This move, reportedly spearheaded by the administration’s AI and crypto policy czar David Sacks, is less a finely tuned regulatory instrument and more a constitutional sledgehammer. The order directs the Justice Department to challenge state-level AI laws, arguing that they unlawfully burden interstate commerce. The entire premise is that AI is an inherently national, if not global, business, and having different rules in California, Colorado, and Connecticut just gums up the works. The problem? You can’t just wish away existing laws with an executive order. This isn’t magic; it’s a declaration of a long, expensive war that will be fought in the courts, leaving innovators trapped in the crossfire.
The Grand Promise vs. The Gritty Reality
Let’s be clear about what this executive order is actually doing. It has given the Justice Department a mere 30 days to form a task force to contest state regulations. Simultaneously, the Commerce Department has 90 days to identify what it deems “onerous” state laws, with the thinly veiled threat that non-compliant states might see their federal funding jeopardised. The stated goal is to clear the way for a single federal standard, which the administration says it wants to develop with Congress.
But this approach introduces a massive period of AI regulatory uncertainty. It’s like telling everyone you’re building a new motorway but starting by dynamiting all the existing A-roads without posting any diversions. For the next few years, whilst these battles play out in federal courts – potentially all the way to the Supreme Court – who is a startup supposed to listen to? The existing state law that could get them sued today, or the promised federal law that might not exist for years? This is the very definition of a legal gray area, and it’s where innovation goes to die. As Gary Kibel of law firm Davis + Gilbert aptly pointed out to TechCrunch, “An executive order is not necessarily the right vehicle to override state laws.” He’s not wrong. It’s a provocation, not a solution.
Welcome to Compliance Purgatory
The immediate impact of this manufactured chaos is a surge in compliance complexity. Think about the difference between a giant like Google and a five-person AI startup in a garage. Big Tech has entire floors of lawyers and policy wonks who live for this stuff. For them, navigating conflicting regulations is just the cost of doing business. They have the resources to hedge their bets, lobby governments, and fight protracted legal battles.
Startups, on the other hand, do not. As Andrew Gamino-Cheong, CEO of compliance platform Trustible, noted, “Big Tech and big AI startups have funds to hire lawyers… uncertainty hurts startups the most.” This isn’t just an inconvenience; it’s an existential threat. Every pound spent on legal consultation is a pound not spent on engineering talent, computing power, or product development. It creates massive innovation barriers, forcing founders to think more about legal liability than building the next great product. This is a point echoed by Hart Brown, who heads the Oklahoma governor’s AI Task Force, stating that “Startups typically do not have robust regulatory governance programs until they reach scale.” This executive order essentially raises the price of entry into the market, favouring the incumbents it claims to be reining in.
This dynamic creates a few key challenges for new players:
– Paralysing Indecision: Do you build your product to comply with the strictest state law (like California’s) or bet on a more lenient federal standard that doesn’t exist yet? Guessing wrong could be fatal.
– Investor Cold Feet: Venture capitalists prize predictability. A market embroiled in fundamental AI regulatory uncertainty over who makes the rules is hardly a safe bet. Investment could dry up for startups in sectors deemed legally risky.
– An Unlevel Playing Field: This isn’t just about money. It’s about focus. Whilst giants like Microsoft and Amazon can dedicate teams to this, a startup’s founder is now expected to be a CEO, product lead, and constitutional law expert.
The Federal Power Grab and its Fallout
This conflict was, in some ways, inevitable. The long-standing federal policy gaps in tech regulation created a vacuum that states were more than happy to fill. With Congress gridlocked and seemingly incapable of passing meaningful tech legislation for years, states took the lead to protect their citizens’ data and rights. Now, the executive branch is trying to claw that power back retroactively.
The administration is banking on the Constitution’s Commerce Clause, which gives the federal government authority over interstate commerce. It’s a powerful argument, but far from a guaranteed win. Legal experts predict years of litigation as states defend their right to legislate. For startups, this means the legal gray areas will only expand. What happens if a federal court in one circuit sides with the administration, but another sides with the states? The regulatory patchwork could become even more of a tangled mess before it gets any clearer.
This whole affair feels less like a coherent strategy and more like a political statement. Michael Kleinman of the Future of Life Institute didn’t mince words, calling the order “a gift for Silicon Valley oligarchs.” Whilst that might be a bit strong, the practical effect is undeniable: it helps those with the scale to endure the chaos and hurts those without.
What Should a Founder Do Now?
So, if you’re a founder trying to build an AI company in this environment, what’s the game plan? Hiding under your desk isn’t an option.
First, you cannot ignore the existing state laws. They are the law of the land today, and they carry real penalties. Build compliance into your product from day one, focusing on flexible architecture that can be adapted as the rules change. Assume the strictest interpretation for now—it’s easier to loosen standards later than to bolt them on.
Second, stay informed. This isn’t just background noise; it’s a core business risk. Follow the legal challenges closely. Pay attention to what industry bodies like The App Association are saying. The founder who understands the shifting legal landscape has a significant advantage over one who just keeps their head down coding.
Finally, recognise that this uncertainty is the new normal, at least for a while. The promise of a single, simple AI rulebook is appealing, but the road there is fraught with peril. The companies that thrive will be those that are agile, resilient, and perhaps a little bit paranoid.
Ultimately, this executive order forces a critical question upon the entire industry and country. Is this heavy-handed federal intervention the only way to resolve the deepening federal policy gaps and create a unified market for AI? Or has the administration just thrown a grenade into the engine room of American innovation, hoping the explosion will somehow fix the machine? What do you think?
