The United States and Europe confront a common challenge: staying ahead of China in the global innovation race. But the US has moved far ahead in key digital technologies while Europe lags.
The Trump administration recognizes the key role of technology for geopolitical competition. It has made US global leadership on tech and artificial intelligence a core pillar of its national security agenda — most recently in the AI Action Plan. As the US doubles down on tech innovation, Europe risks not just lagging in the short term, but stagnating for the long term.
European decline is not in the US national security interest. The continent remains far and away the US’s largest trade partner, with $1.3 trillion in goods moving across the Atlantic Ocean in 2023, almost 40% more than US trade with China. US investment in Europe and European investment in the US run into the trillions. The US needs a prosperous Europe — its large market, investment, innovation, and talent — to compete with China. US companies benefit from access to the continent’s 450 million consumers, key to the US trade surplus of $71.1 billion in services.
As digital services make up an ever-growing portion of this unparalleled economic partnership, a Europe that lags in tech innovation will be neither economically competitive nor a good trade partner. If Europe can take the hard and necessary steps to accelerate its competitiveness in tech to complement areas where the US lead is already far ahead, it will be a stronger partner to the United States. Growing divergence, however, will only benefit Beijing’s global ambitions to create and control the global tech infrastructure. Going it alone, for either the US or Europe, is simply too high a risk for both.
Europe still has much to offer to the US. European companies will not compete directly with the US on scale, but European researchers and innovators have made significant technological breakthroughs that have benefited US tech growth. A Danish software engineer built Google’s Chrome browser engine, while a Hungarian engineer created Microsoft Office. European talent invented video communications. European companies and research institutes dominate lithography imagery, which is needed to make the most sophisticated semiconductors. Quantum computing? Europeans lead the quantum efforts for several major US players.
The benefit goes both ways: US tech companies are some of the largest foreign investors in Europe, with direct investments of $113 billion in the information sector and $29.7 billion in hardware manufacturing in 2024. They play a key role in delivering services, hardware, cloud infrastructure, and more. Amazon employs more than 200,000 Europeans and Apple supports more than 1.7 million jobs. The US hyper-scalers are spending heavily to build data centers in Europe. Earlier this year, Google agreed to invest billions in Poland to support tech innovation and training, artificial intelligence (AI) integration, and cybersecurity — amounting to an estimated 8% increase in Poland’s gross domestic product (GDP).
Europe and the US not only need each other, they share the same analysis of the key strategic questions. They agree that technology represents the key front line of both the economic and security future. Governments no longer drive innovation: Technology companies power productivity growth. As the Trump administration deregulates and stakes a claim for the future of technology, Europe is moving to pare back and simplify its extensive digital regulations.
Most important, the allies share a common assessment that dependence on China threatens Western tech leadership. Brussels has moved to impose tariffs on the import of Chinese electric vehicles and wean itself from Chinese technology in its telephone networks. Washington is imposing strict export controls on key technologies to China. DeepSeek, a Chinese artificial intelligence start-up, shook the assumption that the US will continue to lead. President Trump called it “a wake-up call.”
The key to winning the tech race is the Europe-US alliance: A partnership between the US and Europe is the only way to provide independence from China. The giant, integrated transatlantic economy gives the allies a competitive advantage.
But the US and Europe have yet to set up a competing agenda to Beijing’s “Made in China 2025” plan for its industrial ambitions. Europe must act fast to double down on innovation and the US should take advantage of the opportunities to build strategic complementarity with Europe. If they do so, both sides will profit — and importantly, it will be the US and Europe that set the rules of the new tech-based order rather than China. It is time to think long term but act swiftly.
This paper outlines a pragmatic roadmap for how the US and Europe can maximize their joint comparative advantages to ensure that democracies define and build the future digital order.
Make Good Deals
Below are a few key challenges on which Brussels and Washington can quickly find common ground.
1. Agree on AI Export Controls
The US has to restore trust that it will not pull a “kill switch” and block transfers of cutting-edge tech to Europe. President Trump’s AI Action Plan goes some way to addressing these concerns. It promotes export to allies but also calls for better export control enforcement on crucial components. The US wishes to “align protection measures globally.” These measures should be managed in a way that allows all European countries to continue to benefit from US tech.
