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Trump AI order uses federal cash to choke off state tech laws

Trump AI order uses federal cash to choke off state tech laws

Rule Changes
By Newzino Staff |

A White House bid to centralize AI power sets up a constitutional brawl with states and civil-liberties groups.

December 12th, 2025: States and civil-liberties groups prepare to sue

Overview

Donald Trump just turned AI regulation into a states’ rights knife fight. His new executive order creates a Justice Department “AI Litigation Task Force” to attack state AI laws and lets Washington threaten $42 billion in broadband funds for states that don’t fall in line.

Supporters call it a necessary antidote to a chaotic patchwork of rules; critics see an unconstitutional power grab that would turn AI oversight into a lawless Wild West. What happens next will decide who really governs the most powerful technology in America: Washington, statehouses, or the companies building the models.

Key Indicators

$42B
Broadband funds at risk
BEAD program money the order puts on the line for states with 'onerous' AI laws.
38
States with AI measures in 2025
States that have enacted roughly 100 AI-related measures this year.
1,080+
AI-related state bills in 2025
Total AI bills introduced across all 50 states in a single legislative year.
30
Days to stand up DOJ task force
Deadline for the Attorney General to launch the AI Litigation Task Force.
73
New AI laws in 27 states (2025)
Recent wave of state AI laws that sharpened the White House push for preemption.

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Debate Arena

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People Involved

Donald Trump
Donald Trump
President of the United States (Driving a federal-first, deregulatory AI agenda using executive power.)
David Sacks
David Sacks
Special Advisor for AI and Crypto to the President (Key architect of the White House’s light-touch, federal-first AI strategy.)
Don Beyer
Don Beyer
Democratic Representative, Co-Chair of House AI Caucus (Leading congressional critic of Trump’s AI order and its attack on state safeguards.)
Gavin Newsom
Gavin Newsom
Governor of California (Overseeing the nation’s most ambitious state AI regime and likely top legal target.)
Letitia James
Letitia James
Attorney General of New York (Positioning state AGs as frontline defenders of AI oversight against federal rollback.)

Organizations Involved

U.S. Department of Justice
U.S. Department of Justice
Federal Government Department
Status: Ordered to launch an AI Litigation Task Force targeting state AI laws.

The Justice Department will be the White House’s spearpoint in court against state AI laws.

U.S. Department of Commerce
U.S. Department of Commerce
Federal Agency
Status: Tasked with scoring state AI laws and tying them to broadband and grant eligibility.

Commerce becomes the gatekeeper deciding which states’ AI laws jeopardize federal tech funding.

State of California
State of California
State Government
Status: Leading AI regulator whose laws are explicit targets of the federal order.

California has become the de facto AI regulator of last resort—and now Washington’s prime target.

Major AI Firms and Investors
Major AI Firms and Investors
Industry Coalition
Status: Pushing for federal preemption to avoid a patchwork of state AI rules.

Big AI labs and allied investors quietly champion a single federal regime over sprawling state rules.

Timeline

  1. States and civil-liberties groups prepare to sue

    Legal

    State attorneys general and civil-rights organizations denounce the order as unconstitutional and promise court challenges.

  2. Trump signs 'Ensuring a National Policy Framework for AI'

    Executive Action

    Order launches DOJ AI Litigation Task Force, orders Commerce to list 'onerous' state laws, and threatens BEAD funds.

  3. Draft federal AI preemption order leaks

    Leak

    Reports reveal a draft Trump order to create an AI Litigation Task Force and tie broadband funds to state AI laws.

  4. Report counts 73 new AI laws in 27 states

    Analysis

    Transparency Coalition tallies dozens of new state AI laws, from deepfakes to healthcare algorithms.

  5. California enacts SB 53 frontier AI safety law

    State Law

    New law forces large AI developers to publish catastrophic‑risk frameworks and report critical incidents.

  6. Deepfake laws explode across the states

    Analysis

    Report finds 64 new deepfake laws in 2025, bringing total to 47 states with such statutes.

  7. Trump bans 'woke AI' in federal government

    Executive Action

    Executive order directs agencies to avoid AI systems seen as reflecting DEI or progressive ideologies.

  8. Senate crushes 10-year moratorium on state AI laws

    Congress

    Senators vote 99–1 to strip a decade-long state AI preemption from Trump’s 'Big Beautiful Bill.'

  9. Trump revokes predecessor’s AI order

    Executive Action

    New 'Removing Barriers' order scraps prior AI framework and commits to deregulation and 'AI dominance.'

  10. Newsom vetoes strict frontier AI bill SB 1047

    State Law

    California’s governor rejects an aggressive frontier AI safety bill amid industry concerns over innovation.

  11. Colorado passes first comprehensive state AI Act

    State Law

    Colorado enacts a landmark AI law targeting algorithmic discrimination in high‑risk decision systems.

