Size matters when it comes to tariff threats

Another day, another tariff. Last week, President Donald Trump created more of the sort of chaos he loves by throwing down the tariff gauntlet again to dozens of nations. Some of it was about trying to make sure forced labour is being taken out of the supply chains of nations sending goods to the US. Some of it was about using antiquated rules to punish countries — like Canada — that just seem to annoy him. But some of it was about longstanding fights between US companies and overseas regulators, particularly around technology. Trump said last Friday that he would hit the EU with more tariffs and begin new tariff probes given that Europeans are taxing US tech companies. 

On July 21, a group of US congress people wrote to Trump praising his tariff threats on European nations that impose a digital services tax, claiming this and other EU tech regulation hurts US companies. Two days later, US Trade Representative Jamieson Greer issued the following statement: “Today, the European Commission announced that it will fine Google nearly $1bn, the latest in an increasingly aggressive approach targeting US technology firms. This is in addition to two recent actions by the Commission under the Digital Markets Act that target Google’s Android operating system and Search services that pose serious risks for the privacy and security of users, represent a de facto forced technology transfer and intellectual property theft, and impose unreasonable financial penalties.”

Greer went on to add that the “EU often claims that it is looking for stability and predictability in our trading relationship, but these actions are driving massive uncertainty for US exports of goods and services to Europe. We are trying to resolve our concerns with the EU’s Digital Markets Act and other actions through responsible, constructive dialogue. But a real dialogue can only take place during a ceasefire. The EU’s recent actions undermine these efforts and pose a real risk to the continuation of transatlantic stability with respect to trade.” Trump himself, was of course, blunter: Europeans were “ROBBING American Companies and, in turn, the American Taxpayer.” 

OK, then. It’s tariff tit-for-tat once again. The problem is that Europe isn’t taxing Big Tech because it’s American — it’s taxing it because the EU has decided that giant technology companies pose consumer safety and market abuse problems, full stop. In fact, the largest ever EU online safety lawsuit was recently levelled not against a US firm, but a Chinese one, Temu. European competition concerns have been around for a long time. But given the AI dominance of both the US and China, European leaders are also calling for more technology supply chain independence of their own for security reasons. Last week, the EU’s tech chief, Henna Virkkunen, told the FT that Europeans were concerned about how AI could be used as a geopolitical weapon and were building up regional capacity to counter the fact that they currently must choose between Chinese or American behemoths.

That’s a good thing (if it happens). I’ve always thought that there should be multiple nodes of production and consumption for crucial products like, say, semiconductors, pharma and certainly crucial services like AI. But the lobbying on the part of the US tech industry to keep Europeans from creating their own stack and protecting their citizens via things like the Digital Markets Act has reached a fever pitch, both in DC and in Brussels. “Big Tech companies have leveraged their White House ties to get Trump officials to attack other countries’ anti-monopoly, online safety and other laws that opposed and claims it’s about trade discrimination when really it’s all about trying to evade accountability,” says Lori Wallach, the director of the Rethink Trade programme at the American Economic Liberties Project. In fact, the facts on the ground don’t support the idea that Big Tech is being targeted based on nationality, as a new study from the AELP shows. The Europeans have used the DSA and DMA to target dozens of Chinese, European and even one Canadian company, in addition to the many US companies being investigated.

I’ve invited Wallach to expand on her work, tell us why she thinks the Trump argument is disingenuous, and talk about what she’s seeing in terms of Big Tech lobbying on either side of the Atlantic. Lori, where will all this end? The Swamp Note floor is yours.

Recommended reading

• This New Yorker feature examines what is perhaps one of the last socially acceptable areas of discrimination: lookism.

• Everyone’s talking about the Atlantic cover story on the “end of reading,” which makes me hopeful that perhaps the end is not yet here.

• In the FT, my colleague Gillian Tett very kindly gave me a shout out in her excellent piece on financial candyfloss, a topic I build on in my own Monday column about how markets are becoming tokenised holograms of themselves.

• And my colleague Leo Lewis is making an increasingly persuasive case that things are finally changing in Japan.

 Lori Wallach replies

Thanks, Rana. You are spot on raising what I actually consider two related questions in a high-stakes game of chicken. The first is whether the Trump administration would really blow up the newly-approved Turnberry Agreement and actual US-EU trade by raising tariffs on EU goods because Trump’s broligarch Big Tech buddies hate the concept of any country even having policies to counter Big Tech abuses, or occasionally having to pay fines that don’t equal a rounding error to their daily profits when they violate the laws.

The second is whether officials in Brussels or in EU member-state capitals will preemptively cave in to absurd US threats and weaken EU digital policies — or more likely, quietly go even squishier on enforcing DMA, DSA or other digital oversight laws when it comes to companies violating the rules that also happen to be US firms.

In the report Rana mentions, Crying Discrimination: How the Trump Administration Weaponizes US Trade Policy for Big Tech, we try to demystify the EU anti-monopoly and other digital policies for US policymakers and the public. Some here are only hearing about DMA and DSA for the first time when Trump officials attack what actually are worryingly weak EU policies as if they were battlefield nuclear weapons designed explicitly and only to take out US firms and innovation.

By showing what bad conduct DMA and DSA target, that their designations are based on specific quantitative criteria and by analysing the record of fines and other enforcement actions, it becomes clear that, for instance, the five US firms that get listed as gatekeepers under DMA (along with a Chinese and an EU firm) are included because they are dominant, not because they are American.

US and other nations’ firms get (too rarely) hit with penalties when they break these laws. For instance, the report shows Chinese companies have been the subject of ten DSA investigations, and EU-based companies have been the subject of seven so obviously, the EU policies are not only aimed at US firms. A Chinese firm, Temu, has been subject to the largest DSA fine while US firm Google has faced the largest DMA fine (the one that aroused Greer’s ire last week).

As far as discerning the line where ominous rhetoric by Trump officials could translate into action, and whether any such moves would be performative, or really hurt, the only reliable gauge is that actions that causes major market disruption are either avoided or quickly reversed. This rule applies, unfortunately, even with respect to various trade and tech transfer issues with China where a steely spine and no reversals would be in the national interest.

Now, as we close in on the midterm congressional elections, it is also worth considering the politics. Democrats had a political field day last year when Trump Commerce secretary Howard Lutnick explicitly offered EU officials to trade away steel and aluminium tariffs (actual trade protections for US manufacturing Trump claims to favour) if Brussels weakened the DMA and DSA. So, it’s easy to image the joy among Democrats if the White House actually raised tariffs on European imports on the way to a midterm election in 100 days that will be decided on “affordability” as the mainstream media is conflating tariffs and rising prices. The dire implications for Trump of the Dems taking the House, much less also the Senate, cannot be overstated.

Plus, one of the few issues uniting Americans across party and region is dislike for Big Tech, fuelled by Trump’s crass cash for access inauguration, White House dinners for tech-titan ballroom cash and explicit exclusions from tariffs for Big Tech buddies. Add to that the fact that these policies do not discriminate against the United States and that many Americans would be thrilled to see someone hold Big Tech accountable.

And, then there is the reality that today there is legislation, including the American Innovation and Choice Online Act, with bipartisan support in Congress, as well as Trump I antitrust lawsuits against Big Tech firms that incorporate major elements of key European digital policies.

I hope EU officials are not cowed, and that the next Congress will enact some of the Big-Tech-accountability legislation pending here so the “discrimination” line of attack will have even less credibility.