.
Engage with legislative process: The executive order directs development of legislative recommendations for federal AI policy. Businesses should engage with this process to shape federal standards that actually work rather than waiting for unworkable requirements to be imposed.
Prepare for extended uncertainty: This legal battle will take years. Businesses need compliance strategies that work regardless of which level of government ultimately regulates AI.
The Reality
Trump’s AI executive order doesn’t simplify compliance. It creates years of uncertainty about which laws apply and which agencies will enforce them. Businesses hoped federal action would replace the state regulatory patchwork with clear national standards. They’re getting federal-state conflicts, constitutional litigation, and compliance obligations that multiply rather than consolidate.
The executive order represents the Trump administration’s attempt to eliminate state AI regulations it views as burdensome. Whether that attempt succeeds depends on courts’ willingness to uphold aggressive federal preemption theories and states’ willingness to fight for their regulatory authority.
My team helps businesses navigate the intersection of federal and state AI regulations, develop compliance strategies that work regardless of preemption outcomes, and engage with both federal and state regulatory processes shaping AI policy.
Contact me directly at tshields@kelleykronenberg.com to discuss your AI compliance strategy during this period of federal-state regulatory conflict.
About the Author:
Timothy Shields
Partner/Business Unit Leader, Data Privacy & Technology
Kelley Kronenberg-Fort Lauderdale, FL.
(954) 370-9970
Email
Bio
Timothy Shields holds a Doctorate in Education and Juris Doctor, serves as Partner and Business Unit Leader for Data Privacy & Technology at Kelley Kronenberg, and is a certified NFL agent. He specializes in representing college athletes in Loss of Value insurance negotiations, NIL matters, and coverage disputes involving career-altering injuries.