Trump Tariffs Mark US-EU ‘Sea Change’: Wheeler

Key Concepts:

• Tariffs on digital services and data flows
• Shifting tariff focus from protecting production to protecting big tech profits
• Data flows in and out of the EU (financial transactions, access to American databases)
• Cloud services market dominance by the US
• Potential for retaliation and bifurcation with Europe
• European tech independence
• Changing nature of security (software vs. hardware)

1. Shifting Tariff Focus: Protecting Profits vs. Production

• Traditionally, tariffs were imposed to protect domestic production.
• On February 21st, the US President instructed tariff enforcers to explore protecting big tech profits.
• This shift from protecting production to protecting profits is a "sea change."
• This change could lead to a new era of trade relations and potential retaliation from the EU.

2. Tariffs on Data Flows: The Challenge

• There's a significant difference between tariffing physical goods (cars, champagne) and digital services (zeros and ones).
• The challenge lies in how to tariff data flows, especially when digital services are going out of the country (into Europe) where they are being regulated.
• Targeting European companies like Booking.com is only a small part of the issue.
• The discussion moves to where data flows in and out of the EU.
• Examples of potential tariff targets: financial transactions, access to information in American databases, cloud services.

3. Data Flows and Potential Tariff Targets

• Financial transactions are a significant area of data flow.
• Access to information in American databases could be subject to tariffs.
• The United States dominates the cloud services market.
• The question arises: should there be a tariff when accessing a cloud service provided by an American company?
• The move from tariffing "hard goods" to "soft goods" is described as "revolutionary."

4. Potential Consequences: Bifurcation and European Tech Independence

• The desire to retaliate and protect profits could backfire, leading to a more bifurcated relationship with Europe.
• The actions of the US could inadvertently "make European tech great again" by creating reasons for Europe to sever relationships with American tech companies.
• The underlying theme of the US-Europe relationship has been security.
• European countries recognize the need to step up their own security.

5. The Changing Nature of Security: Software vs. Hardware

• Security is no longer solely about hardware (e.g., switching from making cars to making tanks).
• The conflict in Ukraine demonstrates the importance of inexpensive, software-based systems like drones.
• The battlefield has changed: software now instructs hardware, rather than merely supporting it.
• As Europe increases its defense capabilities, it cannot ignore the importance of software.
• The question arises: can Europe rely on United States software service providers?

6. Notable Quotes

• "The move from protecting production to protecting profits...is a sea change."
• "Will Donald Trump make European tech great again because of the fact that he is creating reasons to sever relationships with American tech companies?"

7. Conclusion

The potential shift in US tariff policy towards protecting big tech profits, particularly through tariffs on data flows, presents significant challenges and potential consequences. This could lead to a trade war with the EU, encourage European tech independence, and force a re-evaluation of the US-Europe relationship, especially in the context of evolving security needs where software plays an increasingly critical role. The long-term effects are uncertain, but the initial steps could trigger a series of retaliatory measures and a fundamental reshaping of the global tech landscape.