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.
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.
Markets may seem calm following recent policy headlines, but for Michael Zezas, our Global Head of Fixed Income Research and Public Policy Strategy, investors may need to wait on more data to assess whether the macroenvironment will remain stable.
Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income Research and Public Policy Strategy.
Today: Why there's no summer slowdown yet for U.S. policy catalysts for the financial markets.
It's Friday, July 18th at 8am in New York.
The past week and a half has seen many major policy, events and headlines relevant to the outlook for financial markets. This includes more speculation by the U.S. administration over leadership at the Fed, more information about the deficit impact of the new fiscal bill, and – perhaps most tangibly – announcements of new tariffs that, if they take effect, will be a meaningful step up from already elevated levels.
It would all suggest a weaker growth outlook and less overseas demand for U.S. assets. Yet major financial markets seem to have shrugged it all off. The S & P and the U.S. dollar are up about 1 percent over that time, and Treasury yields are modestly higher.
So, what's going on? Two possibilities to consider, and it implies investors should pay more attention than they may be inclined to this summer.
First, when it comes to the impact of tariffs on the economy, it's possible we're dealing with a delayed impact. The effective average U.S. tariff rate shot up from 3 to 4 percent earlier this year to 13 percent, and if recent announcements go through, that could exceed 20 percent. That's a major escalation in costs for U.S. companies and consumers and something our economists argue takes growth down to 1 percent and elevates the possibility of a recession.
But our economists also point out that we may not be experiencing these cost increases quite yet. History suggests several months of lag between implementation and economic impact as companies leverage existing lower cost inventory before making tough decisions on pricing and managing their own costs.
That means hard economic data likely does not yet tell us about the impact or lack thereof of tariffs, but that may change in the coming months.
Second. It's also possible that the recent announcements of tariff increases don't tell us the whole story. As my colleagues in our equity strategy team point out, corporate America's cost base is most sensitive to the U.S.' largest trading partners – China, Mexico, Canada, and Europe. As we've discussed in prior episodes, we see tariff rate increases as likely on all these trading partners as tough negotiations continue.
However, the details will matter greatly if rates are increased, but with a healthy dose of exceptions or quotas. Even if they diminish over time, then the real impact could be significantly blunted. In that case, markets would resume taking cues from other factors such as earnings revisions and forward-looking expectations around AI driven productivity.
So bottom line, market movements suggest investors are assuming benign U.S. policy outcomes. But there's plenty of developments to track in the coming weeks and months to test if those assumptions will hold. Trade policy details and hard economic data are key among them.
Thanks for listening. If you enjoy Thoughts on the Market, please leave us a review, and tell your friends about the podcast. We want everyone to listen.
The ultimate market outcomes of President Trump’s tactical tariff escalation may be months away. Our Global Head of Fixed Income Research and Public Policy Strategy Michael Zezas takes a look at implications for investors now.
Welcome to Thoughts on the Market. I’m Michael Zezas, Global Head of Fixed Income Research and Public Policy Strategy. Today: The latest on U.S. tariffs and their market impact.
It’s Thursday, July 10th at 12:30pm in New York.
It's been a newsy week for U.S. trade policy, with tariff increases announced across many nations. Here’s what we think investors need to know.
First, we think the U.S. is in a period of tactical escalation for tariff policy; where tariffs rise as the U.S. explores its negotiating space, but levels remain in a range below what many investors feared earlier this year. We started this week expecting a slight increase in U.S. tariffs—nothing too dramatic, maybe from 13 percent to around 15 percent driven by hikes in places like Vietnam and Japan. But what we got was a bit more substantial.
The U.S. announced several tariff hikes, set to take effect later, allowing time for negotiations. If these new measures go through, tariffs could reach 15 to 20 percent, significantly higher than at the beginning of the year, though far below the 25 to 30 percent levels that appeared possible back in April. It’s a good reminder that U.S. trade policy remains a moving target because the U.S. administration is still focused on reducing goods trade deficits and may not yet perceive there to be substantial political and economic risk of tariff escalation. Per our economists’ recent work on the lagged effects of tariffs, this reckoning could be months away.
Second, the implications of this tactical escalation are consistent with our current crossasset views. The higher tariffs announced on a variety of geographies, and products like copper, put further pressure on the U.S. growth story, even if they don’t tip the U.S. into recession, per the work done by our economists. That growth pressure is consistent with our views that both government and corporate bond yields will move lower, driving solid returns. It's also insufficient pressure to get in the way of an equity market rally, in the view of our U.S. equity strategy team. The fiscal package that just passed Congress might not be a major boon to the economy overall, but it does help margins for large cap companies, who by the way are more exposed to tariffs through China, Canada, Mexico, and the EU – rather than the countries on whom tariff increases were announced this week
Finally, How could we be wrong? Well, pay attention to negotiations with those geographies we just mentioned: Mexico, Canada, Europe, and China. These are much bigger trading partners not just for U.S. companies, but the U.S. overall. So meaningful escalation here can drive both top line and bottom line effects that could challenge equities and credit. In our view, tariffs with these partners are likely to land near current levels, but the path to get there could be volatile.
