The AI Deregulation Agenda Has Helped Create an AI Bubble and May Hasten a Crash

A little over a month ago, Euractiv journalist Thomas Moller-Nielsen warned that the global trade war instigated by United States President Donald Trump takes attention away from a much graver economic threat — the Trump administration’s deregulation agenda. His analysis drew from a recent speech by US Federal Reserve Governor Michael Barr that pointed out that instances of significant deregulation preceded “all three of the most infamous financial meltdowns over the past century, namely the Great Depression in the 1930s, the ‘Savings & Loan’ crisis in the late 1980s and early 1990s, and the 2009 global financial crisis.” The same arguments may be applicable to digital deregulation, which may exacerbate risks to the market from unregulated artificial intelligence products and services.

The US technology deregulation agenda

The Trump administration’s tech deregulation agenda was expressed forcefully by Vice President JD Vance in his speech at the AI Summit in Paris in February, which he used to admonish the European Union. He decried EU’s regulation of the technology sector, slamming the compliance burden it imposed on American companies and calling the EU’s Digital Services Act an example of overregulation and violation of free speech rights. Vance welcomed the shift from AI safety and governance to AI innovation at the Paris Summit, a trend that will likely continue in the next iteration of the summit in 2026 in India.

Even before the second Trump administration, the US had not advanced any significant AI regulation, apart from President Joe Biden’s 2023 Executive Order, and left it largely in the hands of the states. However, in May, Republicans doubled down on AI deregulation when the US House of Representatives passed a significant AI-related provision in a budget reconciliation package that included a proposed 10-year moratorium on any form of regulation of AI by state governments or local authorities. The Senate ultimately removed the moratorium, and eventually the package was passed without it. However, it lays bare the desire by Republicans in Washington to treat AI as a legislative subject where the federal government should have exclusive jurisdiction, and should exercise this jurisdiction with the explicit purpose of allowing AI development in a regulatory vacuum.

On its own, this is a dubious policy position for any constitutional democracy, given the growing body of evidence of harms resulting from unregulated AI, and the obvious transparency and accountability challenges it poses, especially when used to discharge public functions. At best, the proposed restriction on state laws, which seems likely to return in another form, can be seen as a more extreme and ideologically entrenched version of the US government’s historically hands-off approach to regulating digital technologies, based often on a debatable understanding of tradeoffs between establishing guardrails and ensuring innovation.