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- [00:01]
A
Welcome to Thoughts on the Market. I'm Michael Zezas, global Head of Fixed Income Research and Public Policy Strategy.
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And I'm Ariana Salvatore, U.S. public policy strategist.
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Today we're diving into the Administration's newly released AI Action Plan, what's in it, what it means for markets, and where the challenges to implementation might lie. It's Thursday, July 24th at 10am in New York. Things are not all quiet on the policy front, but with fiscal bill having passed Congress and trade tensions simmering ahead of the new Aug. 1 deadline, clients are asking what the administration might focus on that investors might need to know more about. Well, this week it seems to be AI. The White House just unveiled its sweeping AI Action Plan, the first big policy signaling document since the administration canceled the implementation of former President Biden's AI Diffusion rule. So Arianna, what do we need to focus on here?
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This document is basically the administration signaling how it intends to cement America's role in the global development of AI through a mix of both domestic and global policy initiatives. There are over 90 policy actions outlined in the document across three main innovation, infrastructure, and global leadership.
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That's right, and even though there's still some important details to flesh out here in terms of what these initiatives might practically mean, it's worth delving into what the different areas are outlining and what it might mean for investors here.
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So first on the innovation front, the plan calls for removing regulatory barriers to AI development, encouraging open source models, and investing in interpretability and robustness. There's also a push throughout the document to build world class data sets and accelerate AI adoption across the federal agencies.
- [01:47]
A
Infrastructure is another main pillar here, and keeping with the theme of loosening regulation, the plan includes fast tracking permits for data centers, expanding access to federal land, and improving grid interconnection for power generation. There's also a call to stabilize the existing grid and prioritize dispatchable energy sources like nuclear and geothermal. But that's where we may see some of these frictions emerge. As our colleague Stephen Bird has talked about quite a bit, the grid remains a major constraint for power generation, and even with some of these executive orders, the President's ability to control scaling power capacity is somewhat limited. Many of these policy tools to increase energy production to facilitate more data centers will likely have to be addressed by Congress, especially if any of these policy changes are to be more durable.
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One area where the executive actually does have pretty broad discretion to control is trade policy, and this document focused a lot on the US's role in the world as we see increasing AI competition on a global scale. So to that point, the third pillar is around global leadership. Specifically, the plan calls for the US to export its full AI stack, hardware models, standards to allies while simultaneously tightening export controls on rivals. China is clearly a focal point here and that's one that is explicitly called out in the document.
- [03:09]
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Right. And so it all seems part of a proposal to form an international AI alliance built on shared values and open trade. And the plan explicitly frames AI leadership as a strategic priority in the multipolar world. It calls for embedding US AI standards and global governance bodies while using export controls and diplomatic tools to limit adversarial influence. But importantly, something we'll have to track here is what exactly are these standards going to be and how that will shape how industry in the US around AI has to behave. Those details are not yet forthcoming. So there's a couple of threads here across all of this. Deregulation, pushing for more energy generation, trade policy aspects. Arianna, what do you think it all means for investors? Are there key sectors here that face more constraints or face more tailwinds that investors need to know about?
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Yeah. So really, two key takeaways from this document. First of all, AI policy is a priority for the administration and we're seeing them pursue efforts to reduce regulatory barriers to data center construction, although those could run into some legal and administrative hurdles. All else equal reduction in data center build time and cost benefits, owners of natural gas fired and nuclear power plants. So you should see a tailwind to the power and utilities sector. Secondly, this document and the messaging from the President makes AI a national security issue. The that's why we see differentiated treatment for China versus the rest of the world, which is also reflected in the administration's approach to the broader trade relationship and dovetails well with our expectation for higher tariffs on China at the end of this year versus the global baseline.
- [04:52]
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Right. So if AI becomes a national and economic security issue, which is what this document is signaling, it's one of the reasons you should expect that these tariff increases globally but with a skew towards China are probably durable. And it's something that we think is reflected in the sector preferences where equity strategy team, for example, with some caution around the consumer sector.
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That's right. So plan to watch as this unfolds.
- [05:20]
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That's it for today's episode of Thoughts on the Market. If you enjoy the show, please leave us a review and share thoughts on the Market with a friend or colleague today.
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