Why the EU’s International Digital Strategy Should Prioritize Repairing Transatlantic Cooperation

The European Commission recently unveiled its official vision for an International Digital Strategy (IDS), a “plan to strengthen [the EU’s] leadership in global digital affairs, while reinforcing its digital partnerships.” But a clear-eyed reading of the plan reveals that the Commission is far less interested in strengthening the EU’s digital partnership with the United States than in positioning the EU as a third pole in the global balance of power alongside China. This is a grave strategic miscalculation. Strengthening the transatlantic alliance is the only realistic way to forestall China’s global technology dominance.

Threaded throughout the IDS is the theme of digital sovereignty—Europe’s ambition to exert greater ownership and control over digital infrastructure, data, and standards. It appears in the plan’s opening paragraph, which warns there will be consequences for countries that fail to master the digital and AI revolutions. The theme resurfaces in a section describing “digital as a core element of the EU’s external action,” where the EU pledges to “provide integrated technology solutions to partner countries seeking to uphold their digital sovereignty.” Most revealing is the section on “covering global digital governance,” where the EU commits to leveraging the international standard-setting system to “strengthen the competitiveness of [the EU’s] industry, foster digital and tech sovereignty, and protect and promote its fundamental values and interests.”

But Europe’s quest for digital sovereignty faces a glaring problem: The EU remains underfunded, fragmented, and overregulated in the very sectors where China is accelerating, such as AI, quantum computing, semiconductors, and 5G. To compete with China, the EU must deepen collaboration with the United States. Yet the Commission’s strategy instead seeks to globalize a regulatory-first model without a corresponding industrial strategy, ultimately sabotaging its own ambitions.

Europe’s pursuit of regulatory leadership without industrial strength will come at increasing economic cost. European productivity, capital markets, and innovation ecosystems still lag far behind those of the United States. As both Enrico Letta’s 2024 report and Mario Draghi’s subsequent diagnosis confirm, the EU missed the digital revolution, and the continent risks prolonged economic decline without decisive policy change. Europe struggles to catch up with its widening productivity gap with the United States, remaining stuck in a vicious cycle characterized by limited capital, a shortage of digitally skilled workers, and lower value creation. Unless it narrows the gap with the United States and China, Europe will continue to be a peripheral player in global tech. Exporting its regulatory-first model will not compensate for its shortfalls in innovation and production.

Tensions in transatlantic relations have grown in recent years, particularly over digital market regulation and the role of large technology firms. The IDS could have been a moment to rebuild alignment with the United States. Instead, it risks deepening the divide. The Commission has prioritized digital partnerships with Japan, Canada, India, and South Korea—countries moving to adopt key elements of the EU’s regulatory approach, including the Digital Markets Act (DMA), the Digital Services Act (DSA), and the General Data Protection Regulation (GDPR). This undermines alignment with the United States and adds to existing geopolitical and economic tensions.

The regulatory rift exacerbates long-standing trade concerns. The United States maintains a significant trade deficit with the EU, and European non-tariff barriers remain a major point of contention. President Trump’s repeated tariff threats, despite NATO’s collective defense commitments, reflect rising American frustration. Yet the Commission’s IDS doubles down on a sentiment voiced by French President Emmanuel Macron, who recently called on the EU to “de-risk” not only from China, but also from the United States.

Unfortunately, while the EU postures as a regulatory superpower, China is amassing real industrial strength. Policies like Made in China 2025 and Dual Circulation are helping China secure leadership in AI, electric vehicles (EVs), and telecommunications. Though initiatives like the EU Chips Act, Horizon Europe, and the Global Gateway are promising, they remain fragmented and underfunded. Since the 1980s, Europe’s share of global GDP has been cut in half, while China’s has nearly doubled—from around 10 percent to almost 20 percent of the world economy. Chinese firms such as BYD, NIO, Xiaomi, and Huawei now outcompete European companies on both price and innovation in critical sectors such as EVs and telecommunications. Even if protective tariffs and defensive measures, such as restricting Huawei, provide a temporary shield for Europe, Chinese influence continues to seep in through supply chains and battery technologies. Yet the IDS fails to confront these structural vulnerabilities.

Its most glaring omission, however, is its limited commitment to transatlantic cooperation, the one factor most critical to Europe’s long-term digital growth. Rather than leveraging its strongest ally, the EU confines U.S. collaboration to narrow areas like cybersecurity and semiconductors, despite lacking the capital depth to meet its own strategic needs. Consider this: In 2022, U.S. foreign direct investment (FDI) in the EU totaled €435 billion ($512 billion), accounting for 13.4 percent of all EU-bound FDI when measured by the country of the ultimate parent company. Amazon alone has invested over €225 billion ($265 billion) in the EU since 2010, spending nearly $5 billion more on R&D than France, the continent’s second-largest economy.

These figures speak for themselves: Europe’s competitiveness depends not only on ambition, but on access to capital, innovation, and strategic alliances. And those alliances must begin with the United States. As ITIF has emphasized, “deeply aligning with the United States is the only course that will be effective in countering China.” Atlanticism remains the most effective bulwark against China’s techno-economic expansion. This year’s NATO summit and António Costa’s call to rebalance trade through defense investments show that Europe still understands the value of strategic alliances. That logic must now extend to technology and industrial policy.

The IDS should be reimagined—not as a declaration of digital independence, but as a rallying cry for transatlantic cooperation. Only through a robust U.S.-EU technology alliance can Europe secure its competitiveness, resilience, and democratic values in the face of China’s growing influence.