And so it begins… The TechReg Trade War: USA vs. World – time for some regulatory housekeeping!

With the memorandum titled ‘Defending American Companies and Innovators From Overseas Extortion and Unfair Fines and Penalties’, President Trump has officially launched/sparked an international trade war relating to technology regulation in February 2025. What does the document say and how should or shouldn’t European policymakers react?

1. Content

The memorandum consists of four sections: Purpose, Policy, Agency Responsibilities and General Provisions.

Purpose – The memorandum accuses the EU and countries such as Australia and Canada of having exerted (illegitimate) extraterritorial authority over American technology companies, hindering these companies’ success and appropriating revenues that should have contributed to the US’s well-being. The document highlights digital services taxes (DSTs), introduced by e.g. France, Italy and the UK, and alleges that these are intended to “plunder American companies”. The list of grievances goes on and reference is made to digital regulations favouring domestic companies over US companies, restrictive cross-border data flow requirements, local production funding requirements and digital infrastructure fees. All of these measures allegedly “violate American sovereignty and offshore American jobs, limit American companies’ global competitiveness, and increase American operational costs while exposing our sensitive information to potentially hostile foreign regulators”. Hence, the Trump administration believes it is opportune and desirable to counter such “extortive fines and taxes” by imposing related tariffs.

Policy – In essence, the memorandum states that the Trump administration will impose tariffs and other harm-mitigating measures in response to foreign tax or regulatory structures that harm US commercial interests. More precisely, such responsive measures will be taken in case of fines, penalties, taxes, or other “burdens” that are discriminatory, disproportionate, or designed to transfer significant funds or intellectual property from American companies to foreign governments or the foreign government’s favoured domestic entities. This is further illustrated through four concrete examples: (i) taxes imposed on US companies by foreign governments, including those that “may discriminate against United States companies”; (ii) regulations imposed on US companies by foreign governments that could “inhibit the growth or intended operation of those companies”; (iii) any act, policy, or practice of a foreign government that could require a US company to “jeopardize its intellectual property”; and (iv) any other act, policy, or practice of a foreign government that serves to “undermine the global competitiveness of United States companies”. Especially points (ii) and (iv) appear to be very broad and flexible. 

Agency Responsibilities

In addition to the proposed measures, the Trump administration has announced a review of policies, regulations, and practices that might hinder global competitiveness of US businesses. Their initial action plan includes the following steps: 

• (Possible) renewal and initiation of investigations under Sections 301 and 302(b) of the Trade Act to address policies that discriminate against US businesses or restrict US commerce, targeting DSTs in particular;
• Identifying and assessing trade and regulatory practices in other countries, including but not restricted to the digital economy, that discriminate against or disproportionately affect US businesses or undermine their global competitiveness or intended operations;
• Examining EU and UK policies that require or encourage the use of US products or services in ways that restrict freedom of speech, political engagement, or content moderation, and recommending countermeasures;
• Reviewing tax policies to determine whether US citizens (not mentioned before) and companies face discriminatory or extraterritorial taxation, or taxes which undermine competitiveness, violates US tax treaties, or is actionable under tax-related legal authorities;
• Advocating for a permanent moratorium on customs duties on electronic transmissions;
• Implementing a reporting process to monitor foreign tax and regulatory measures that disproportionately harm US businesses. 

All in all, it needs to be recognised that the possible scope of these measures can be very broad, targeting a myriad of existing (or future) European legislation. 

2. Comment

Legal nature of the memorandum - A first question arises regarding the legal status and value of this presidential memorandum, specifically to what degree it is binding or creates rights. In principle, the memorandum is comparable to an executive order and may be used to direct the actions of federal government agencies. To the same degree as an executive order, a memorandum that is issued under legitimate authority, does not defy existing law and is made public can have the force of law. However, it is not part of US legislation and the legislative branch (i.e. Congress) is not involved. A memorandum published in the federal register, as required for this memorandum through its general provisions, can have general applicability and legal effect. Vice versa, a memorandum, just as executive orders, can also be non-legally binding and contain instructions to executive administrations (who in turn may then take actions that do result in legal effects). Additionally, it is not always clear which parts of a memorandum, if any, are directly binding, and which are not. 

