European Tech Regulation Threatens US Security

Last week, the European Parliament overwhelmingly endorsed legislation that would impose sweeping restrictions on the use of artificial intelligence.

The same day, European Union regulators joined US regulators in proposing a partial breakup of Google
GOOG
to limit the company’s dominance of the digital advertising business.

In both cases, the actions by European Union bodies were aimed at curbing risks that for the most part have not yet arisen. In Google’s case, for instance, European competition chief Margrethe Vestager asserted that the company’s current advertising practices could “possibly harm” competitors.

That kind of thinking is similar to the Federal Trade Commission’s arguments for intervening in a number of proposed tech transactions. However, US courts generally have ruled that blocking behavior on the basis of speculation about what might happen someday is bureaucratic overreach.

Time will tell whether the European Union’s other bodies develop doubts about the parliament’s proposed restrictions on artificial intelligence. To date, the dangers caused by AI are largely imaginary.

However, the damage caused by such regulatory impositions is already apparent. Google, a contributor to my think tank, has delayed release of its Bard chatbot in Europe because of regulator concerns about privacy. OpenAI, developer of the rival ChatGPT, says it may have to exit the European market entirely.

These are just the latest developments in an emerging pattern of European restrictions on US technology companies that raise profound concerns for national security.

The common refrain in mainstream media about EU regulation of tech is that the Europeans are way ahead of America in curbing the excesses of companies like Microsoft
MSFT
.

However, there are other considerations at work here that tend to get short shrift in the journalistic coverage.

First, the companies being targeted are almost entirely US-based, reflecting the fact that America has pulled ahead of other countries in mining the potential of the information revolution.

The Boston Consulting Group, for instance, identifies the world’s top innovators as (1) Apple
AAPL
, (2) Google parent Alphabet, (3) Amazon
AMZN
and (4) Microsoft. Most of the remaining companies on BCG’s top-20 list are also American—mainly tech companies like IBM
IBM
, Oracle
ORCL
, Cisco and Meta Platforms.

Second, many of these companies are focused on dual-use technologies that the Department of Defense has identified as critical to national security. The Pentagon’s most recent list of such technologies includes artificial intelligence, autonomy, wireless communications, networking, microelectronics, advanced computing and software, among others.

Although Europe is trailing the United States in pursuing these technologies, China is straining to match and surpass the US in areas like AI and microelectronics. The current national defense strategy identifies China as the greatest future threat to American security, due in part to its technological prowess.

Third, European efforts to curb American enterprise are nothing new. They date back at least as far as the 1960s, when Jean-Jacques Servan-Schreiber authored an influential treatise called “The American Challenge.” The thesis of the widely read tome was that Europe and America were engaged in an economic competition, and America was winning.

It is no coincidence that three years after “The American Challenge” appeared, European governments began subsidizing a rival to US makers of jetliners—a practice that continues to this day. Airbus eventually became the largest producer of commercial transports, an outcome the World Trade Organization found was traceable to market-distorting subsidies.

The recent antitrust and other regulatory actions of the EU thus need to be viewed in their proper historical and geopolitical context, rather than treated as discrete cases about specific types of technology. Legislators in Brussels no doubt have real concerns about the dangers of AI, but it is a lot easier to codify such concerns when there are few local champions whose interests might be harmed by new laws.

European policymakers should be paying more attention to what it might mean for their own security if China becomes the dominant player in AI. The technology is readily applicable to a variety of military uses, from training pilots to developing biological weapons to operating autonomous vehicles.

Even regulatory actions seemingly unconnected to defense can do damage to the overall security of the US. For example, Google has engineered an array of breakthroughs during its brief history, from Gmail (2004) to Google Maps (2005) to the Android operating system (2007) to the Chrome browser (2008). The British publication Nature ranks it among the top five generators of scientific papers in the life sciences, and its work on proteins is nothing short of revolutionary.

However, much of Google’s income is derived from digital advertising, so when regulators move to restrict that business on the basis of hypothetical problems, they potentially impair one of the world’s most innovative enterprises. Unfortunately, nobody pays regulators to look at the big picture.

That explains why the EU wanted to fine Qualcomm
QCOM
over a billion dollars for licensing its proprietary chips exclusively for use in Apple products—a fine that was subsequently overturned on appeal.

It also explains why US and European regulators worked in tandem to block Nvidia’s acquisition of British chip designer ARM—a deal that China complained would put it at a disadvantage in microelectronics. And why Commissioner Vestager sought to block Illumina’s
ILMN
acquisition of genetic tester Grail, even though Illumina had started Grail in the first place.

All of these moves were detrimental to US interests, and in particular US efforts to remain the leading player in the information revolution. That revolution is transforming global commerce and culture. If America does not lead, China will.

Few people argue that the EU should think like NATO. But a little more attention to security concerns would be a useful corrective for Europe’s regulatory excesses.

Several companies engaged in information-technology innovation contribute to my think tank.