Scenarios

1

Federal Courts Muzzle the Most Aggressive Parts of Trump’s AI Order

Discussed by: Wired, Reuters, legal commentators at TechPolicy.Press and major law firms

States like California, Colorado, and New York file coordinated lawsuits arguing the order exceeds executive power, violates the Tenth Amendment, and weaponizes federal funds beyond what Supreme Court precedents allow. Judges who already slapped down Trump’s sanctuary‑city funding orders could see similar coercion here and issue injunctions narrowing the BEAD funding threats and limiting how far DOJ’s AI Litigation Task Force can go. The order survives symbolically but loses its sharpest enforcement teeth.

2

Congress Cuts a Deal: National AI Framework, Limited State Powers

Discussed by: Barron’s, policy shops, and industry lobbyists pushing for preemption

The shock of the executive order and looming legal chaos pushes Congress into action. Industry-backed Republicans and some Democrats negotiate a federal AI law that preempts certain state rules—especially overlapping disclosure and algorithmic-bias mandates—while explicitly preserving others, like child-safety, deepfake, and government-use provisions. States lose some flexibility but keep meaningful authority in high-risk areas. The AI Litigation Task Force becomes less central as agencies pivot toward implementing the new statute.

3

States Blink: Quiet Rollbacks of AI Laws to Keep Federal Money Flowing

Discussed by: Business press, compliance analysts, and statehouse reporters tracking BEAD negotiations

Facing the prospect of losing broadband dollars and other grants, some governors and legislatures quietly narrow or delay their AI laws. Instead of high-profile court showdowns, they tweak enforcement dates, carve out large vendors, or convert strict mandates into advisory guidelines. Deep-blue states like California resist, but swing and cash-strapped states cut deals with Commerce or DOJ to certify 'compliance' in exchange for funding assurances. The patchwork thins without ever being fully preempted.

4

Supreme Court Blesses Broad Federal Preemption of AI Regulation

Discussed by: Conservative legal commentators citing recent decisions expanding executive and spending power

If a test case reaches the Supreme Court, the justices could read spending and commerce powers generously, analogizing AI funding conditions to the drinking-age highway case and downplaying coercion. Combined with recent limits on nationwide injunctions, that would let different circuits uphold most of the order while challengers fight piecemeal. A ruling like that would not just reshape AI regulation; it would embolden future presidents of both parties to use grants and task forces to override state tech policy.

Historical Context

South Dakota v. Dole and the Federal Drinking Age

1984–1987

What Happened

Congress tied a sliver of federal highway funds to states raising the drinking age to 21. South Dakota sued, arguing this violated states’ rights and the Twenty‑First Amendment, but the Supreme Court upheld the law as a permissible condition on spending.

Outcome

Short Term

Most states raised their drinking ages to avoid losing funds, cementing 21 as the national norm.

Long Term

The case became the blueprint for using conditional federal grants to steer state policy without directly rewriting state law.

Why It's Relevant Today

Trump’s threat to withhold broadband money uses the same spending-power logic, but on a far larger and more contested scale.

Trump’s Sanctuary Cities Funding Orders

2017–2025

What Happened

Across both terms, Trump signed orders to strip federal grants from 'sanctuary' jurisdictions that limited cooperation with immigration enforcement. Cities and states sued, and multiple federal courts blocked the funding threats as unconstitutional coercion and an overreach of executive power.

Outcome

Short Term

Judges issued injunctions preventing the administration from conditioning most grants on immigration compliance.

Long Term

These rulings reinforced that presidents cannot unilaterally rewrite Congress’s funding conditions, strengthening state arguments against similar tactics in AI.

Why It's Relevant Today

The new AI order revives the same playbook—use sweeping grant threats to strong‑arm states—likely inviting similar judicial skepticism.

Battles Over California’s Vehicle Emissions Waiver

2018–2025

What Happened

The first Trump administration tried to revoke California’s Clean Air Act waiver letting it set stricter car emissions rules than federal standards. Automakers and states split; years of litigation and political reversals followed, with later administrations restoring the waiver and watchdog agencies limiting Congress’s ability to undo it.

Outcome

Short Term

California largely preserved its ability to set tougher climate rules adopted by other states.

Long Term

The fight underscored how a powerful state can shape national standards even when Washington seeks uniformity.

Why It's Relevant Today

California’s push to lead on AI, and federal attempts to rein it in, echo this earlier clash over whether one state can effectively set the bar for the whole country.

15 Sources:
+9
Reuters The White House WIRED The Guardian Associated Press Barron’s Wikipedia Transparency Coalition Newsfile Software Improvement Group TechPolicy.Press TokenRing AI Wikipedia Reuters Wikipedia