Less than a month has passed since President Donald Trump’s inauguration, but it is already clear that tariffs will be central to his administration’s economic policy and geopolitical strategy. Following an initial round of tariff threats against Mexico and Canada, and hiked tariffs on China, Trump is setting his sights on new targets—the European Union chief among them. Most recently, Trump declared that he will treat value-added taxes (VAT) like those assessed by EU members to be a form of tariff, and to assess equivalent reciprocal tariffs in return.
Counterintuitively, this might actually be good news for Europe’s tech sector.
That Trump is targeting Europe is hardly surprising. While most economists would not consider the VAT to be a tariff, the EU has long imposed sizable tariffs on many goods entering the continent, including from the United States. The EU also promotes a number of protectionist policies—including the common agricultural policy and levies for cultural goods—that directly affect U.S. firms’ ability to compete in the Old Continent.
And yet, Trump’s grievances with Europe increasingly appear to stem from an unlikelier source. While fentanyl and migration were the main targets of Trump’s disputes with Canada and Mexico, it appears that Europe’s digital regulation has become the focal point of Trump’s discontent with Europe.
Over the past decade, the EU has enacted numerous rules governing how tech firms operate in Europe. These include the General Data Protection Regulation (GDPR), which regulates the use of personal data; the Digital Services Act (DSA) which covers content moderation, disinformation, and transparency; and the Digital Markets Act (DMA), which mandates how large, mostly American tech firms can design their platforms. All of this is in addition to European competition law, under which the European Commission has slapped multi-billion dollars fines on the U.S. tech giants.
These regulations significantly impact U.S. tech firms’ cost of doing business in Europe. For example, major DMA investigations are ongoing against Apple, Alphabet, and Meta. These will likely result in billion-euro fines and potential breakup orders. Firms like Amazon and Microsoft could soon face similar proceedings.
This overzealous enforcement is becoming increasingly salient for a Trump administration that appears to have signed a truce with the leading domestic tech companies. The week he took office, Trump mentioned “very big complaints with the EU” about the multi-billion-dollar fines imposed on Apple, Google, and Meta, calling them “a form of taxation.”
More recently, Vice President J.D. Vance warned global leaders at a summit in Paris that the Trump administration “cannot and will not accept” foreign governments “tightening the screws on U.S. tech companies”. The EU was clearly the elephant in the room in this respect. At the summit, the United States also declined to sign an international agreement championed by Europe’s leaders on “open” and “inclusive” artificial intelligence, further signalling a cross-Atlantic collision course.
Given this, it is easy to imagine Europe’s tech regulations will become a major bone of contention, and the threat of tariffs could well be a bargaining chip. Not only has Trump declared that tariffs on the EU would definitely happen “very soon,” but rumors from inside the European Commission suggest the administration is pressuring it to pare back its regulations.
There may, however, be a silver lining to this situation. The threat of tariffs hanging over Europe’s tech regulations may paradoxically be a blessing in disguise for its tech sector.
Though few in Brussels would admit it, the DMA is rapidly turning into a quagmire for the Commission. Enforcement has delivered no tangible victories, despite draining the Commission’s limited resources.
Ongoing cases look increasingly likely to be litigated, rivals’ market shares have barely budged, several online services are now degraded in Europe, and the rollout of AI technology is systematically delayed across the EU. Much of the same could be said about the DSA, GDPR (enforced nationally), and the soon-to-be enforced AI Act.
To make matters worse, it is becoming increasingly clear that Europe’s regulations don’t only impact American tech firms. They also harm startup investment in Europe, as well as a plethora of European companies—such as hotels—who rely on U.S. tech platforms to do business. This explains why Europe’s overregulation was so clearly singled out in the Draghi report.
Given this, Trump’s game of chicken may, in fact, provide EU policymakers with an excuse to back down from their regulatory agenda without needing to admit failure. In other words, they could apply former White House Chief of Staff and Chicago Mayor Rahm Emmanuel’s recommendation to “never let a serious crisis go to waste.”
In short, Trump and his threatened tariffs may not be the hero Europe’s tech sector wants, but they may well be the one it needs.
