Regulatory Fragmentation in AI and U.S. Tech Competitiveness: Strategic Implications of Trump's "One Rulebook" Executive Order for Investors

The U.S. artificial intelligence (AI) landscape is at a crossroads. Regulatory fragmentation, with states like California and Colorado enacting their own AI laws, has created a patchwork of requirements that critics argue stifles innovation and global competitiveness. In response, President Donald Trump's 2025 "one rulebook" executive order seeks to centralize AI governance under a single federal framework, preempting state-level regulations and reshaping the regulatory environment. For AI-focused investors, this shift carries profound strategic implications, from opportunities in deregulation and infrastructure development to risks tied to legal uncertainty and ethical governance gaps.

The "One Rulebook" Executive Order: A Federal Preemption Strategy

The executive order, titled Eliminating State Law Obstruction of National AI Policy, aims to consolidate AI regulation under federal authority, arguing that 50 distinct state laws would create an "impractical and burdensome approval process" for AI companies. By preempting state legislation, the administration seeks to streamline compliance and accelerate innovation. Key provisions include:
- Federal Litigation Task Force: A DOJ-led initiative to challenge state AI laws in court, citing unconstitutional regulation of interstate commerce or conflicts with existing federal rules according to Mintz.
- Targeted State Laws: Focus on California's Transparency in Frontier AI Act and Colorado's AI Act, which mandate output alterations and disclosure requirements according to Mintz.
- Federal Funding Leverage: Withholding grants like the BEAD program from states with "burdensome" AI regulations according to Mintz.

However, the order faces significant legal hurdles. OpenAI and legal experts have noted that federal preemption typically requires congressional action, not an executive order according to the National Law Review. This creates a potential vulnerability in litigation, as courts may dismiss claims lacking statutory backing. Critics, including Republican lawmakers who traditionally champion states' rights, warn that the order undermines localized oversight and erodes consumer protections according to CNN.

Strategic Implications for Investors

The Trump administration's AI Action Plan, unveiled in July 2025, outlines a deregulatory agenda with three pillars: Accelerating Innovation, Building American AI Infrastructure, and Leading in International Diplomacy and Security according to Sidley. For investors, this framework signals both opportunities and risks:

1. Deregulation and Innovation

By reducing federal oversight, the administration aims to lower barriers for AI startups and tech giants alike. This could spur rapid development of open-source models and data centers, particularly in states with previously restrictive laws. Investors in AI infrastructure-such as cloud computing providers and semiconductor manufacturers-stand to benefit from streamlined permitting and expanded access to computing resources according to CFR.

2. Federal Incentives and Domestic Sourcing

The One Big Beautiful Bill Act, signed into law in July 2025, provides federal funding for AI infrastructure but imposes strict domestic sourcing requirements according to Ropes & Gray. While this could boost U.S.-based suppliers, it also raises compliance costs for multinational firms. Investors must weigh the benefits of federal subsidies against the risks of supply chain constraints and geopolitical tensions.

3. Global Competitiveness and Diplomacy

The administration's focus on exporting American AI technologies aligns with broader goals of securing global market dominance. This contrasts sharply with the EU's precautionary AI Act, which prioritizes risk mitigation over rapid deployment according to Squire Patton Boggs. Investors in AI export platforms or international partnerships may find opportunities in this strategic divergence, though long-term success hinges on navigating divergent regulatory norms.

4. Legal and Ethical Risks

The absence of a clear federal alternative to state laws creates regulatory gaps, particularly in areas like algorithmic bias and data privacy according to Jones Walker. While deregulation may attract investors seeking a business-friendly environment, it also raises concerns about long-term governance and reputational risks. The order's legal uncertainty-stemming from its reliance on executive authority-could prolong litigation and delay implementation, according to the National Law Review.

Balancing Opportunities and Challenges

For investors, the key lies in balancing the administration's deregulatory push with the realities of legal and ethical governance. The One Big Beautiful Bill Act's extraterritorial enforcement provisions, for instance, could deter foreign firms from entering the U.S. market according to Ropes & Gray. Conversely, the focus on domestic AI production capacity-such as workforce development and high-performance computing-offers long-term growth potential, provided funding commitments materialize according to CFR.

Conclusion

Trump's "one rulebook" executive order represents a bold reimagining of AI governance, prioritizing federal preemption to eliminate regulatory fragmentation. While this approach could accelerate innovation and bolster U.S. global competitiveness, it also introduces legal uncertainties and ethical dilemmas. For investors, the path forward requires careful navigation of these dynamics, balancing short-term gains from deregulation with the need for sustainable, ethically grounded AI ecosystems. As the administration's policies unfold, the ability to adapt to evolving regulatory and market conditions will be critical to long-term success.