Overview
EU enforcement of new tech rules like the Digital Markets Act and the Digital Services Act, which the US views as discriminatory, looms over the Turnberry trade truce. Meanwhile, an upcoming “tech sovereignty” package will extend “Buy European” rules to privilege EU tech players, which could rapidly escalate the tech fight in the coming years. Growing transatlantic distrust has pushed the EU to derisk its tech stack from US hardware and software. The EU views regulation as its prerogative to protect consumers and preserve leverage if trade negotiations fail. If the US and EU continue an indirect tech fight, American tech firms face downside risks in a shrinking EU market and higher compliance costs, while the EU could lose tech productivity.
The EU’s Digital Sovereignty Looms Over Transatlantic Trade
US irritation over EU tech policy has long centered on Brussels’ stricter ex ante regulatory philosophy, which seeks to prevent instead of respond to consumer harm or market distortions. Brussels views its legislative prerogative to protect EU citizens’ digital rights as an extension of “digital sovereignty.” However, the EU’s market size of 450 million consumers creates extraterritorial leverage, compelling Big Tech firms to align their global digital governance practices to EU standards, often to Washington’s chagrin. The US has leverage of its own, though: Commerce Secretary Howard Lutnick hinted that lowering 50% steel and aluminum tariffs will depend on the EU relaxing its digital regulations, which the EU views as a violation of the July 2025 Turnberry trade truce.
The US is most concerned about the EU’s antitrust measure, the Digital Markets Act (DMA), and its online platform governance measure, the Digital Services Act (DSA). Both the DMA and DSA, which entered effect in 2024, seek to steer design decisions of Big Tech firms. In 2025, the DMA resulted in €3.65 billion in fines across three “core platform service” providers (i.e., firms with brokering power in the digital sphere). Those fines responded to issues ranging from app stores requiring fees from third-party developers, to search engine providers self-preferencing their vertical digital services. The DSA has resulted in penalties on two large online platforms for not adequately protecting the transparency of public data.
Washington has long complained that Brussels’ extraterritorial “lawfare” is discriminatory. Digital sovereignty has a cost: American tech firms spend up to a collective $50 billion annually to comply with the DMA and DSA, assuming they allocate an estimated 2% of their global revenue. The Trump administration signed an executive order in February 2025 instructing the US Trade Representative (USTR) to scrutinize the DMA and DSA alongside EU-origin digital service taxes, which are subject to their own ongoing Section 301 investigations. If that investigation concludes that the EU has engaged in discriminatory action, USTR will be granted a broad remit to engage in what it views as proportional trade restrictions against the EU.
This context has contributed to the Turnberry truce’s fragility. US Ambassador to the EU Andrew Puzder urged EU policymakers in March to reopen channels to discuss nontariff barriers—in other words, the DMA and DSA—just before the European Parliament attached conditions to the deal, which have since been moderated (a sunset in December 2029 and a suspension if the US does not implement terms by the end of 2026). The deal is set for provisional implementation, but it is unclear if the EU is willing to answer Puzder’s call.
The EU has previously hinted that its digital sovereignty is not up for negotiation. From their perspective, initiatives like the DMA are not only mechanisms to protect European consumers, but also tools to prevent a US chokehold over Europe’s digital sphere. If Turnberry does not hold, the EU could deploy countermeasures on tech, where the US holds an annual $30 billion surplus. On top of ratcheting up investigations through the DMA and DSA, the EU could weaponize its own digital comparative advantages through the untested Anti-Coercion Instrument. This could include stopping the flow of ASML’s advanced lithography equipment necessary for the manufacture of advanced semiconductors, or withholding Nokia’s open radio access network technology crucial for 5G telecom hardware.
The Tech Sovereignty Package: “Buy European” Will Magnify Digital Disputes
Beyond digital sovereignty, the European Commission’s tech agenda is looking ahead to industrial policies intended to carve out sovereign segments across the technological stack. This is not necessarily meant to make the EU “competitive” or “autonomous” in every technological sector. For example, there is no European semiconductor champion capable of manufacturing advanced AI-enabling chips comparable to Nvidia. Rather, the EU envisions its tech sovereignty push as creating redundancy, thereby improving economic security, maintaining know-how in specific industries, and creating market leverage in some value chains. However, this industrial policy comes in a period of sharpened transatlantic distrust. Fears of a US “kill switch” have magnified among European publics after the US threatened new tariffs in its attempt to annex Greenland. US sanctions against officials it disagrees with, such as Thierry Breton (the architect of the DMA and DSA), have reinforced the prospect that the US has the appetite for a tech fight.
