By Doug Kelly, CEO of American Edge

Today, while China and the United States engage in a no-holds barred contest for global technology leadership, America’s allies in the European Union (EU) applied onerous new regulations on the U.S.’s leading tech companies as part of its Digital Markets Act (DMA). This move not only will stifle innovation, but it will also jeopardize the West’s collective security and hand China a significant edge in the tech race.

Today’s announcement directly targets American companies and their services. Five of the six companies designated as “gatekeepers” – Alphabet, Amazon, Apple, Meta, and Microsoft – are U.S.-based, and 21 of the 22 platform services requiring compliance are owned by American companies. Meanwhile, the EU exempted every Chinese tech company but one (ByteDance), and not a single EU tech company was designated as a gatekeeper. These gatekeeper companies will be constrained by a comprehensive set of EU regulations that other companies are not bound by. 

Even more worrisome is the fact that many more American companies soon could be labeled gatekeepers by the EU, as the law applies to nearly every significant digital service: online marketplaces and app stores, search engines, social networks, video-sharing platforms, operating systems, cloud services, messaging services, web-based email services, web browsers, virtual assistants, connected TV, and advertising networks affiliated with any of the above. 

The problems of DMA are myriad. William Reinsch of the Center for Strategic and International Studies (CSIS) warned that DMA raises national security concerns, since putting regulatory pressure on American firms is “opening the door to the Chinese to step in and fill the vacuum.” For example, one study found that U.S. firms designated as gatekeepers face an estimated $22 billion to $50 billion in new DMA compliance costs. If passed onto European businesses, 16 percent said they would switch from an American tech provider to a Chinese tech provider, further increasing the EU’s dependence on China-based technology. 

Innovation would also decline due to DMA because the fines for non-compliance range from 10 to 20 percent of a gatekeeper’s world-wide turnover, which could dramatically reduce spending on research and development (R&D). The European Commission, which enforces DMA compliance, can even impose structural remedies, like forcing a gatekeeper to sell part of its business.

Last but not least, DMA forces American gatekeeper companies to disclose to competitors – even foreign adversaries – critical proprietary information and competitive expertise. China already steals $500 billion annually in intellectual property and technology from U.S. companies. Do we really want our leading artificial intelligence companies to be forced – by our allies no less – to hand over trade secrets to Chinese firms, who are required by the Communist government to strengthen and advance China’s military capabilities?

But the EU isn’t acting alone in this effort to target American tech companies. The U.S. Federal Trade Commission (FTC) has quietly coordinated with EU officials both in Brussels and in the EU’s San Francisco office on how to implement the DMA to maximum effect. In a letter to FTC Chair Lina Khan, Senator Ted Cruz (R-TX) noted that “It is one thing for the EU to target U.S. businesses, however misguided such efforts may be. But it is altogether unthinkable that an agency of the U.S. government would actively help the EU do so.” The FTC’s involvement, Senator Cruz noted, was peculiar because the Biden administration has “been clear” that the U.S. government “opposes efforts specifically designed to target only U.S. companies,” like the DMA. 

The DMA’s new regulations are not only overreaching, but they are also out-of-step with where voters on both sides of the Atlantic stand. In a recent survey of U.S. and EU voters conducted by American Edge Project, 80 percent of U.S. and EU voters agreed that we must unite against increased technology threats from China and Russia. They also oppose heavily regulating their own technology sectors, hurting their ability to compete with China’s technology sector (87% in U.S., 78% in Europe). 

Even European private sector companies are raising concerns that DMA will potentially hurt the growth of new businesses and dramatically slow EU digitalization, further impeding the EU’s ability to compete globally. Other companies have raised concerns that the startup lifecycle could be fundamentally damaged if gatekeeper companies are prohibited from making acquisitions. 

China knows that in order to achieve its global ambitions, it must dethrone the U.S. as global technology leader. The EU’s DMA, and companion Digital Services Act (DSA), are putting the West on a path of digital doomsday with China. Instead, U.S. policymakers and our European allies must work together to protect a free and open internet, expand our joint innovation capabilities, and avoid passing extreme regulations that handcuff our innovators and hand tech leadership to China. It matters which country – and which set of values – builds the future.