The Trump administration unveiled a 28-page AI Action Plan,
outlining more than 90 policy actions, with an ambition for the
U.S. to win the AI race. Our Global Head of Fixed Income Research
and Public Policy Strategy Michael Zezas, and U.S. Public Policy
Strategist Ariana Salvatore, explain why investors need to keep
an eye on AI policy.
Read more insights from Morgan Stanley.
----- Transcript -----
Michael Zezas: Welcome to Thoughts on the
Market. I'm Michael Zezas, Global Head of Fixed Income Research
and Public Policy Strategy.
Ariana Salvatore: And I'm Ariana Salvatore, U.S.
Public Policy Strategist.
Michael Zezas: 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 the fiscal
bill having passed Congress and trade tensions simmering ahead of
the new August 1st 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, Ariana, what do we need to focus on here?
Ariana Salvatore: 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 pillars: innovation,
infrastructure, and global leadership.
Michael Zezas: 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.
Ariana Salvatore: 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.
Michael Zezas: 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 Byrd 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.
Ariana Salvatore: One area where the executive
actually does have pretty broad discretion to control is trade
policy, and this document focused a lot on the U.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 U.S. to export its full AI
stack – hardware, models, standards – to allies, while
simultaneously tightening export controls on rivals. China's
clearly a focal point here, and that's one that is explicitly
called out in the document.
Michael Zezas: Right. And so, it all seems part
of a proposal to form in 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 U.S. AI standards and global governance
bodies while using export controls and diplomatic tools to limit
adversarial influence. But you know, 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 U.S. 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. Ariana, 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?
Ariana Salvatore: 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 utility sector.
Secondly, this document and the messaging from the President
makes AI a national security issue. 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.
Michael Zezas: 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 or equity strategy team, for
example, with some caution around the consumer sector.
Ariana Salvatore: That's right. So, plan to
watch as this unfolds.
Michael Zezas: 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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