For this memorandum, the legal effect or binding nature is not clear from its wording. While the memorandum, like other memoranda published by the administration, disclaims that it creates rights or benefits for any party against the US, its departments, or affiliated persons, this disclaimer is not conclusive for the binding nature of the memorandum on the various administrations. In that regard, it should be noted that the actions imposed on the different agencies are largely investigatory and preparatory. The actual imposing of tariffs and other responsive actions is not yet required by the memorandum itself. While US organizations are enabled through the memorandum to report foreign measures that (allegedly) disproportionately affect them, they are not able to demand the actual investigation or taking of countermeasures under the memorandum.

Uncertain scope due to broad wording - While the section on purpose makes a clear link with foreign media and technology regulation deemed undesirable from a US-perspective, this focus disappears in the section on policy which is formulated much broader. This broad scope renders predicting the impact of this memorandum unsure (e.g. most countries impose taxes or regulatory requirements on companies doing business on their territory, regardless of the place of establishment of the company, and for a variety of legitimate purposes (e.g. including providing public infrastructure or social security to fundamental rights or environmental protection). Will all such taxes or requirements be possible reasons for tariffs? Furthermore, the memorandum repeatedly uses wording that opens up to an enormous scope. An example is reference to ‘any act, policy or practice with the effect of requiring US companies […] to moderate content‘ (sec. 3.d.) or ‘any regulations that could inhibit the growth or intended operation of US companies’(sec. 2.b.). Finally, the memorandum also leaves open the possibility for other responsive actions than tariffs to be taken by the US in response to foreign regulations. While the reasoning for imposing such tariffs and measures is that American companies and interests should not be subject to one-sided policies of foreign government, these tariffs themselves are of course also one-sided measures imposed by the US. 

Impacted countries? – Although the document explicitly mentions the EU and some other countries (e.g. Canada, Australia, UK or Turkey), we do not think it is just about these countries or regions. After all, but interestingly, the memorandum appears to omit one significant jurisdiction: China. The Chinese digital market is even larger than the EU’s market and has been virtually closed to foreign digital technology companies for quite a while. In addition, it is characterized by notoriously volatile regulatory practices in the digital realm (see the excellent book by Angela Zhang “High Wire” who illustrates this through the swinging of a regulatory pendulum). Therefore, we believe that this memorandum can or will equally apply to Chinese regulatory practices and legislation. 

3. Recommended response by European policymakers: keep calm but do some regulatory housekeeping while strengthening the internal market

1). DO – it’s time for some regulatory housekeeping: improve the interoperability, coherence and consistency of the regulatory framework, while eliminating redundant, contradictory and overlapping rules

So, should European policymakers at all levels now suddenly do away with rules that potentially “inhibit the growth or intended operation of US companies or undermine their global competitiveness” just to avoid tariffs? Obviously, no. This broadly-worded memorandum is an attempt to curtail the regulatory sovereignty of the EU (and its member states) to the benefit of US companies that, especially in the digital realm, have a rather tarnished reputation and track record. In addition, the targeted European and national digital laws generally enjoy much broader democratic support compared to this memorandum or the many Executive Orders President Trump has signed.

However, at the same time, European policymakers should not content themselves with a status quo either. Oppositely, the last few years were characterized by a tsunami of ambitious European digital laws (e.g. Digital Markets Act, Digital Services Act, Artificial Intelligence Act, Data Act,…) complemented with national transpositions, sometimes gold-plating said laws. This has left us with a complex and fragmented web of regulation, which is already difficult to navigate for matter experts, let alone for stakeholders with limited (legal) resources.

Therefore, we encourage the EU and its member states to do some regulatory housekeeping as a first element of its policy response. Regulatory housekeeping would entail focusing regulatory activities, on the one hand, on improving the interoperability, coherence and consistency of the existing European digital legal framework (e.g. see the call for cross-regulatory consistency of the European Data Protection Board). On the other hand, redundant, contradictory and overlapping rules should be eliminated (see e.g. here). In a previous blog, we already made a few suggestions regarding where to start (including more consistent definitions and general usability improvements to the legislation). When done thoroughly, we believe that regulatory housekeeping will result in a more comprehensible and practicable regulatory framework providing increased legal certainty that enables responsible innovation in turn. This work should be complemented by facilitating the effective enforcement of existing rules by reinforcing supervisory authorities and courts while also enabling access to justice by citizens. Finally, innovative regulatory mechanisms should be explored to provide stakeholders with additional flexibility to experiment with and test their compliance measures. All too often EU laws are characterized by a risk-averse approach. This can be addressed by adequately implementing novel mechanisms such as regulatory sandboxes which specifically allow new technologies to be tested within the EU for compliance purposes. Mention can also be made of methods that enable evidence-based legislation which benefits all affected stakeholders such as the policy prototyping exercises within the KCDS. 

