The U.S. Needs A Seat At The Table Of Big Tech Regulation

It is no great secret that Europe’s tech sector is struggling. In fact, software giant Nvidia didn’t even bother reporting revenues in Europe in their latest annual report. There isn’t a quick and easy fix for Europe to revive the industry and spur on more investment. They could start by giving their big companies more freedom to restructure how they please.

In the U.S., corporations like Microsoft, Meta and Google can all lay off employees and quickly invest assets when something highly opportunistic comes along, like AI. In Europe, this process can take years. Because of the difficulty of restructuring, there is a much higher threshold for an investment to be considered profitable. Europe has handcuffed their own tech industry, and instead of adjusting their own regulation to make up ground, they opt to drag the U.S. down to their level.

The Digital Markets Act (DMA) is one such example. The European Union (EU) law is intended to open up the playing field, allowing smaller startups to better compete and interact with “gatekeepers” like Apple and Google. The EU classifies a gatekeeper as a company that operates core platform services (search engines, messenger services), and meets the following criteria: 45 million monthly active users and 10,000 annual business users in the EU, annual revenue of at least €7.5 billion in the European Economic Area
and a stable market position.

The EU says the DMA is intended to clamp down on anti-competitive practices from the big tech players. Regulations require the qualifying companies to allow competing apps to appear on their platforms, and bars them from giving their services preference over rivals on their own platforms. A big issue with the Digital Markets Act isn’t the actual regulation, but that it specifically targets the United States’ tech titans. Of the six companies that qualify as gatekeepers– Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft– five are based in the United States.

The DMA is not the beginning of conflict between the EU and American tech. Spotify, a Swedish audio streaming service, and Apple have been in conflict for years. In 2019, Spotify claimed that Apple took too large of a cut of their fees, resulting in higher prices for Spotify and comparatively low prices for Apple Music. Spotify argued that this limits consumer choice. The European Commission, the governing arm of the EU, ruled against Apple, hitting them with a €2 billion fine. Recently, Spotify has been submitting updated versions of their app that link users to external subscription options outside of Apple’s payment system. Apple initially ignored the update and now wants a 27% commission of subscription fees in exchange for Spotify’s update. The issue will go back to the European Commission to decide.

Considering the state of Europe’s tech industry, it’s not hard to imagine a bit of bias might be at play in the Commission’s decision. Spotify is one of the biggest tech companies in Europe, and they are going to receive the benefit of the doubt in a standoff against a big American company like Apple.

Meanwhile, technology is a bigger part of the global economy than ever before. Cybersecurity, IT services, and software are expected to drive growth this year and moving forward, and U.S. companies need the freedom to capitalize on that. AI is also growing rapidly and unpredictably, and the more wiggle room the big tech players have to adjust, the better.

The United States, which has stood by as the DMA has been enacted and implemented, has to ask itself whether it can live with an insignificant tech player like Europe making decisions impacting its best and brightest businesses. Tech is a bigger part of the economy than ever before. Companies like Apple and Google have been taking body shots from European regulators for years, and it’s only a matter of time before they land quite harmful blows.

It’s time for the United States to take back some control over technology regulation.

About the Author: Armand Ouellette is a research associate with the Lexington Institute, a public policy
think tank in Arlington, Virginia. He is a rising senior at Kenyon College, planning to graduate
with a degree in economics.