In recent weeks, numerous headlines have been dominated by threats from the current U.S. administration to adopt some form of commercial retaliation against Europe in the form of new tariffs. The reason is the existence of two European rules that are considered to be contrary to the interests of American technology companies worldwide, the Digital Services Act (DSA) and the Digital Markets Act (DMA).
This is not a new conflict, but one that has been dragging on for many years, even before these rules existed.
The oldest among us remember a famous sports radio journalist who accused a football club, whose kit was white for sure, of winning in the offices, something it was not capable of winning on the pitch. The accusation is not very different from the one that American administrations of all colors have been making for years toward European regulation in the digital realm, starting with data protection regulation—the GDPR—and continuing with the so-called Google tax.
“The current division is explained by the European need to preserve competition and the arrival of an American administration prone to conflict”
The current conflict is nothing more than a new episode that is sharpened by two new factors. On one hand, a European regulation specifically aimed at the activity of large digital platforms and at preserving competition in the digital services sector. On the other hand, a new American administration prone to conflict that also operates, unlike Trump’s first term, in an environment of strong alignment with Silicon Valley giants, historically aligned with the Democratic Party.
These days we have once again heard the cliché that in today’s world the U.S. innovates, China copies, and Europe regulates, and the ever-present accusation that Europe, not knowing how to innovate, regulates to compensate. What this amounts to is a truth that is imperfectly true.
The problem is not, nor can it be, that Europe regulates: Europe is a set of institutions in construction and development and the only way to advance in this process is the creation of common rules that generate a single regulatory environment. There is no other way to build Europe.
What differs is questioning whether European regulation is cumbersome, complex, intrusive, difficult to understand and sometimes also hard to implement. That is, in my view, the real debate that must be held, especially when European regulatory balance has moved from directives—requiring implementation and adaptation by member states—to directly applicable regulations without any intermediaries. This instrument is the one the EU has used in digital matters, highlighting that it views this as a strategic issue of such importance that it does not want to leave any room for maneuver to the States and making the center of its strategy to be a rule setter in the digital world.
What are these European rules and what do they aim to accomplish?
These rules, the DSA and the DMA, together with the AI Regulation, introduce an ambitious general regulatory framework for the development of Europe’s digital economy and digitalization, regulating two essential aspects. First, the role of large digital platforms, imposing on them a series of obligations designed to bring transparency and control over their activities in favor of users’ rights, while at the same time ensuring the lawfulness of content on the web. Second, there is an aim to establish a series of rules ex ante, clearly inspired by telecommunications regulation, to guarantee competitive conditions in the European digital market.
“The current state of the market may push toward an oligopoly that affects competition and citizens’ rights”
It is, prima facie, about establishing rules that protect users and free competition in a market as new as the digital economy. This market, by its own dynamics, has created in record time a group of large companies that hold a dominant position in the market, capable of affecting not only competition but also citizens’ rights. Nothing new since the Sherman Act was enacted at the end of the 19th century.
Thus far, in my opinion, there are few reproaches to this regulation. What is open to critique is the extraordinary complexity of these rules, which will complicate their execution and introduce bureaucratic mechanisms and unnecessary controls that will burden the activities of these companies. Not only the American ones, but with the ongoing digitalization we will soon see European companies also brought under the scope of this regulation as they digitalize more of their activities. Think, for example, of an immensely successful Inditex in e-commerce, increasingly digital and less analog.
It is here that critical judgment must focus, and it would be good, as the Letta and Draghi reports have recommended, to undertake a deep simplifying review of European regulation, not only in the digital sphere.Now the question is: What will happen? Will the EU backtrack to avert retaliation from the Trump Administration?In my view, neither should nor can.
“Regulation should have been drawn up with simpler and less intrusive norms, trying not to truncate digital business innovation”
The European Union has the sovereign right and responsibility to establish its own regulatory framework in digital matters, with rules that guarantee the rights of its citizens and the conditions of competition in the digital market. The mentioned Letta and Draghi reports, while advocating simplification of European regulatory complexity, argue for the need of European regulation in the digital economy and more specifically the DSA, the DMA and the AI Regulation. Now, as has been said, this should have been done with simpler and less intrusive rules, aiming to place the least possible obstacles to the innovation of digital companies, which are not all American.
Nor, in my view, should the Union backtrack by disregarding or repealing these rules: it would entail not only showing political weakness, especially in an area where trade is most favorable to the U.S. and thus its position weaker. It would also, moreover, deal a death blow to Europe’s entire industrial strategy based on advancing the green and digital transitions, on which the Commission has centered its policy in recent years.
If any gesture toward the U.S. Administration is sought, removing or not applying the pointless Google tax should suffice. But a strategic shift in digital regulation would convey, not only to the U.S. but to other countries that are introducing similar regulations, a lack of coherence and weakness that the Union cannot and should not permit at this moment.
If anyone needed proof of the European Commission’s political will in this matter, doubts were dispelled on September 5 by the fine imposed on Google by the Commission for abuse in the online advertising market. The fine amounts to nearly €3 billion, which, added to the previous penalties, brings the total to more than €12 billion. A substantial amount even for this tech giant, although it is also true that the Commission has always avoided structural remedies such as the sale or separation of businesses that would have more serious consequences for the company than a set of hefty fines. However, in this case the Directorate-General for Competition has hinted at imposing structural measures that it does not rule out pursuing in the future. A warning to sailors.
This fine, imposed after an initial hesitation due to tariff negotiations, reaffirms Europe’s resolve to stay firm and has, unsurprisingly, elicited the heated Twitter reaction from the American president, who promised retaliation that has not materialized so far.
“Google has dodged two very significant legal threats in the United States, leaving the door open for now to its contract with Apple”
Google has received better news from across the Atlantic with Judge Amit Mehta’s decision not to order the sale or division of any of Google’s activities, as had been demanded by the Department of Justice. Nor, and more importantly in the short term, would this affect the very lucrative contract with Apple to keep Google as the default search on Apple’s mobile devices.
Nevertheless, Alphabet should not sing victory yet because there remain serious investigations by some state competition authorities, especially in the advertising sector, which could carry fines or, worse, the adoption of structural measures with substantial impact in the medium and long term.
In short, the Atlantic difference in digital policy has moved to the foreground of the rift between the Trump Administration and the EU and is here to stay; nothing suggests it will cease to be at the center of the conflict anytime soon.
