American tech companies built the digital economy, and they are its leading producers—the United States accounts for more than one-third of global output in the IT and information services industry. But America better watch out, because the European Union is making a concerted effort to rewrite the rules of the game through regulatory policy. If the EU succeeds, it will undercut America’s technological leadership at the expense of its economic power and national security writ large.
To understand what is happening, consider a meeting that occurred in Kenya in October 2023. The EU’s commissioner for international partnerships flew to Nairobi to sign a deal bundling grants and loans for broadband infrastructure and digital skills programs, with technical assistance to help Kenya design its digital regulatory framework. The package was part of the EU’s Global Gateway strategy, a 300 billion euro initiative that pairs infrastructure investment with regulatory alignment in developing countries. No American official was in the room offering an alternative.
What Kenya got in that deal was not just a sizable foreign direct investment. It was also Europe’s regulatory blueprint for digital markets. The EU’s model is built around laws like the Digital Markets Act, which designates the largest technology platforms as “gatekeepers” and subjects them to special restrictions and fines—carefully designed to target a small handful of leading tech firms, almost all American.
The result is a regulatory architecture that restricts leading U.S. tech firms, extracts billions in fines from them, and tilts the competitive playing field toward local, European, and Chinese competitors. When developing countries adopt these frameworks, they are engaging in what amounts to non-tariff attacks on the U.S. tech sector: policies framed as neutral domestic regulation but engineered to impede American market leaders. Europe has struck dozens of deals like Kenya’s in recent years—in Nigeria, Colombia, the Democratic Republic of Congo, and the Philippines—each pairing infrastructure investment with commitments to adopt EU-style regulatory frameworks. The global digital economy is becoming a checkerboard of EU-style digital regulation, while America is offering no alternative.
This will have severe consequences for U.S. economic power and security. Operating at global scale allows leading tech firms to invest in research and development and make the capital expenditures necessary to commercialize AI and other leading-edge, dual-use technologies. The United States needs to get into the digital diplomacy game before it’s too late—not just by threatening tariffs, but also by doing what the EU is doing: showing up in developing countries with attractive offers of investment, technical assistance, and an alternative regulatory model that would better serve those countries’ interests without discriminating against American firms.
The United States once had the administrative infrastructure to do exactly that. The State Department’s Bureau of Cyberspace and Digital Policy (CDP) was created in 2022 to lead American engagement on international digital regulation. The United States also had a proven regulatory model to export. For example, the U.S.-Mexico-Canada Agreement’s digital trade chapter bans data localization, protects cross-border data flows, prohibits forced source code disclosure, and ensures nondiscriminatory treatment for digital products. That framework once influenced digital trade provisions across the Asia-Pacific. But the CDP has been significantly downsized in the Trump administration—a move that came after the Biden administration had pulled the United States out of the WTO Joint Statement Initiative on E-Commerce negotiations in 2023. So, neither party in Washington has mounted a sustained effort to engage the dozens of countries that are writing their digital rules for the first time. The result is a vacuum that the EU has filled.
China, for its part, also has not hesitated to capitalize. Through its Digital Silk Road, Chinese companies like Huawei and ZTE build data centers and train regulators in exchange for alignment with Beijing’s model of state-controlled digital governance. Between the EU’s regulatory packages and China’s infrastructure deals, the two most active players in global digital policy are the ones whose models disadvantage American firms.
Congress should act. A strong start would be restoring funding for the Bureau of Cyberspace and Digital Policy, expanding the State Department’s digital attaché program to 50 or more priority markets, and directing the Development Finance Corporation to weigh countries’ digital policy environments in its $9.3 billion annual investment decisions. It is far cheaper to help countries make different choices than to fight discriminatory regulations one by one after they are already law. America cannot afford to lose its global leadership position in one of the few advanced industries where it still outpaces China.
Kristin Wooster is a public affairs manager at the Information Technology and Innovation Foundation (ITIF).