Europe, in turn, should prioritize the adoption of a unified export control framework for critical and emerging technologies. Under present rules, Brussels can only advise national governments, leading to long, drawn-out negotiations and inconsistent implementation. End-user controls should be harmonized, creating a single Europe-wide control list of technologies.
2. Keep Data Flowing
“Good” rules and existing agreements should be kept, notably the transatlantic Data Privacy Framework, which allows seamless transfer of private data across the Atlantic Ocean. That road to agreement was long and painful. Europe’s highest court has ruled the framework is “adequate” and data transfers can continue. Both sides should refrain from any legislative changes that might undermine the framework and fight to maintain it if it is challenged again. The free flow of data across the Atlantic Ocean is fundamental to the Trump administration’s goals of AI innovation and strong economic security. The current framework provides legal certainty not just for tech, but for other critical sectors such as finance, health care, and hospitality.
3. Align on AI Standards
President Trump’s AI Action Plan is “opportunity first.” AI holds tremendous potential for good, and Americans and Europeans agree that it presents risks. The transatlantic allies should work together. The AI Action Plan, which calls to export to allies and to “align protection measures globally,” can help.
At the same time, access to both European and US AI ecosystems must be scrutinized for national security risks. Many Western companies continue to conduct AI research in China and Russia, and academic collaboration continues with limited constraints, posing ongoing, serious research security risks.
The National Institute of Standards and Technology’s Center for AI Standards and Innovation should cooperate with European peers. The Trump administration emphasizes innovation and competitiveness. Without compromising its ambitions to develop safe, ethical AI, Europe should adapt its implementation strategy for the AI Act to ensure the right tools are in place to enable smooth, effective compliance.
4. Partner on Quantum
Europe and the US are investing billions in quantum computing, a paradigm-shifting technology. Quantum will unlock solutions to present unsolvable problems, such as drug development and fusion energy. Quantum could also undermine present encryption security.
Although the US is ahead with private-sector funding, Europe ranks second only to China in public quantum investment, with nearly €7.7 billion committed. Quantum facilities in Finland, France, and the Netherlands are first class.
China, too, is prioritizing quantum technologies. It is preparing to launch new experimental quantum communication satellites. The first long-distance quantum-secured communication route opened last year between Shanghai and Beijing.
Before quantum is deployed widely, the allies should discuss their respective approaches. The US is advancing the standardization of encryption algorithms resistant to quantum hacking. Washington should coordinate with European standards bodies.
5. Blast Off Together into Space
The US has taken a strong lead in building reusable rockets and low-orbit satellite communications — two key technologies that Ukraine is leveraging on the battlefield against Russia through Starlink. This significant advantage could be lengthened by collaborating with Europe.
Europe brings significant capabilities, including the Galileo navigation system, the Ariane rocket launch program, and Copernicus Earth observation satellites. Coordinated transatlantic investments in satellite constellations, launch infrastructure, and space debris mitigation can support secure communications, navigation, and climate monitoring.
Without collaboration, the risk is that Europe will pour its energies into space projects that overlap with American plans. It will be much more productive to work together than to compete against each other.
6. Strike a Semiconductor Pact
The US and European Union (EU) must urgently develop a joint strategy to counter China’s chip ambitions. The Netherlands’ ASML holds a monopoly on ultraviolet photolithography machines — critical for producing the world’s most advanced chips — while the US leads in chip design. Aligning the design strengths of US companies with the chipmaking equipment dominance of European firms is economically strategic and essential for national security.
The United Kingdom (UK) should be included in any chip pact. Arm, born in Cambridge, revolutionized the design of power-efficient chips that run all our mobile phones. The bottom line is that Europe cannot do without US- and UK-designed chips, and the US cannot live without access to European chip-imaging prowess.
Beyond chips, the US and Europe have made progress in recent years in ripping China’s Huawei out of their telecommunication networks and promoting the use of trusted vendors. They should extend that support to the provision of subsea and fiber optic cables and the development of fifth- and sixth-generation 5G and 6G networks, both in their home jurisdictions and third countries, while working to prevent untrusted vendors from accessing those networks.
7. Leverage the NATO Security Summit
A June 2025 NATO Summit produced an agreement to spend 5% of GDP on defense, offering new pathways for partnerships with US and European tech. The defense-spending target comprises two tiers: 3.5% for hard defense and 1.5% for broad security-related investments. Within the 1.5%, allies agreed to prioritize critical infrastructure protection, cyber defense, and information technology modernization. NATO also released a Rapid Adoption Action Plan, committing allies to “expedite technology adoption procedures and allocate adequate resources to that end.”
