ourEconomy: Opinion

Can Europe become a key player in the code war?

After years of watching the battle for digital competitiveness from the sidelines, European leaders are preparing to challenge the dominance of US and Chinese tech giants.

Rosie Collington
18 August 2020, 4.37pm
European Commission President Ursula von der Leyen unveils the European Commission’s ideas and actions for a digital transformation in Brussels, 19 February 19 2020.
Zheng Huansong/Xinhua News Agency/PA Images

Many followers of global trade politics anticipate that the ongoing US-China tensions will end in one of two ways: the death of the bull or the downfall of the matador. In other words: the end of dollar hegemony or the bursting of China’s debt bubble.

But as the bipolar technological trade war rages on amidst an unprecedented pandemic, a third actor stalks the arena. Europe has long teetered on the sidelines of digital competitiveness, but its actions in recent months suggest that it will not be a passive actor in the post-pandemic trade order.

If European Commission President Ursula von der Leyen’s recent decisions are anything to go by, the next decade of global politics could be shaped by proxy economic battles waged by the US, China and Europe for digital market access. A Republican victory in the autumn would only increase the likelihood of Europe joining the other two countries in implementing trade barriers at home, investing in data infrastructures abroad, and further disrupting the existing international trade order.

The EU strikes back

von der Leyen assumed her post as the new President of the European Commission in December, as the first reports of a strange, new respiratory illness began to surface in China’s Wuhan Province. Within weeks, she had unveiled plans for a digital industrial strategy to set Europe on a competitive footing with US and Chinese tech giants. Included in the announcements that followed were the White Book for Artificial Intelligence and the Data Strategy, which aimed “to find European solutions in the digital age” to power the region’s economy.

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The pandemic has proved amenable to Europe’s commercial digital interests. Already in March, von der Leyen issued new guidelines for Member States on foreign investment screening to “preserve EU companies and critical assets, notably in areas such as health, medical research, biotechnology and infrastructures that are essential for our security and public order”. This came as the public sectors of countries across the EU entered partnerships with predominantly US companies to develop COVID-19 track-and-trace technologies and other digital health applications. In April, the Commission adopted the “Common EU Toolbox for Member States on Mobile applications to support contact tracing in the EU’s fight against COVID-19”, subsequently questioning the consequences for “technological sovereignty” of apps dependent on Apple’s iOS and Google’s Android operating platforms.

In developing safeguards to protect public health and technological sovereignty, the EU is not subverting trade agreements to which it is a signatory; but these actions may nonetheless serve to constrain non-European companies’ involvement in the region.

The EU’s renewed commitment to its digital industries should not come as a surprise. The dominant members of Europe’s institutions have themselves implemented wide-ranging digital industrial and growth strategies in the decade since the financial crisis. As the banking sector meltdown mutated into the worst productivity crisis in recent memory, national governments of all ideological stripes turned to their nascent ‘Industry 4.0’ ecosystems for help. Germany’s digital industry initiatives are perhaps the best known, but a host of other export-dependent countries, including Ireland, have also initiated ambitious digital growth agendas in recent years. Denmark was quick to launch a succession of strategies fostering growth in fields including AI, drones, manufacturing, and welfare technologies. For the latter, enabling access to Denmark’s expansive public sector data has been viewed as an important condition for “public-private collaboration on market development so that a wider range of Danish health and care solutions can be exported”.

Three worlds of digital capitalism

Sanguine predictions for Europe’s post-pandemic economy are few and far between. There is no doubt that recovery will be tough. In light of this, we have to assume that the region’s governments will continue to look to digital industry initiatives as a means of bolstering exports and improving wider manufacturing processes through the introduction of digitally mediated processes. Seen in this way, then, von der Leyen’s measures since taking office are only a taste of things to come – though whether a ‘Europe first’ strategy has a chance of succeeding in a world where US military and financial power still reign supreme remains to be seen.

In any case, Europe’s tactics in the technological trade tensions are unlikely to resemble those wielded by President Trump. As the US continues to shirk the WTO, the EU will want to be seen to uphold international trade rules. Rather than all-out tariffs and sanctions, Europe’s institutions are more likely to opt for ‘murky protectionism’ – legal and policy instruments designed to circumvent multilateral trade disciplines through the protection of interests not directly related to trade, such as privacy and security. The pandemic has made it possible to frame digital infrastructures as a public health issue; countries with the most extensive public data surveillance emerged as early victors in the fight against COVID-19. If governments can assert public health security as a means of protecting national and regional digital industries, we should expect that they will.

A code war between China, the US and Europe would reshape national industries, as subsidies become entrenched and rehashed measures – such as support for Industrial Champions – are adopted. Europe in fact owes its eminence in digital technologies to governments’ investment in IT development and support for national IT champions, such as Britain’s International Computers Limited, throughout the twentieth century.

Industries, nonetheless, require markets. And while in Europe, the digital transformation of welfare states has provided ample opportunity for private companies, there is only so much that national markets can buy. In the post-WTO, post-pandemic, post-productivity era that beckons in the event of another Trump victory, it is not only the US, China and Europe that will be transformed through digital capitalism, but the states that choose or are forced to align with them.

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