For the U.S., Mexico and Canada, background reporting suggests there’s mutual interest in maintaining a low tariff bloc, including exceptions for the product-specific tariffs that the U.S. is imposing. But there are sticking points around harmonizing trade policy. The dynamic is similar with China. Tariffs are already steep—among the highest anywhere. While a recent narrow deal—around semiconductors for rare earths—led to a temporary reduction from triple-digit levels, the two sides remain far apart on fundamental issues.
So when it comes to negotiations with the U.S.’ biggest trading partners, there’s sticking points. And where there’s sticking points there’s potential for escalation that we’ll need to be vigilant in monitoring.
Thanks for listening. If you enjoy Thoughts on the Market please leave us a review. And tell your friends about the podcast. We want everyone to listen.
Our analysts Michael Zezas and Ariana Salvatore discuss the upcoming expiration of reciprocal tariffs and the potential impacts for U.S. trade.
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, US Public Policy Strategist.
Michael Zezas: Today we're talking about the outlook for US trade policy. It's Wednesday, July 2nd at 10:00 AM in New York.
We have a big week ahead as next Wednesday marks the expiration of the 90 day pause on reciprocal tariffs. Ariana, what's the setup?
Ariana Salvatore: So this is a really key inflection point. That pause that you mentioned was initiated back on April 9th, and unless it's extended, we could see a reposition of tariffs on several of our major trading partners. Our base case is that the administration, broadly speaking, tries to kick the can down the road, meaning that it extends the pause for most countries, though the reality might be closer to a few countries seeing their rates go up while others announce bilateral framework deals between now and next week.
But before we get into the key assumptions underlying our base case. Let's talk about the bigger picture. Michael, what do we think the administration is actually trying to accomplish here?
Michael Zezas: So when it comes to defining their objectives, we think multiple things can be true at the same time. So the administration's talked about the virtue of tariffs as a negotiating tactic. They've also floated the idea of a tiered framework for global trading partners. Think of it as a ranking system based on trade deficits, non tariff barriers, VAT levels, and any other characteristics that they think are important for the bilateral trade relationship. A lot of this is similar to the rhetoric we saw ahead of the April 2nd "Liberation Day" tariffs.
Ariana Salvatore: Right, and around that time we started hearing about the potential, at least for bilateral trade deals, but have we seen any real progress in that area?
Michael Zezas: Not much, at least not publicly, aside from the UK framework agreement. And here's an important detail, three of our four largest trading partners aren't even scoped for higher rates next week. Mexico and Canada were never subject to the reciprocal tariffs. And China's on a separate track with this Geneva framework that doesn't expire until August 12th. So we're not expecting a sweeping overhaul by Wednesday.
Ariana Salvatore: Got it. So what are the scenarios that we're watching?
Michael Zezas: So there's roughly three that we're looking at and let me break them down here.
So our base case is that the administration extends the current pause, citing progress in bilateral talks, and maybe there's a few exceptions along the way in either direction, some higher and some lower. This broadly resets the countdown clock, but keeps the current tariff structure intact: 10% baseline for most trading partners, though some potentially higher if negotiations don't progress in the next week. That outcome would be most in line, we think, with the current messaging coming out of the administration.
There's also a more aggressive path if there's no visible progress. For example, the administration could reimpose tariffs with staggered implementation dates. The EU might face a tougher stance due to the complexity of that relationship and Vietnam could see delayed threats as a negotiating tactic. A strong macro backdrop, resilient data for markets that could all give the administration cover to go this route.
But there's also a more constructive outcome. The administration can announce regional or bilateral frameworks, not necessarily full trade deals, but enough to remove the near term threat of higher tariffs, reducing uncertainty, though maybe not to pre-2024 levels.
Ariana Salvatore: So wide bands of uncertainty, and it sounds like the more constructive outcome is quite similar to our base case, which is what we have in place right now. But translating that more aggressive path into what that means for the economy, we think it would reinforce our house view that the risks here are skewed to the downside.
Our economists estimate that tariffs begin to impact inflation about four months after implementation with the growth effects lagging by about eight months. That sets us up for weak but not quite recessionary growth. We're talking 1% GDP on an annual basis in 2025 and 2026, and the tariff passed through to prices and inflation data probably starting in August.
Michael Zezas: So bottom line, watch carefully on Wednesday and be vigilant for changes to the status quo on tariff levels. There's a lot of optionality in how this plays out, as trade policy uncertainty in the aggregate is still high. Ariana, thanks for taking the time to talk.
Ariana Salvatore: Great speaking with you, Michael.
Michael Zezas: And if you enjoy Thoughts on the Market, please leave us a review wherever you listen and share the podcast with a friend or colleague today.
