By Morten Skroejer

Last year, the European Commission (EC) began enforcing the Digital Markets Act (DMA), the European Union’s (EU) new digital competition law regime. While the DMA was intended to increase competition, in practice, the DMA imposes heavy-handed regulations on a handful of so-called “gatekeepers” – which are primarily American tech companies – and has done little to help consumers and businesses, two groups the law was ostensibly enacted to benefit.

Small- and medium-sized businesses in Europe have felt the sting of the DMA’s implementation. For example, associations representing the airline, hospitality, and retail sectors in Europe have warned that the new regulations restricting Google’s advertising practices favor large, dominant companies over their smaller competitors. Already, direct web traffic and clicks for European hotel websites have dropped by 30%, and EU-based airlines have expressed concern that these regulatory constraints limit their ability to compete with bigger industry players. Small businesses and startups have also warned that Europe’s heavy-handed regulatory environment has made it more difficult to make the necessary investments to drive innovation, which, in turn, has chilled research and development in the EU.

Additionally, the DMA has significantly limited the products businesses regulated by the DMA can provide to consumers. Cybersecurity experts have raised concerns about how the DMA’s interoperability mandates – which require companies to give third parties sweeping access to sensitive data and information –  could heighten the risks posed by cyber threats. Several U.S.-based companies have delayed the release of new artificial intelligence services because these interoperability mandates pose a risk to user privacy and data security. Existing products have also been affected by the DMA. Because of rules that dictate how businesses can present their products, some digital services have been degraded in European markets to comply with the DMA, and European users have voiced frustrations over the negative impact on search engines and navigation services.

Despite the well-documented harmful effects of the DMA in Europe, some policymakers in the United States have advocated for similar EU-style regulations. If enacted, these policies could replicate the unintended consequences of the DMA: weakened competition, innovation, and economic growth in the U.S. The Trump administration, however, has correctly identified the threats of heavy-handed foreign regulations. Recently, President Trump issued a memo outlining the harms of foreign policies “that could inhibit the growth or intended operation of United States companies.” The memo sends an important signal against onshoring policies modeled after the DMA.

The White House is correct to take heed of the lessons learned in Europe by overregulation. Ultimately, they should continue to pursue policies that encourage, rather than stifle, innovation, economic growth, and consumer welfare.