Discussion about the use of trade barriers by foreign nations has ramped up in recent days because of the Trump administration’s misguided tariff hikes. Despite the many flaws in the administration’s arguments, a valid point has been raised regarding the use of non-tariff measures by some of the U.S.’s trade partners. This is particularly salient with regards to the European Union (EU).
Vice President JD Vance called out the EU’s unfair targeting of the American tech sector with regulations like the Artificial Intelligence (AI) Act, the Digital Markets Act (DMA), and the Digital Services Act (DSA). It seems that the Vice President’s prognostications were correct and soon to materialize, as reports indicate that the European Commission will shortly announce the first round of fines against Apple and Meta.
The AI Act, DMA, and DSA have been crafted in such a way that have set American tech firms up to fail. The targeting was so obvious that the EU was already incorporating fine revenues into its budget shortly after passing these regulations. EU representatives claim that the bills were neutral and they would impact European, American, and Chinese companies equally. However, these statements are cheap talk when the European tech sector is infamously lethargic, giving EU regulators little skin in the game and incentivizing overregulation.
More importantly, these EU regulations have been a clear-cut extortion of American businesses. America’s most successful tech companies must choose either to submit to the EU’s micromanagement or be subjected to hefty fines. From mandatory pop-up menus to selecting a default browser, European bureaucrats are becoming designers-in-chief of American tech companies by threatening to levy these fines. With a nearly non-existent tech sector, the EU has no incentive to revisit these regulations, as it now has a steady revenue source with negligible political or economic costs. It would seem that only an external shock—such as diplomatic pressure from the U.S. government—could alter the incentive structure and force the EU back to the drawing board.
In a recent speech, Michael Kratsios, the director of the White House Office of Science and Technology Policy accurately pointed out that the U.S. government should step up to counter the attacks to the American technology sector from foreign nations. Sadly, the past administration decided to emulate, rather than repudiate, Europe’s regulatory approach. Both Vance’s and Kratsios’ remarks give hope that perhaps the new administration will correct course and push back against regulatory hostility from foreign governments. This should be especially true for supposedly allied nations.
Unfortunately, much of the trade discussions thus far have centered on antagonizing, rather than befriending, these nations. The administration is using the proverbial “stick” as the only tool to deter governments from targeting American companies, recklessly increasing tariffs across the board as a method to get foreign governments to sit on the negotiation table. Forfeiting the “carrot” could prove to be a grave mistake. As governments across the globe question the current approach to tech regulation, the U.S. should make a concerted effort to prevent even more hostile regulations from propping up abroad. Reducing animosity against America and building goodwill abroad will be crucial to this effort. Any more regulations would further limit American businesses’ access to foreign markets. The American disregard for trade diplomacy has, sadly, only added to the hostility.
The upcoming European fines should remind this administration of the urgency of tackling hostile foreign regulations being levied against one of the country’s most vital industries. America and the world are preparing for a second digital revolution with the advent of frontier technologies like AI. The new administration should prioritize taking down the barriers that could prevent the expansion of American businesses into foreign markets and thus thwart their growth at this critical stage. As foreign nations eventually find themselves behind in this technological race, they will resort to extracting value out of American innovation through hostile regulation, rather than increased cooperation. Smoothing out these differences through proactive trade diplomacy should be a key priority of any administration that looks to secure America’s position as the technological leader of the world.
