The European Union has long prided itself on the “Brussels Effect,” its ability to leverage its large market and strong tech rules to set global standards. But the need to boost innovation and a “Washington Pull” are encouraging Europe to align with the US’s more permissive approach to tech governance.
The European Commission’s long-awaited Digital Omnibus proposes to pause implementation of the AI Act and to revise some of the data protection and privacy rules underpinning the EU’s approach to tech governance. US Commerce Secretary Howard Lutnick was not impressed. He told European officials that this backtracking did not go far enough and that any relief on American steel and aluminum tariffs would be contingent on additional digital reforms.
One way or another, the EU appears to be moving closer to the US’s regulatory orbit.
The Digital Omnibus, unveiled a year after former Italian Prime Minister and European Central Bank Chief Mario Draghi issued a stark warning about European competitiveness, represents a significant course correction.
Consider the AI Act. The Omnibus will delay enforcement of some of the toughest requirements. While the EU isn’t abandoning the legislation, the changes will give companies more time to work out how to comply. The Commission also proposed scrapping a registration requirement for mundane AI applications, leaving companies free to self-declare their AI systems as “low risk” without external oversight.
The Omnibus also retools the EU’s GDPR data protection law. It calls for streamlining the much-hated rules about disclosing the use of internet “cookies,” which have gummed up the web with annoying pop-ups. Controversially, it would allow AI developers to invoke “legitimate interest” as a legal basis for processing personal data, prizing open a trove of EU citizen data for US tech giants and frontier AI labs.
The European Parliament and national governments still must approve the Digital Omnibus — and not everyone is on board. Max Schrems, an Austrian privacy activist whose legal cases have repeatedly challenged transfers of EU citizens’ personal data to the US, called the proposals the “biggest attack on [Europeans’] digital rights in years.” Negotiations on the package between the Commission, European Parliament, and member states will be contentious.
Yet US pressure threatens to push Brussels to make even stronger changes. The Omnibus did not touch the Digital Markets Act (DMA) or the Digital Services Act (DSA), two major pieces of EU legislation that have drawn fire from powerful companies in Silicon Valley. The day prior to the Omnibus’s release, the Commission’s Executive Vice President Henna Virkkunen launched three market investigations under the DMA focused on cloud services.
The Trump administration has long been critical of the DSA, DMA, and digital taxes. It views these as protectionist policies that discriminate against American tech firms. Secretary of State Marco Rubio directed US diplomats to lobby against the EU’s digital rules, and Washington has reportedly weighed sanctions against European officials who helped draft them.
US pressure has now shifted from rhetoric to explicit economic and trade threats. Commerce Secretary Lutnick has turned warnings into concrete demands, telling European counterparts that any deal to reduce tariffs on EU steel and aluminum would depend on the EU scaling back the DSA and DMA.
The EU’s response to US pressure will show whether the Brussels Effect is bending due to internal pressures or giving way more fully to a Washington Pull.
Over the past decade, it has proven easier for European politicians to expand their digital rulebook than to tackle other challenges important for fostering a globally competitive tech sector, like fiscal union, forging a single market for digital services, or improving European startups’ and scale-ups’ access to risk capital. That has left Europe’s tech sector struggling to match US and Chinese tech giants.
Europe is increasingly reacting to changes in technology instead of shaping them. Plans for €20 billion of investment into a series of new European AI factories over five years are a case in point. While the investments are ambitious in the European context, they represent less than a tenth of what the three biggest US cloud providers plan to invest in new digital infrastructure in 2025 alone.
Europe still has levers to pull. The bloc’s new anti-coercion instrument — developed partly as a response to the first Trump administration’s tough economic and trade diplomacy — gives Brussels broad powers to impose countermeasures on countries that violate EU sovereignty.
Europe continues to be an important end-market for US tech companies, which are already facing tough questions about whether the US is a reliable economic and security partner. As much as they dislike Europe’s digital rules, US companies may not relish being dragged into the middle of a sharp transatlantic dispute.
The continent has long had to balance competing interests, between competitiveness and control, between national sovereignty and Brussels authority, and between protecting citizens and empowering industry. This balance is now shifting. Intensifying competition from the US and China is driving Europe to make concessions it once resisted.
Kevin Allison is a non-resident Senior Fellow with the Technology Policy Program at the Center for European Policy Analysis (CEPA). He is the Founder and President of Minerva Technology Futures, a geopolitical intelligence and policy advisory firm specializing in artificial intelligence and its associated technology stack.
Venesa Rugova is a Senior Analyst at Minerva Technology Futures, where she specializes in artificial intelligence and cybersecurity policy.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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