While the “big 5” Big Tech companies — Google, Apple, Meta, Amazon and Microsoft — have become a politically popular scapegoat, they’re also evidence that the United States is doing something right when it comes to tech leadership. That all five are American businesses lends support to the idea that our domestic system of relatively open markets incentivizes innovations that result in such groundbreaking companies.
Rather than protect that system, some U.S. lawmakers seem willing to emulate European actions characterized by ongoing fines, targeted taxes, and antitrust actions targeting U.S. tech companies. The European Union (EU) seems envious of America’s dominant position in innovation and technology — or simply “tech envy” — which is something the U.S. should avoid.
The Digital Markets Act (DMA) and Digital Services Act (DSA) are two EU regulations that impact platforms. The DMA establishes rules for “gatekeeper” platforms (those with a significant impact on the market), establishes certain limits on data and default software and bans self-preferencing. The DSA establishes transparency requirements for content moderation and advertising, limited liability for third-party content and data obligations. It also places additional obligations on firms with more than 450 million EU users.
The size threshold in the DMA and additional obligations in the DSA means that these regulations will disproportionately impact U.S. companies.
The DMA establishes a quantitative threshold that includes $7.5 billion in annual revenue in each of the past three years or an average market capitalization of $75 billion in the last year, 45 million monthly active EU users and 10,000 yearly active EU business users. The European Commission can also qualify platforms as gatekeepers even if they fail the quantitative threshold. A Bruegel report analyzed which companies the DMA would impact. Of those companies, only three that could meet the dollar threshold — SAP, Zalando, and Vivendi — weren’t based in the U.S. American companies will bear the brunt of this regulation. Although it should be noted that the Bruegel report addressed slightly different revenue thresholds.
All regulations come with compliance costs, but the DMA and DSA are quite onerous. Considering only U.S. companies that operate in Europe, the estimated compliance and fine costs are between $22-50 billion. The upper bound estimate of $50 billion is more than the individual 2021 GDP for 4 EU countries: Cyprus, Estonia, Latvia and Malta.
U.S. companies are also the targets of expensive fines from the EU and unfairly burdened with new taxation schemes from the Organisation for Economic Co-operation and Development (OECD), showing that tech envy is spreading beyond Europe.
In 2021 the OECD released a proposed framework which if implemented changes to corporate taxation for multinational companies but excludes the financial and extractive sectors. The first of the plan’s two pillars specifically targets highly profitable companies. According to preliminary estimates over the framework, 45 percent of the revenue generated under the first pillar would come from five U.S. tech companies: Apple, Microsoft, Alphabet, Intel and Facebook.
The excessive fines, taxes and regulations from the EU that disproportionately impact U.S. companies effectively function as tariffs and limit the free flow of services. As with traditional tariffs, these recent actions targeting Big Tech limit competition for domestic industry and leave consumers footing the bill. Far from implementing the same market environment that allowed American tech giants to develop, Europe has taken the opposite approach. Illogically, U.S. lawmakers seem eager to mirror their stance.
Far from shunning actions that unfairly burden successful tech companies, American lawmakers from both sides of the aisle have embraced a heavy hand on Big Tech. Former President Donald Trump seemingly praised the EU’s lawsuits against Big Tech, while current President Joe Biden used his recent State of the Union to encourage antitrust reform targeting large platforms. Meanwhile, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) have taken an aggressive approach to Big Tech by launching complaints against Meta, Microsoft and Google.
Trade barriers through tariffs or regulations negatively impact the consumer. Reforms to antitrust or data protection should respect the relatively open environment that allowed for such innovative companies to develop in the first place. Otherwise, the U.S. risks introducing European-like regulations that will stifle tech innovators and their resulting benefits.
With international and domestic efforts to crush American innovation, which country will become the next global technology leader and how does that benefit American consumers?
Tirzah Duren is the Director of Policy and Steve Pociask is president of the American Consumer Institute. For more information about the Institute, visit www.TheAmericanConsumer.Org.