20/7/2020 Europe and US can still compete with Chinese tech | Financial Times

Opinion Technology sector

Europe and US can still compete with Chinese tech
The first step should be easy: create a transatlantic technology detente

RANA FOROOHAR

© Matt Kenyon

Rana Foroohar YESTERDAY

One of the biggest mistakes that Donald Trump has made in recent years, amid a
very long list, was trying to go it alone in his technology and trade war with China.

Europeans share many of concerns that the US has about the Chinese surveillance
state, and the dangers that it poses to competition, privacy and liberal democracy.
The US president could have drawn Europe into an alliance that would have
pressured China about old trade grievances as well as the need for a new global
framework on how digital business should be governed.

Instead, the Trump administration took on all the world at once, slapping tariffs on
enemies and allies alike. The result has been the creation of a tri-polar world in
which the US, Europe and China are moving in separate digital directions.

Events last week underscored the fragmentation. A European court struck down
the Privacy Shield data sharing agreement between the US and EU, which many
companies depend on to transfer safely across borders information such as payroll
data. The UK, under pressure from the US, also decided to pull Huawei out of its
telecoms networks. EU nations such as Germany are hedging their bets, for now.
Even so, a recent Deutsche Bank report estimates that this Sino-US-UK tech cold
war will cost $3.5tn over the next five years.

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That is not all. Last week, the EU was also defeated in its efforts to force Apple to
pay €14.3bn in back taxes to Ireland, which had given the Silicon Valley giant a
sweetheart deal for years. Separate national tax regimes are perfectly legal. But
they also create a race to the bottom that pits countries against each other and
allows companies to shop for the best deal. It’s a technological tragedy of the
commons. That is especially so now, when highly indebted governments need more
tax revenues to support spending during the pandemic.

The US and Europe are also fighting about how to tax companies that profit from
consumer data. As the world shifts towards an ever more intangible economy, the
EU wants a regime that targets Big Tech. But the US argues that other
multinationals — such as, say, a European handbag maker that also collects
personal data from customers — should pay tax in the US too, and has threatened
new tariffs against France.

As data is a resource currently mined for free by Big Tech and other
multinationals, it is in the interests of both sides to come up with a shared taxation
framework. The fact that Mr Trump is still threatening Brussels with various tariffs
makes that all but impossible.

There are only two winners so far in this transatlantic war. The first is Big Tech and
other digital data miners, which continue to grow in wealth and power. The second
is China, which is rolling out 5G telecoms systems globally much faster than either
the US or Europe. Beijing has already drawn dozens of emerging market nations
into its orbit through its Belt and Road Initiative, other development programmes,
and its influential position at the UN’s International Telecommunication Union,
which sets global telecoms standards.

And who can blame these countries, given the inability of the US and Europe to
create cohesive or long-term standards and strategies about digital governance?
Without these, it is impossible to predict — let alone join — the liberal democratic
west’s alternative to China’s digital surveillance model.

“It would very much serve US interests to build an alliance with Europe and other
countries based on the values that we hold to be important,” says Victoria Espinel,
head of the Business Software Alliance, one of the largest tech lobbying groups.
True. But that can’t happen until “we” Americans and “we” Europeans agree about
what this alternative should be.

If Joe Biden wins the US presidency, the basic dynamics of US-China tech
decoupling are unlikely to change. Recent statements by the Democrat party’s
presumptive candidate have made clear that he wants more domestic innovation,
and safer and shorter supply chains too.

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However, unlike Mr Trump, Mr Biden has stressed the need to co-operate with US
allies. Creating a new transatlantic trade and technology framework should be top
of his agenda. Angela Merkel, German chancellor, and Emmanuel Macron, French
president, should meanwhile draw up a list of what they’d like that framework to
include.

The EU has unprecedented negotiating power right now. For one, the US cannot
compete alone against China in 5G. If Mr Biden becomes the next US president, he
will also have to spend some goodwill to fix the damage Mr Trump inflicted on
transatlantic relations.

A new deal might include lifting tariffs in exchange for developing a shared
framework for the digital economy. This framework should exclude China’s
Huawei from 5G systems, and be built around Qualcomm, Nokia and Ericsson
instead. It would require a mutual EU-US digital privacy agreement. There would
also have to be a digital tax system that allowed nations to capture tax revenues
from companies that monetised citizen data. Lastly, an independent bureau should
address competition and transparency issues.

Agreeing on all these issues would be very hard. But it would also ensure that the
US and Europe are better placed to compete against China in an ever more
fragmented digital world.

rana.foroohar@ft.com

Copyright The Financial Times Limited 2020. All rights reserved.

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