Has Trump’s AI Executive Order Given Startups Clarity Or Created New Barriers?

On 12 December 2025, US President Donald Trump signed an executive order titled “Ensuring a National Policy Framework for Artificial Intelligence”. At the time, the order was presented as a decisive move to streamline AI governance, reduce regulatory fragmentation and strengthen America’s global AI leadership.

According to a White House fact sheet released in December, the administration’s goal was to establish a “coherent and minimally burdensome” national policy environment for AI innovation. The executive order argues that a patchwork of state-level AI laws risks undermining US competitiveness and creating unnecessary compliance costs for businesses – especially early-stage companies.

But, while the order signals a strong deregulatory intent, it doesn’t create a comprehensive federal AI law. Instead, it directs federal agencies to take steps to limit or challenge state-level AI regulations deemed inconsistent with national policy. As a result, rather than immediately resolving regulatory uncertainty, the order has sparked legal and political debate about its enforceability and practical consequences.

For startups operating in the AI space, the central question remains: does this executive action offer genuine clarity, or does it create a new and more complex compliance landscape? Basically, has the Trump administration just made things a whole lot more confusing than before?

What Does the Executive Order Actually Say?

According to the White House fact sheet, the executive order directs federal agencies to coordinate around a unified national AI strategy and to discourage “overly burdensome” state AI laws. The Department of Justice has been instructed to identify and potentially challenge state legislation that conflicts with the administration’s national AI objectives.

Legal analysis published by major law firms shortly after the order was issued notes that the executive order doesn’t itself invalidate state laws. Rather, it establishes a framework for federal agencies to review, contest or potentially litigate against state measures that are seen as impeding innovation.

The order also encourages agencies like the Federal Trade Commission (FTC) and the Federal Communications Commission (FCC) to consider guidance or reporting standards related to AI systems. According to policy analysts, this could result in new federal-level disclosure or transparency requirements, even as state-level rules remain in place pending legal review.

Another significant feature of the order, according to coverage of state legislative responses, is its linkage between AI regulatory alignment and federal funding eligibility. States that rely on federal infrastructure and technology grants may face indirect pressure to adjust their AI frameworks to align with federal priorities.

Importantly, the executive order doesn’t set out detailed rules regarding AI safety, liability standards, data privacy obligations or model governance requirements – things many people may have expected. Rather, it articulates a policy direction – one that favors innovation and economic competitiveness – while leaving substantive rulemaking largely undefined.

Federal Clarity, State Resistance

According to reporting from national and regional outlets, the executive order has been met with mixed reactions from state governments. Several states that were already advancing AI legislation on their own terms – including measures focused on transparency, safety reporting and consumer protections – have indicated they intend to proceed despite the federal directive.

Legal experts quoted in policy analysis suggest that the constitutional limits of federal authority in this area may complicate enforcement more than ever before. Executive orders alone can’t override state laws unless Congress has granted the federal government clear statutory authority to do so. So as a result, many observers expect prolonged legal challenges if the Department of Justice moves to block or contest state AI statutes. Basically, a whole lot of red tape and time wasting, in some ways.

For startups, this creates a paradoxical situation.

The administration has signaled a clear intent to reduce regulatory barriers and accelerate AI development. Butt in practice, companies may find themselves operating in a transitional environment where state laws remain active, federal agencies explore new oversight mechanisms and courts determine the ultimate scope of federal power.

In effect, founders now face not just a patchwork of state rules, but also a dynamic legal contest over which rules will ultimately prevail. If things were complex and confusion before, the situation just got a whole lot trickier.

Our Experts:

• Lindsey Mignano: Co-Founder of SSM and Corporate Attorney for Startups and Small Businesses
• Jeff Watkins: Chief AI Officer of NorthStar Intelligence
• Ahmed Elsayyad: President and Co-Founder at Ostro
• Stanislav Sedov: Founder at Leo Books
• Russel Twilligear: Head of AI R&D at BlogBuster
• Jeff Le: Managing Principal at 100 Mile Strategies
• Paulo Cardoso do Amaral: Author of Business Warfare

Lindsey Mignano, Co-Founder of SSM and Corporate Attorney for Startups and Small Businesses

“Supporters and certain industry analysts argue that reducing the current patchwork of 50 different state AI laws could ultimately make compliance easier for startups. A unified federal standard may help reduce the upfront compliance costs faced by early-stage AI startups that often lack robust legal and regulatory teams. Such changes could encourage innovation by lowering non-technical barriers to entry.

“Conversely, critics point out that the order in question does not establish a true national regulatory framework. Instead, it initiates federal challenges to state laws, which remain in effect unless and until courts decide to block them. Federal agencies such as the FTC and FCC are considering their own guidance and reporting requirements, creating a stacked compliance environment and placing additional financial strain on early-stage AI startups. Without clear or concrete standards regarding safety, liability, data privacy or ethical AI deployment, early-stage startups remain uncertain about what federal enforcement will entail.”

Jeff Watkins, Chief AI Officer of NorthStar Intelligence

“US President Donald Trump issued an executive order in December 2025 requiring the US Department of Justice to sue states that introduce AI legislation that is seen as “burdensome” to the tech industry. This move is a part of his wider deregulation of US industries to maximise economic benefits.

“Experts have commented that the federal government, the FCC, and the FTC may lack the required authority to impose such rules on individual states in this area or to control access to federal grants, with some deeming the move unconstitutional coercion of states.

