The writer is a former US trade representative
European regulators have taken aggressive action against US technology companies for years, levying or threatening billions of euros in fines on Intel, Microsoft, Facebook, Google, Qualcomm and Amazon. These actions now look to be only the opening salvo. Over recent months, EU leaders have unveiled an ambitious agenda aimed at limiting US technology under the banner of securing European “digital sovereignty”.
This incipient techno-nationalism threatens both US and European interests and must be stopped. In her inaugural speech to the European Parliament, Ursula von der Leyen, the European Commission president, signalled the EU’s protectionist objectives in bold terms. “We must have mastery and ownership of key technologies in Europe,” she said, naming quantum computing, artificial intelligence, blockchain and critical chip technologies as examples.
Emmanuel Macron, France’s president, has been similarly blunt. “The battle we’re fighting is one of sovereignty,” he said. “If we don’t build our own champions in all new areas . . . our choices . . . will be dictated by others.” A report for the European Parliament even argued that the EU Digital Services Act should establish a “European firewall, similar to what has happened in China in the past 20 years”.
Such proposals reflect an emerging European view that greater state control of the digital economy is needed to nurture and protect local technology companies. Specifically, the state must handicap foreign companies and use regulation and funding to promote friendly, compliant local competitors.
One example involves discriminatory digital services taxes. France has enacted a “Gafa tax” (Google, Amazon, Facebook and Apple) aimed at stripping revenue from US digital platforms and advertisers in the hope that French companies will take customers from US rivals. Similar taxes are being prepared by Austria, the Czech Republic, Italy and Spain, and on an EU-wide basis. One goal is to tax US tech companies to fund post-coronavirus economic recovery in Europe. But it would siphon revenues from the US tax base that the country needs to for its own recovery efforts.
A second example is rigged competition laws. The commission and several EU countries are developing proposals to contort competition laws and platform regulations to target US technology companies. The EU’s proposed Digital Services Act seems designed to impose blanket prohibitions on the business models and conduct of US companies. It would “protect interests that go beyond competition or economic considerations” and build on efforts in Germany, France and Austria to redesign the law to sanction technology companies that “transcend” a market — without evidence of competitive harm.
A third example concerns unjustified barriers for foreign AI applications. The commission proposes to subject non-European AI applications to an ex ante conformity assessment process, which may include testing, inspection, certification and potential requirements to use only EU-based data sets. At best, this would impose new delays and costs on US companies. But it could force US companies to choose between providing access to their most sensitive technologies or forgoing access to the EU market.
Finally, massive subsidies for a “European Cloud” are in the offing. The commission proposes to invest €4bn-€6bn in cloud infrastructure to store and process data in Europe and to support European cloud providers. Not coincidentally, leading French and German digital companies reportedly developed this proposal.
Europe should reconsider its digital sovereignty agenda and instead pursue greater regulatory co-operation with the US. Demonising US technology companies hinders efforts to address the foremost challenge for both sides with respect to the digital economy: China. Chinese protectionism — which fuses state and Communist party control, and creates subsidies and intellectual property theft on an unparalleled scale — poses an existential threat to a vibrant digital economy. For example, China is pressing for a new centrally controlled internet, which the US and EU oppose.
If Europe persists in its approach, US policymakers will have no choice but to treat it as a strategic threat. In the near term, it is difficult to imagine that the US will be able to strike a meaningful trade deal with the EU — a priority of both sides for many years — so long as the EU pursues the techno-nationalist moves aimed at the US. The Europeans need to reverse course before the economic and geopolitical damage cannot be undone.