EU Set to Raise Trade Barriers and Slap Tariffs on US, China Tech Firms

By Chriss Street
Chriss Street
Chriss Street
August 25, 2019 Updated: August 26, 2019

News analysis

European Union officials are pushing President-elect Ursula von der Leyen to update its Standards Policy to favor EU tech firms by slapping tariffs on the United States and China.

During the rise of globalism and internationalization of supply chains, the European Union supported multilateral standards development organizations (SDOs), with the argument that they would ensure greater innovation by providing global users and vendors with common technology platforms that ensure component compatibility.

But a growing number of EU members are now complaining about the rise of U.S. and Chinese companies such as Google, Tencent, Apple, Huawei, Amazon, Microsoft, and Facebook that have overwhelmed domestic companies in the 28-member EU bloc. The complaints never gained traction because EU votes must be unanimous, and the United Kingdom opposed issuing protectionist trade barriers to prop up failing businesses.

With the United Kingdom set to “Brexit” out of the EU on Oct. 31, European Commission members have drafted a 173-page road map to “level the playing field” by updating technology standards to favor firms within the remaining 27-nation bloc, invest over $100 billion for shareholder stakes in high-potential European enterprises, and pay for the initiative by slapping tariffs on U.S. and Chinese firms.

According to Politico, the goal is to “get Europe competing head-on with the American and Chinese tech giants it has lagged behind for decades.” Meanwhile, France and Germany have been advocating for more interventionist action to protect domestic jobs.

There are no European companies in the world’s top ten market value technology companies. Those include Apple, valued at $963.33 billion; Samsung Electronics Co. at $221.6 billion; Microsoft at $995.324 billion; Alphabet (Google) at $885.97 billion; Intel at $234.73 billion; IBM at $124.08 billion; Facebook at $546.606 billion; Hon Hai Precision, also known as Foxconn, at $6023.96 billion; Tencent at $462.116 billion; and Oracle at $189.37 billion, at the time of writing.

A decade ago, Europe featured competitive tech giants with phones from Finnish Nokia, German Siemens, French Alcatel, and Swedish Ericsson, as well as TVs from Dutch Philips. But all the European consumer electronics and personal computers hardware companies are basically nonexistent, and Phillips sold off its TV unit. The only top tier EU tech company is music service Spotify, with a market cap of $25 billion and falling.

The EU blames the absence of EU tech innovation leaders on the lack of competitiveness regulation, investment climate geography, aging demographics, the attitude of EU citizens towards technology, and weak startup ecosystems.

Fortune Magazine found in 2015 that European tech startups were funded at a multiple of 2.6 times revenue, versus 3.9 times for U.S. startups. But instead of bias explaining the lower valuation, geography also is a factor: launching global services in large homogenous markets such as the United States or China makes it easier to achieve scale, compared to adapting the product to 30 languages, legal systems, and cultures.

The draft EU policy would feature an enforcement regulation to retaliate if the Trump administration decides to bring the World Trade Organization (WTO) to a halt by refusing to confirm new judges to its trade arbitration court.

Trump blasted the WTO for allowing China to pretend it is a developing country in a late July tweet:

“The WTO is BROKEN when the world’s RICHEST countries claim to be developing countries to avoid WTO rules and get special treatment. NO more!!! Today I directed the U.S. Trade Representative to take action so that countries stop CHEATING the system at the expense of the USA!”

The EU’s Antitrust Commissioner Margrethe Vestager has already targeted U.S. tech companies for various fines, including $15 billion against Apple, $4.5 billion against Google, $960 million against Qualcomm, $275 million against Amazon, and is expected to fine Facebook about $5 billion.

The proposed EU policy also urges von der Leyen to implement an EU-wide unemployment insurance program in the first 100 days of her administration. Such a fund would require approval by the European Parliament and the 27 EU governments.

Chriss Street
Chriss Street