The EU is set to unveil its “Tech Sovereignty package” on May 27, although it has been delayed before. The first key piece of legislation is the Cloud and AI Development Act, which seeks to triple “sovereign” EU cloud computing capacity within seven years. To do so, the legislation may introduce “Buy European cloud” rules for the public sector, streamline permits for data center construction, allocate increased R&D funding for energy-efficient data processing, and crowd-in private finance in data centers through investment from the envisioned €234 billion European Competitiveness Fund in the EU’s next budget for 2028-2034. The second key piece of legislation is a follow-up addition to the 2023 EU Chips Act, specifically granting the European Commission a direct investment authority to scale certain fabs. This expands beyond the original legislation’s remit, which focused on coordinating national-level R&D in pilot production lines of various cutting-edge semiconductors. The Tech Sovereignty package seeks to carve out a stronger segment in both the cloud and chip value chains. Currently, just three US-based hyperscalers control over 70% of the EU’s cloud market, and barring policy changes, the EU is slated to control only 11.7% of the global semiconductor value chain by 2030.
The EU’s Tech Sovereignty package is still subject to procedural scrutiny, but national-level actions reflect sufficient political momentum to finalize the bloc’s new tech sovereignty approach. Germany and the Netherlands—two frugals historically opposed to EU-wide protectionism and industrial policy—have led efforts to transition enterprise software to open-source European alternatives. In May, Germany’s federal domestic intelligence agency chose to procure services from ArgonOS, a European alternative to Palantir that sifts through unstructured data. At the regional level, the northern federal state of Schleswig-Holstein has mandated the public sector to phase in alternatives to services like operating systems, telephone infrastructure, cloud, and email. Amsterdam is pursuing something similar after the US sanctioned the Hague-based International Criminal Court, forcing it to abandon American digital services.
Beyond the Tech Sovereignty package, the EU is on track to approve its flagship industrial policy, the Industrial Accelerator Act (IAA), in 2027. The IAA aims to increase the EU’s share of industrial manufacturing as a share of the EU’s GDP from 14.3% in 2024 to 20% by 2035, primarily via “Made in EU” public procurement, streamlined permitting for manufacturing zones, and FDI conditions that require joint ventures with EU-based firms. The legislation focuses on carbon-intensive industrial goods and clean technology, like electric vehicles, steel, solar panels, batteries, and critical mineral processing. Nonetheless, the IAA’s focus on scaling a sovereign segment of clean tech production could decrease the EU’s high energy costs in the long-term, a structural inhibitor on Europe’s industrial base. While the IAA remains in the works, the European Commission has effectively begun a pilot to a “Made in Europe” approach through an early May decision that cuts EU funds for future solar and battery projects if inverter inputs are sourced from “high-risk” designated countries, including China. EU funding supported 20% of solar deployments in 2025, so the decision could have a material market impact.
The Transatlantic Tech Fight Risks Boiling Over
The EU’s “digital sovereignty” threatens to derail the fragile Turnberry trade truce, and “Buy European” provisions, seeking to create a redundant “EuroStack,” could dial up simmering tech tensions to a boil. Three broad types of reactions are feasible.
In the first and most likely scenario, both sides could continue their current approach, engaging in an indirect fight. This approach presents moderate downside risks to both sides. As the US lobbies ideological allies in Europe on the basis of opposing the EU’s tech policy—including right-wing think tanks and “patriotic” parties—then perceptions of a direct US-EU competition will increase, emboldening the EU’s rush to derisk from the American software and hardware stack. This could lead to lost business and higher compliance costs for American tech firms. Moreover, if EU governments seek to build new open-source alternatives to American software, then EU consumers will be exposed to lost efficiency and higher cybersecurity vulnerabilities, at least in the short-term. In a second scenario, the US and EU engage in a direct tech fight, climbing the escalation ladder. This would expose businesses to the same downside risks at an amplified scale: the US and EU would retaliate tit-for-tat, and the EU could classify the US as a “high-risk” country not eligible for FDI in strategic industries. Nonetheless, there is likely a ceiling to escalation, as the EU is still dependent on the US in many tech areas, such as cloud computing and the AI stack.
Finally, there is a scenario of selective sectoral cooperation. The US and EU could disarm an escalation ladder—and Europe’s de-risking of American tech—by advancing economic security in like-minded areas. The US and EU struck a critical minerals trade agreement in April, and the Trump administration is reexploring channels to coordinate AI safety, including new model vetting, after Anthropic’s release of Mythos Preview. If the US and EU create sectoral security agreements, US companies could qualify for some “Made in Europe” procurement rules, creating upside risks for US-EU joint ventures, similar to US-EU defense manufacturing partnerships.
