China Is the Elephant in the Room as Europe Targets American Tech



Glenn S. Gerstell | Barron's

Managing competition with an ever more assertive China isn’t expressly on the agenda for President Biden’s meetings this week with European leaders. But the issue of how best to counter China will nonetheless percolate through their deliberations, surely influencing the expected American agreement to Europe’s proposal for a new EU-U.S. Trade and Technology Council.

The European Union pitched the council last year. Its leaders realized that it was in the interest of America and Europe—each other’s largest trading partner—to smooth over accumulated differences of opinion and develop a coordinated approach on trade and technology. But a secondary reason for the potential new council might be more consequential: Both sides want to set common technological standards. Doing so would afford the U.S. and EU the ability to deal with the underestimated long-term national security threat posed by China.

The EU’s approach to regulating technology, in particular American technology, is unintentionally exacerbating the China threat. A proposal for sweeping new legislation aimed at American Big Tech may have unwittingly created an opening for China. Introduced last December, the proposed Digital Markets Act intends to promote a level playing field for online services and to prevent anti-competitive practices. Ironically, it might instead enable a country that steals intellectual property as a matter of national policy, blocks access to foreign products, and couldn’t be more opposed to the fundamental values of European democracies.

America traditionally deals with anti-competitive marketplace acts after the fact. But in keeping with Europe’s typically more aggressive regulatory approach, the DMA is designed in anticipation of possible future competitive harm—without specific proof that such harm has occurred. The bill would limit the ability of online “gatekeepers,” such as search engines and marketplaces, to promote their own products. It would downplay security and privacy concerns in order to force app stores to allow apps from other developers using separate payment systems. The DMA would also force gatekeepers to share IP and trade secrets—such as search ranking and click data—with direct competitors.

Just who would the DMA classify as gatekeepers? The law is far from final and doesn’t name explicit targets. But—surprise—it’s Microsoft, Google, Amazon,Apple, and Facebook that would be regulated under its current criteria. No giant European tech firms. Nor any of the Chinese online giants such as WeChat (1.2 billion users around the globe) or its corporate parent Tencent (the largest video game vendor and one of the 10 biggest companies in the world). Far from leveling the playing field, the bill would penalize the business models of successful American tech companies, and naively leave the field open to China. Its companies could exploit the DMA’s arbitrary thresholds to increase their presence in the EU digital economy at the expense of American companies.

The practices targeted by the proposed law are fair topics for debate and regulation. No one’s saying American Big Tech should be shielded from competition. But against China, it’s lopsided competition. Letting that happen is not only unfair, it’s also shortsighted and perhaps dangerous. 

It’s lopsided because of the unique way China enters and then seeks to control overseas markets, the result of a profoundly integrated and coordinated effort by the entirety of the Chinese government and economy. With strategic goals of market domination set by the Chinese Communist Party, the Chinese government puts political pressure on a country to buy Chinese products, a Chinese development bank arranges a low-interest loan, the subsidized state-owned enterprise offers an irresistibly cheap price (and is not subject to U.S. antibribery laws), and even Chinese private sector companies are directed as to how they price and market their products and services. Americans have trouble fully appreciating the scope and effectiveness of China’s system, because this approach seems so different. Our private sector’s success abroad is due far more to superior products than to government promotion.

China requires that its companies turn over data to the government if it asks. The United States and United Kingdom looked at that policy and decided to ban Huawei’s 5G equipment from their networks. If, due to its aggressive tactics, China had an outsized role in the internet on the continent, it would reach deep into European personal and commercial lives. China has a unique way of integrating its payment systems into all online operations. WeChat Pay and Alipay have basically displaced cash in China. If they achieve anything like that prevalence in Europe, the financial and personal details of over 400 million Europeans could be stored on Beijing’s computers. The DMA fits a pattern in which Europeans generally minimize the risks of improper data collection by China for national security purposes (including the advancement of their artificial intelligence programs) and of being locked into Chinese technical standards.

China is perfectly willing to use economic coercion as a tool of statecraft, making market access a means of state ends. When Norway awarded the 2010 Nobel Peace Prize to a Chinese dissident, Norwegian salmon fishermen bore the consequences. China banned their salmon imports and did not relent for six years. Time and again, in disputes with the United States, South Korea, Japan, and others, innocent commercial parties have been held hostage to Chinese government demands. If the DMA succeeds in hampering American tech firms in Europe, and China rushes in to fill the void, Europeans will be vulnerable. WeChat Pay has said it sees Europe as its next key market. It’s not hard to imagine it succeeding. What’s to keep Chinese authorities from threatening to stop commercial payments on that platform until France rectifies some perceived affront to China?

China, Europe, and the United States have much to gain from each other, especially when fair competition drives innovation. Demonizing China is counterproductive if not risky. But it’s equally a mistake to not candidly face the threats posed by a powerful nation that does not share our democratic values. At a minimum, these issues need a frank and honest airing. The EU-US Trade and Tech Council could be a vehicle to persuade Europe it isn’t fully appreciating those national security threats.

Glenn S. Gerstell served as the general counsel of the National Security Agency from 2015 to 2020, and is currently a senior adviser at the Center for Strategic & International Studies.

To read the full commentary from Barron’s, please click here.