Carisa Nietsche is an associate fellow for the Transatlantic Security Program at the Center for a New American Security.
The TechCrunch Global Affairs Project examines the increasingly intertwined relationship between the tech sector and global politics.
Europe has a well-earned reputation for regulating Big Tech, taking the lead on privacy, data protection and especially competition. Now, new antitrust legislation that introduces criteria to identify large online “gatekeepers” is winding its way through the European Parliament. But while the Digital Markets Act is expected to target a number of U.S. tech companies, if used strategically the DMA — and European antitrust and competition policy writ large — can also be a tool to compete with China.
In the past few years, Europe has slowly awakened to China’s challenge to transatlantic technology leadership. Although many Europeans are slowly converging on Washington’s threat perceptions, Europe still lacks the tools and political will to address challenges emanating from Beijing’s juggernauts.
While transatlantic policy responses to China should be aligned, they need not be the same. The United States and Europe should leverage their respective strengths and toolboxes to combat China’s market distorting practices in the technology sphere. And Europe should bring its comparative advantage — developing and enforcing competition policy — to bear to compete with China, beginning with the DMA.
Beijing’s tech giants are competing for size and control of the global technology ecosystem — a dynamic the transatlantic partners cannot afford to ignore. The Chinese Communist Party (CCP) has set the goal of market domination for their largest technology companies. To achieve this goal, the CCP is engaged in anti-competitive behavior to improve their companies’ market positions. In addition to state subsidies, the CCP often provides sweetheart deals to companies to improve their market standing.
The 5G case study illustrates this dynamic. The Chinese government provided 5G champion Huawei with $75 billion of state support through tax breaks, discounted resources and financing assistance. Meanwhile, China’s domestic market enables state-backed champions — including Huawei — to leverage very little competition and high market share within China to offer services for a fraction of the price in third countries. When faced with this reality, Europe’s leading producers of 5G technology, Nokia and Ericsson, previously struggled to compete with Huawei in their home market. Beijing’s domestic economic policy thus has global consequences.
In the past year, European countries have formed investment screening mechanisms to combat Beijing’s growing footprint in Europe. Yet, they still have work to do. Of the 27 member states, only 18 have established investment screening mechanisms, though an additional six are in development. There are also reasons to question the mechanism’s efficacy. The European Commission only blocked eight of the 265 projects they examined. Only 8% of the examined projects were Chinese projects. And they don’t explicitly tackle anti-competitive behavior.
That’s beginning to change. In May 2021, the European Commission proposed a regulation on foreign subsidies distorting the internal market, which introduces tools to investigate and potentially halt financial contributions by a non-EU government involving foreign subsidies. But while Europe’s nascent efforts are encouraging, they are not enough to address Chinese companies’ market positions and the Chinese government’s distortive policies.
Nonetheless, Europe is well positioned to leverage its regulatory momentum. Given China’s multifaceted playbook, Europe should think beyond subsidies. To effectively compete with China’s tech giants and address the unfair market position of Chinese companies, Europe must use antitrust regulations to target Chinese companies engaging in anti-competitive behavior, including by calibrating the Digital Markets Act (DMA). Pairing investment screenings with antitrust policy would give Brussels ample tools to address Beijing’s anti-competitive behavior.
Combating China’s anti-competitive behavior through antitrust policy is a logical extension of Europe’s toolkit. While the United States traditionally views antitrust policy through the lens of consumer welfare, Europe often views antitrust policy through the lens of market competition. Furthermore, Europe is often loath to view Chinese companies through a national security or anti-China frame. While investment screenings mechanisms focus on national security, antitrust and competition policy is pursued to ensure market competition in Europe. This framing makes addressing Beijing’s anti-competitive practices through antitrust policy a natural fit for Europe. In fact, last week, members of the European Parliament argued that the DMA should be extended to China’s Alibaba.
Such a move would also correct for perceived anti-American bias when it comes to antitrust enforcement. Commission officials maintain that Chinese companies do not do enough business in Europe to be subject to DMA. But that approach means that American firms are targeted by European regulators almost exclusively. Yet when viewed through a geopolitical lens, China’s technology national champions pose a greater threat than U.S. technology companies to Europe’s innovation ecosystem. This continues to be a point of contention in Washington and threatens to weaken the transatlantic relationship.
While Europe often bristles at the United States’ anti-China framing of technology issues, moving forward with a pro-democracy affirmative agenda — Europe’s preferred framing of the challenge — requires the United States and Europe to bolster their respective innovation ecosystems. Exclusively targeting U.S. companies in the Digital Markets Act threatens to hobble potential transatlantic cooperation and hinder an affirmative transatlantic agenda.
While the Digital Markets Act is not wrong to keep U.S. tech companies accountable, it is an opportunity for Europe to use antitrust and competition policy to recalibrate an approach to the China challenge that fits European perceptions and strengths. Europe shouldn’t miss this opportunity to address China’s market distorting behavior and to add another tool to its toolbox to push back on China’s anti-competitive behavior.