The Milltown Tech Policy Conversation #10: What the US election result means for tech companies
How Trump's promised "across the board" tariffs could affect companies operating in Europe.
Image generated using DeepAI
Trump won. He’s promised tariffs across the board, but it’s not yet clear how these will impact tech companies operating in the EU and UK. Perhaps the most important thing to watch isn’t the tariffs themselves, but Europe’s response to them.
Let’s start with the facts.
With Republican control of the Presidency, the Senate and possibly Congress as well, the Trump Administration will find it relatively straightforward to impose sweeping new measures.
Trump’s purportedly pro-innovation, pro-free speech stance stands at odds with the EU’s approach, particularly on AI, which to date has been more cautious and focused on safeguards.
The EU-US economic relationship is the world’s largest - US-EU trade topped €1.3 trillion in 2022 - and hugely benefits both economies. The US is the UK’s biggest unilateral trading partner, and its second biggest trading partner overall (behind the EU) - US-UK trade was $296 billion in 2022.
Tariffs - but only for hardware firms?
Trump has said he would impose 10 to 20 percent tariffs “across the board”. For comparison, the previous Trump tariffs saw rates of 25% and 10% on EU steel and aluminium respectively. EU consumer electronics were out of scope - meaning there was relatively little direct impact on the tech sector. This time round, it’s likely more sectors will be included - which is likely to impact the EU’s €460B of high-technology exports. However, it’s far from clear what the impact will be on digital goods and services.
The nature of multinational platform companies is that the most substantial passage of “goods” (sidestepping for a moment the question of whether data is a good or a service) is data transfers from the EU to the US - likely why the US committed to new safeguards on its intelligence activities during the latest round of the EU’s privacy litigation on EU-US data adequacy. Similarly, the total revenue US tech firms derive from the EU market is substantial - US big tech generates 58% of its revenue from outside the US - and certainly more than EU firms derive from the US market.
It would therefore be illogical for Trump to impose tariffs on trade in tech services and data flows. Logic might not prevail, however, and we may well see direct tariffs on EU tech goods and services imports.
Regulatory divergence and fines could lead to retaliatory tariffs on European tech?
It looks like Trump’s presidency will lead to greater divergence between the EU and US when it comes to the AI regulatory landscape - indeed, the Republican platform has already committed to repealing the AI executive order in a bid to increase innovation while enabling free speech. This leaves tech firms in a difficult position - many have already delayed (sometimes indefinitely) the rollout of AI products in the EU on the grounds of regulatory uncertainty.
The UK may well find itself caught between the US and EU approaches - with calls from safety organisations to regulate AI at odds with the UK Government’s growth agenda. But if, as slated, the forthcoming UK AI Bill focuses only on frontier model developers, in an attempt to protect the large number of UK ‘deployers’ or ‘fine-tuners’, this may well evoke retaliation from the US.
Trump (and Musk) are both less concerned about illegal or false content on platforms than the Biden administration was - indeed, in his first term, Trump signed an executive order attempting to curb Section 230 so he could take action against social media companies which labelled his content as false or misleading. However, under UK and EU content rules, tech companies will be required to address misinformation on their platforms. This could well frustrate Trump and the Republican apparatus, pointing to a more fraught relationship, which could lead to the US imposing retaliatory tariffs in the future - either directly on European tech, or on other industries.
Another question is whether the Trump administration will respond to the impending substantial fines on large US tech firms levied through new laws such as the EU’s Digital Services Act, Digital Markets Act and AI Act, or the UK Online Safety Act and Digital Markets, Competition and Consumers Act. These laws enable regulators to fine companies amounts which constitute substantial proportions of their revenue (in some cases, up to 10% of global turnover). Such fines could again trigger US retaliation in the form of tariffs.
Don’t watch the US tariffs, watch the EU response.
But more than the above risks, perhaps the biggest ramification for tech policy is the impact on the digital sovereignty agenda. By all accounts, the EU project has been weakening, but it’s more than possible that the stark ideological differences between Trump and the EU will serve to galvanise Brussels into a more protectionist approach, including towards tech given the likely further regulatory divergence.
The Draghi Report (which argues that the wide gap between US and EU GDP is largely due to the EU tech sector’s sluggish productivity growth, and calls for €800 billion additional annual investment to rectify the situation) caused waves in Brussels. Given Draghi’s reputation, it’s likely that it will be taken seriously (although of course this will take time). In particular, tariffs (or the threat thereof) could spur real change in the EU, and again perhaps strengthen those who argue that digital sovereignty is necessary for EU growth. This presents a real challenge for tech companies - particularly those which aren’t large enough to onshore data.
Meanwhile, the UK is desperate to attract investment, and so is unlikely to pursue the digital sovereignty approach. However, in the event of US tariffs on UK goods, the Government will be under pressure to retaliate. It’s possible this could come in the form of increased taxes on tech companies - possibly through the mechanism of the Digital Services Tax, which is due for review next year.
What to do?
Over the coming weeks and months, it will be critical for policy folks at tech companies to have a clear picture of the shifting attitudes on both sides of the Atlantic - this is the best way to predict the future implications for tech companies and model the most effective policy responses.
In regimes which are largely controlled by a single leader, understanding future policy direction can be very tough. However, given the potentially seismic impact of the EU’s response, particularly when it comes to digital sovereignty, understanding EU policymakers’ attitudes will be extremely important in creating effective policy strategies to deal with the impact of the new US administration.