The US and Europe must deepen collaboration between their respective defense industries. European firms such as Germany’s Rheinmetall, France’s Thales, and the UK’s BAE Systems are global leaders in next-generation defense systems. Structured research and development (R&D), shared procurement, and interoperability would enhance military readiness. US tech companies have strong expertise in cybersecurity that NATO members can leverage as part of the 1.5% security-related investment. A transatlantic defense partnership would reduce R&D duplication, boost production, and ensure that democracies — not authoritarian regimes — lead the evolution of military technologies.
8. Revive Cooperation on Critical Minerals and Supply Chains
The allies need to coordinate investment to offer a compelling, values-driven alternative to China’s Belt and Road Initiative. They need to pool development finance and trade policy and leverage private sector capacity. A key opportunity is critical minerals, which today represent a strategic vulnerability for the transatlantic community. China’s dominance must be addressed. If it is not, Beijing will be afforded a giant opportunity for strategic advantage.
Although the Minerals Security Partnership includes the United States, Europe, and 13 other countries, it is making slow progress. A jolt is needed. Together, the allies should launch a “Free Road Initiative.” This could help global partners develop and diversify their supply chain options. One flagship project, the Lobito Corridor in Africa, is an initiative to secure the flow of critical minerals and offer minerals-rich countries alternatives to Chinese investments. A second flagship project could be the India–Middle East–Europe Economic Corridor (IMEC), which promises to secure and diversify supply chains with the Middle East and India, important trading partners for Europe and the US.
Europe: Prioritize Competitiveness
Brussels has made no secret of its desire to regulate the digital world, only to realize that the cost of its rules was hobbling its tech industry. Some European tech companies now say they spend up to a third of engineering resources on complying with the digital rulebook. The “Competitiveness Compass,” a European Commission plan to boost European productivity, represents a positive plan for prioritizing growth.
But it remains unclear just how far Brussels is willing to go. There is talk of “pausing” the AI Act, but not of revising or junking it. The EU can, and should, learn lessons from the US’s AI Action Plan. The Commission has several new laws, implementing codes, and guidelines in the pipeline. A soon-to-be-proposed Digital Fairness Act could add a new raft of obligations on digital platforms, putting them at a disadvantage to brick-and-mortar competitors. The EU should get real on what regulation can achieve and put down the quill.
1. Sensible Implementation
Enforcement and implementation of the main digital regulations — the General Data Protection Regulation (GDPR), the Digital Markets Act (DMA), and the Digital Services Act (DSA) — have proven patchy. Compliance remains challenging.
A new US-EU trade framework has been agreed. It is a start, as it prevents a trade war. Against this new backdrop, the EU should consider the use of the penalties it has prescribed in the DMA and DSA very carefully. From the EU’s perspective, the primary goal of its new digital rules is to ensure that digital products released on the European market are safe, ethical, transparent, and trustworthy. Yet, regardless of the motivation, both the DMA and DSA are deeply unpopular in Washington and seen as a direct attack on US firms. Issuing massive fines against US tech companies will go down badly. Similarly, those countries with digital services taxes (DSTs) should consider the long-term value of such taxes. Washington views EU digital rules as a factor in the trade relationship. Fines and taxes will not make European tech firms more competitive but will antagonize the US.
2. Digital Pragmatism rather than Digital Sovereignty
To meet its own digital goals, Europe faces a classic “buy or build” scenario. “Digital sovereignty,” if defined as building up European capabilities, can be a good outcome. If it becomes a protectionist creed that excludes non-European suppliers, it will hold Europe back.
Europe can and should endeavor to improve its secure digital infrastructure, address what French President Emmanuel Macron called “shameful strategic dependencies,” and reduce reliance upon the US overall.
It is impractical for Europe to digitize without working with US companies. Open-source models should be prioritized, as the US has done in its AI Action Plan. Significant investment in tech will be required — up to €800 billion, according to former Italian Prime Minister and European Central Bank Chief Mario Draghi.
3. Follow the Competitiveness Compass
Europe knows the steps required to restore competitiveness, but has been slow to start the work. Recent announcements, such as the Competitiveness Compass and the new scale-up fund, are promising. The Commission has plenty of recommendations from reports from Draghi and Enrico Letta, another former Italian prime minister. Stand-out items include the following:
- Complete the digital single market, benefiting consumers and boosting cross-border trade.
