The EU’s Digital Markets Act is a Gift to China

28.03.2024 03:08

Lawmakers from around the world are considering heavy regulations on America’s largest innovators. The unprecedented and rapid rise of technological integration into our daily lives and the flourishing digital economy have caught the attention of regulators who feel compelled to act. Yet, as Daniel Webster said, “a strong conviction that something must be done is the parent of many bad measures.”

Implementing sweeping policy changes in the rapidly evolving technology sector comes with substantial risks and a litany of unintended consequences. Not only will overregulation hurt major innovators who shape the global digital economy and support countless jobs, but such measures could also undermine the national and economic security of the nations that implement them.

The European Union’s Digital Markets Act (DMA) has become the international blueprint for regulating the technology sector and the digital marketplace. Unfortunately, the DMA is a shortsighted, counterproductive series of measures that would ultimately do far more harm than good.

The DMA designates a few—mostly American—tech companies as “gatekeepers,” which the EU claims hold outsized influence in the digital market and limit competition by smaller firms. The DMA then mandates additional restrictions and regulations on those gatekeepers. Meanwhile, massive Chinese tech companies that directly compete with U.S. companies remain largely untouched by the DMA.

Since the EU passed the DMA into law, the UK, Japan, and the United States have considered but not enacted similar legislation. Other nations like Turkey, Brazil, and South Korea are also looking at the EU model. What these proposed pieces of legislation have in common is the “gatekeeper” framework, a page ripped right out of the EU’s DMA playbook. If these proposals gain traction, there will be grave implications for Western technological leadership and our shared economic and national security.

China has made it no secret that it wants to overtake the United States and its allies as the global leader in the innovation and development of next-generation technologies. Beijing believes correctly that tech leadership is a critical component of national power and an important prerequisite to projecting influence in international affairs. Xi Jinping’s “Made in China 2025” initiative aims precisely at increasing the PRC’s power. China is fueling its key domestic tech firms and industries to take the mantle of innovation and leadership away from the Free World.

The last thing the West needs during such a high-stakes competition for technology dominance is to impose more burdensome, interventionist regulations that will handicap our companies’ ability to compete with the “national champion” companies and state-sponsored enterprises of the Chinese Communist Party (CCP).

Furthermore, the American and partner nation companies that the DMA targets not only shape innovation but also the privacy and security standards of the global technology sector. If such privacy and security standards are undermined, the door will be opened to cyberattacks and malign actors from Russia and China who will use whatever means necessary to steal the data of our citizens. The number of cyber-related crimes—already at record highs—will soar as tech firms are restrained by their own governments from screening “side-loaded” apps for malware and performing other critical security measures.

Recently, spyware was found on the devices of EU Parliament officials. This discovery is only the latest example of how deeply our adversaries can infiltrate our digital networks. The open digital marketplace that the DMA calls for would create significant vulnerabilities in any government agency, let alone civilian networks.

Though the DMA—and similar policies it has spawned around the world—seeks to encourage innovation and competitiveness in the digital market, in reality, it does the opposite. The firms that will be most burdened by this law may be the largest innovators. Yet, they also have the most advanced products and the R&D resources necessary to develop and scale emerging technologies.

It is these companies that are our best hope at maintaining our shared technological edge over the CCP. The EU is inadvertently creating a regulatory environment in which Chinese tech firms will have a much easier time catching up to and overtaking the West’s technology sector. This will have grave reverberations at every level of our great power competition with the CCP.

Economic security is inextricably linked to national security. Our national security will be at stake if Chinese tech firms, controlled by the CCP, are allowed to dominate our marketplace and undermine our economy. It is alarming that the EU and those who want to follow in its footsteps appear content with allowing the national champions of our top geopolitical adversary, which seldom observes international law and norms, to dominate the global tech market but believe the current digital market is untenable for healthy competition.

If responsible and robust tech competition and innovation are the goal, then the DMA is most certainly not the solution. It would create an unworkable regulatory environment that stifles innovation in the digital market and cedes the future of human technological development to the CCP. Decision-makers around the world must resist the urge to act quickly on tech regulation and instead act soberly and responsibly. If DMA-style laws continue to pass around the world, there will be serious national security implications that will leave everyone, except the CCP, less prosperous and less secure.