Vice versa, we repeat our call to halt proposing and adopting even more, new laws and appointing even more authorities. The only certain result this will bring is increased regulatory complexity, not deterring maleficent actors or instigating responsible digital innovation. 

In summary, the US memorandum provides a good opportunity to reflect on the current state of the European digital regulatory framework at large. There is a lot of room for improvement, so policymakers should focus on refining and streamlining the digital legislation, ensuring that businesses and citizens can rely on a predictable and coherent legal framework. 

2).  DO – strengthen the internal market by harmonizing innovation policy to attract and retain business and talent

A qualitative, coherent and interoperable legal framework will, however, not bring us strategic European digital autonomy (i.e. decrease the reliance on the US technology companies that should/would benefit from this memorandum). In that regard, the EU and its member states must continue and intensify their efforts to facilitate responsible, home-grown digital businesses and assist them in attracting and retaining funding and skilled talent by further completing the digital single market. 

As highlighted in Draghi’s report, this requires an adaptive and forward-looking innovation policy, encompassing: 

• Addressing market fragmentation within the EU, particularly in financial markets and capital raising mechanisms, and intellectual property rights;
• Addressing regulatory barriers, like the EU’s traditionally risk-averse regulatory stance to allow for greater experimentation and innovation and reducing compliance costs;
• Substantially increasing investments in digital sectors, including research and development.

The EU has already taken steps in this direction, as evidenced by the Commission’s recently proposed Clean Industrial Deal, which, amongst others, seeks to reduce bureaucratic burdens and streamline regulations for businesses, and establish a Union of Skills that “invests in workers, develops skills and creates quality jobs”. This also ties in with the announcement of the Commission regarding a simpler and faster Europe, in which they envision more investments in administrative capacity, digital tools and data and a Data Union Strategy that aims to simplify sharing data. 

Moreover, the EU could harness its regulatory strength and turn it into a comparative advantage. After all, if the EU can offer a true single market supported by a harmonized regulatory framework on digital matters with minimal national differences, this will make its position more attractive and competitive. A well-structured innovation policy could position the EU as a viable alternative to the other markets for attracting and growing responsible digital and technology companies. Vice versa, it should avoid becoming a jurisdictional patchwork characterized by an increasing divergence of national laws (see e.g. the current status of privacy and AI-related laws in the US, or current national initiatives of some member states to gold plate the AI Act).

3). DO - enhance the EU’s global competitive position

Lastly, the EU’s global competitive position must be reinforced. Reference can be made to legislative instruments such as the Enforcement Regulation and the Anti-Coercion Instrument aim to fortify the EU’s position – not only against trade threats but also against direct challenges to its regulatory sovereignty, like the Memorandum at hand. However, these mechanisms can be criticized for the lack of flexibility and responsiveness. Given that the EU is not always perceived as the quickest to respond, this may well be a timely opportunity to reflect on how it can strengthen its strategic posture – becoming more competitive, more resilient, and more assertive where needed.

This – alongside a streamlined innovation policy that is integrated across the whole Union, and the needed regulatory housekeeping, leading to a greater presence of (European) businesses – can only serve to strengthen the EU’s competitive position. 

Closing remarks 

Combining innovation and competitiveness policy with incisive regulatory action in the form of regulatory housekeeping will help to create a fertile European environment for responsible digital and technology companies. European policymakers at all levels should prioritize supporting their local economies by refining existing legislation to improve clarity and interoperability, and enforcing digital legislation effectively. A potent distinctive feature of the European digital single market should be a stable, harmonized legislative framework. In the medium to long-term, we believe that a well-defined and enforced regulatory framework will bring competitive advantages, reduce uncertainty, enable responsible business practices and attract talent. The real challenge now lies in translating these intentions, that have already been repeated multiple times, into tangible actions. 

Image by Shealah Craighead via flickr