- Introduce the 28th regime for an EU-wide corporate registration, allowing companies to operate across the continent efficiently and grow.
- Finalize the Savings and Investments Union to awaken the slumbering capital markets in Europe and allow European tech hopefuls to raise funds.
- Explore how to best leverage “open” offerings from reliable vendors for AI. The European Commission’s AI gigafactory plans envisage providing access to open-source large language models for small companies.
Europe should approach its challenges with a sense of urgency but not in a blind panic. Much remains to play for in AI, quantum, and other emerging technologies.
US Tech Must Lead
The new US-EU trade framework, albeit with a high tariff threshold, is to be welcomed. Tariff threats undermined US demands for Europe to step up spending on its own defense. The tariff threats also hurt US tech leaders and encouraged Europeans to seek domestic alternatives.
US tech has engaged with the US administration on a range of issues: the Stargate Project and AI innovation, security and export controls, regulation on the use of data, and content moderation. Most, if not all, US tech firms want to see an EU digital single market come to fruition.
f the transatlantic trade war flares up again, tech firms would be big losers. It is to the benefit of US tech leaders to advocate for policies that defend their interests without putting them at the center of any potential European backlash.
Conclusion
The transatlantic alliance represents a strength, providing strategic depth in competition with China. Tension is a feature of any long-term relationship, and the transatlantic relationship has not always seen plain sailing. The Suez Crisis, France’s departure from the NATO command, the invasion of Iraq, and the Edward Snowden affair all caused turbulence. Yet in every case, the allies have found a way forward.
Right now, patience is required. There is a new trade framework with many details to be worked out. It is still comparatively early days in the presidential cycle and the new European Commission’s term. Both need time. The war in Ukraine continues. The Middle East burns. President Trump and his administration have yet to stabilize their position on key policy areas. The European Commission is just formulating its competitiveness plans.
China aims for tech dominance — to reinforce dictatorial control. The National Endowment for Democracy calls this goal “data-centric authoritarianism.” Instead of using AI and other technologies to improve lives, Beijing leverages tech to stifle dissent. AI, biotech, quantum, and digital currencies give the Chinese Communist Party unprecedented power to monitor its population.
The allies must respond. Although little chance exists of another formal transatlantic tech forum like the Trade and Technology Council, other venues could offer opportunities to counter China’s growing technological influence. France hosts the 2026 Group of Seven (G7) presidency. This could ignite a clash between French demands for digital sovereignty and Trump administration fears that this will harm American interests. Instead, the G7 could prioritize aligning against China’s growing influence.
If the US and Europe do not collaborate, we risk seeing a splintered tech world with siloed regulatory regimes, conflicting technical standards, and geopolitical walls around data, computer power, and workforce. This would slow innovation and increase uncertainty for companies and governments. It would allow China to race ahead, leaving the West chasing behind.
CEPA is grateful for advice and strategic guidance from:
Carl Bildt, Prime Minister, Kingdom of Sweden (1991-1994); Minister for Foreign Affairs, Kingdom of Sweden (2006-2014); Member, International Leadership Council; Co-Chair, Special Project on “Tech 2030: A Roadmap for Europe-US Tech Cooperation,” Center for European Policy Analysis;
Anja Manuel, Executive Director, Aspen Strategy Group and Aspen Security Forum; Co-Founder and Partner, Rice, Hadley, Gates & Manuel LLC; Member, International Leadership Council; Co-Chair, Special Project on “Tech 2030: A Roadmap for Europe-US Tech Cooperation,” Center for European Policy Analysis;
Molly Montgomery, Member, Board of Directors, Center for European Policy Analysis; Director, Public Policy, Meta;
Eva Maydell, Member of the European Parliament, (European People’s PartyBulgaria);
Dr. Alina Polyakova, President & CEO, Center for European Policy Analysis
With special thanks to John Allen, Ylli Bajraktari, Karan Bhatia, Kaitlyn Garman, James Lewis, Nicklas Lundblad, Ronan Murphy, and Elly Rostoum
Tech-Agenda-2030To read the report as it was published on the Center for European Policy Analysis website, click here.
To read the full report as a PDF, click here.