“Many states, such as Colorado and New York, are ploughing ahead with their AI legislation despite the executive order, arguing that it may not be meaningfully enforceable. Utah, with its recent AI transparency bill, is one of the states in the firing line. This bill, which requires developers of frontier models to publish their safety and child protection policies and report safety incidents to the state, has been deemed “unfixable.”

“Even before this executive order, it was a potentially confusing time for AI startups, as states began implementing their own legislation and governance frameworks. Adding a layer of regulatory uncertainty on top of this, especially if your startup plans to operate in multiple states (and even countries), makes this even more difficult to keep up with.

“On the surface, this could be a real advantage for early-stage startups. If it all goes ahead as planned, it would create a much lower-friction environment within the US. However, in the interim, as this tug of war continues, it creates uncertainty and some hard work for legal and compliance teams, which many startups can ill afford to retain.

“Deregulatory actions also don’t exist in a vacuum; customer expectations and other regulations still hold, so AI startups in regulated and sensitive industries such as financial services, education, and healthcare would still have to implement accordingly, but with a lack of clear AI legislation to help set guardrails.

“Another key problem is that a complete deregulation means things like child safety and data privacy go unaddressed, which is unacceptable to many and at odds with the global moves towards safer and more responsible AI, and use of technology in general (for example, the banning of social media for children in Australia is being considered in other regions).

“In summary, President Trump’s executive order has created clarity of intent but not clarity of governance. Founders now know that the federal government aims to remove barriers to the implementation of AI. But, as a startup, even if this executive order is enacted, it’s not a free-for-all on AI, as industries, customers, and other territories expect responsible, fair, and safe AI to be in place. This means that AI developers should plan for this accordingly and have a good grasp on responsible AI, not just what’s in the law now, but what is likely to happen in the near future.”

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Ahmed Elsayyad, President and Co-Founder at Ostro

“The AI Executive Order offers something startups genuinely want: a signal that the federal government prefers a coherent national framework over a patchwork of state rules. That kind of clarity can reduce duplicated compliance work and make national go to market strategies more feasible. At the same time, preemption fights and shifting guidance introduce a different uncertainty, namely whether today’s baseline will survive court challenges or administrative turnover.

For early stage companies, the practical response is cautious pragmatism. Founders are building to the highest plausible standard anyway, because enterprise customers, insurers, and investors demand documentation, model governance, and risk controls regardless of politics. Compliance therefore becomes both a cost center and a competitive moat. Teams that systematize auditing, bias testing, and incident response early may attract capital more easily, while thinner teams face longer diligence cycles.

Innovation is unlikely to stop, but it may professionalize faster. Growth continues, just with more lawyers in the room and fewer purely experimental launches.”

Stanislav Sedov, Founder at Leo Books

“New EO gives startups more clarity on direction and zero clarity on compliance. Those are two different things.

“I run Leo Books, where we use AI to generate personalised children’s books from photos, and I built AI products across construction, fintech and enterprise productivity. For all of them the compliance surface are is still the same. The situation changed from having too many rules to not being able to tell which rules survive and when. That is much harder to plan around.

“What a lot of people miss is that the new EO ties state AI regulation to federal grant eligibility. States that rely on infrastructure funding now face pressure to finalize their AI rules. Startups selling to the government might find themselves relying more on grant maps rather than talent density when choosing deployment locations.”

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Russel Twilligear, Head of AI R&D at BlogBuster

“So the good side first: Trumps AI executive order is telling companies and investors that AI is here to stay, which is a really good thing. This means investors and others are going to be throwing a lot of money into AI, which we are clearly seeing. His executive order is also a great first step into what the government cares about when it comes to using and building AI systems.

“Bad: This is pushing a lot of responsibility to small companies that are trying to emerge. I mean really think about it, these small startups now have to think about the rules and regulations and tracking how their AI works from the very beginning. This is going to slow things down for them, or just crush them entirely.

“However, with that said, innovation isn’t going to stop, it’s just that startups will need to be more careful, and probably need more funding.”

Jeff Le, Managing Principal at 100 Mile Strategies

“The Trump administration’s Executive Order theoretically provides clarity for AI startups that the Federal Government is moving to deregulate and accelerate unbound AI development by any means. In practice, the absence of a federal regulatory framework has created guesswork and an opportunity for state governments and legislatures to prioritise regulating frontier AI. Both Democratic and Republican states, which has enjoyed bipartisan support for AI regulation, has been at odds with the administration on state initiatives, which might actually make AI oversight more challenging and for startups having more difficulty in operating to adhere to multiple state laws with different safety and security transparency and requirements with more compliance burdens.

“Paradoxically, the administration could work with industry to support some key cornerstone standards and commonality for companies to adhere to. Instead, the courts and state governments may end up freezing innovation for smaller startups. This would advantage the larger incumbents who can curry political favor and have resources, lawyers, and lobbyist to create moats for their solutions.”

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Paulo Cardoso do Amaral, Author of Business Warfare

“Trump’s executive orders on AI do, in fact, attempt to simplify certain aspects of the regulatory landscape, which currently varies significantly from state to state. By defining a federal approach, these can influence federal funding for AI development and may also indirectly shape funding decisions at the state level.

“However, executive orders do not have the authority to override state laws. This means that in areas such as transparency and disclosure, bias, incident reporting, and anti-discrimination, executive orders may have a positive impact. But there are other domains, product including liability, state privacy, child safety, political ad rules, deepfake regulation, healthcare, consumer protection, employment laws, trade secrets, and state procurement, where executive orders cannot displace or preempt state-level legislation.

“Moreover, executive orders are subject to judicial review and may face legal challenges, which increases regulatory uncertainty for AI investment projects.

“So, no, it is not all upside.”