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According to multiple reports, the Trump administration is circulating a draft executive order ("EO") that would challenge state AI laws through federal litigation and funding restrictions. If signed, the EO could create immediate compliance uncertainty for organizations operating under state requirements that remain legally enforceable while potentially facing years of federal legal challenges.
The Draft Order
The six-page draft, titled "Eliminating State Law Obstruction of National AI Policy," deploys a multi-agency strategy:
AI Litigation Task Force (Section 3). The Attorney General would be required to establish, within 30 days, a task force "whose sole responsibility shall be to challenge State [sic] AI laws, including on grounds that such laws unconstitutionally regulate interstate commerce, are preempted by existing Federal regulations, or are otherwise unlawful." This would effectively transform the Department of Justice ("DOJ") into an active adversary of state AI policymaking.
Federal Identification of State Laws (Section 4). Within 90 days, the Secretary of Commerce would be required to identify state AI laws that "require AI models to alter their truthful outputs" or compel disclosures that "would violate the First Amendment or any other provision of the Constitution." The order explicitly highlights (in Section 1) California's transparency requirements and Colorado's algorithmic discrimination provisions.
Broadband Funding as Leverage (Section 5). States with identified AI laws would be "ineligible for non-deployment funds" under the Broadband Equity Access and Deployment ("BEAD") Program unless they agree "not to enforce any such laws during any year in which it receives the discretionary funding." This attempts to enforce, through executive action, what the Senate effectively rejected 99-1 in July.
Agency Preemption Efforts (Sections 6-7). The Federal Communications Commission ("FCC") would, in consultation with the Special Advisor for AI and Crypto, initiate a process to determine whether to adopt a federal reporting and disclosure standards for AI models that preempts conflicting state laws. And the Federal Trade Commission ("FTC"), also in consultation with the Special Advisor, would have to explain when state requirements are preempted as compelling "deceptive acts or practices affecting commerce."
The Constitutional Problem
The order rests on two legally contested theories:
- Commerce Clause preemption requires congressional action, not executive orders. The Supreme Court has consistently held that only Congress can preempt state law under Article I. While the DOJ can litigate that state laws burden interstate commerce, the President cannot declare preemption through an executive directive.
- First Amendment arguments claim that state transparency and bias mitigation requirements violate free speech. But courts routinely uphold compelled commercial disclosures (such as nutrition labels and financial warnings) that serve legitimate government interests. Whether AI transparency requirements fall into this category remains largely untested and will likely require years of litigation to resolve.
What This Means for Your Organization
The draft EO would likely create an additional layer of uncertainty that goes beyond the "patchwork" it claims to eliminate:
State requirements remain enforceable. Even if DOJ files suit, existing state laws on AI (including those in California and Colorado) would remain legally binding until courts issue injunctions or final judgments. This process can take years. Your compliance obligations don't evaporate because the federal government disagrees with state policy.
No federal framework replaces challenged state requirements. The order undermines state transparency and bias-mitigation rules without establishing federal alternatives. Section 8 of the draft EO directs the development of federal legislation, but that requires congressional action that may never materialize.
Vendor contracts reference unstable legal requirements. Many AI vendor agreements include provisions addressing California transparency or Colorado discrimination prohibitions. If courts invalidate these requirements, what happens to contractual compliance obligations referencing suddenly invalid statutes? Review your AI vendor contracts to understand whether compliance provisions survive even if underlying state laws are struck down.
Immediate Actions for In-House Counsel
Don't assume state requirements will disappear. Build compliance frameworks that meet current state obligations while maintaining adaptability. Half-measures that ignore applicable state (or local) AI requirements can create legal exposure.
Monitor the 90-day timeline. The Department of Commerce must publish its evaluation of problematic state laws within 90 days of signing. That evaluation would presumably clarify which specific provisions are subject to federal challenge. Your legal team needs visibility into this timeline.
Map your AI footprint against state regulatory landscapes. If your operations are material in state or local jurisdictions with existing AI laws, you are likely to be directly affected by the Department of Commerce's evaluation, and your compliance obligations become targets for federal challenge.
Prepare for prolonged uncertainty, not swift resolution. Commerce Clause and First Amendment challenges will likely produce years of litigation across multiple jurisdictions. This isn't a short-term compliance problem — it's a multi-year governance challenge requiring sustained attention.
The Broader Reality
The draft EO characterizes state legislators as "sophisticated proponents of a fear-based regulatory capture strategy" and frames AI governance primarily as a competitiveness question: "To win, American AI companies must be free to innovate without cumbersome regulation."
But organizations deploying AI systems must balance innovation velocity with stakeholder trust, regulatory compliance, reputational and market considerations, and protection against bias and discrimination claims, regardless of which regulatory philosophy prevails in Washington.
Even if signed, the EO would likely face immediate legal challenges from state attorneys general and civil liberties organizations. Congressional dynamics remain uncertain, with senators from both parties opposing similar provisions.
For organizations, the key insight, whether you support or oppose federal preemption, is that the near-term result is greater compliance uncertainty. Strategic AI governance requires frameworks robust enough to meet current state requirements while maintaining the flexibility to adjust as this regulatory battle unfolds.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
