In policymaking circles, many of us have heard allies caution against giving up too easily, saying, “let’s not negotiate with ourselves.” Unfortunately, when it comes to advancing America’s own tech-driven industries, we find Members of Congress asking trade officials to do just that. In a letter last month, a group of legislators led by Sen. Elizabeth Warren sent a letter to the United States Trade Representative (USTR) and the Secretary of Commerce arguing that a trade framework should not include protections from foreign policies that discriminate against American companies. If USTR goes along with this advice, it would relinquish an important support for U.S. competitiveness on the global stage. Even worse, it would welcome the spread of harmful policies based on the Digital Markets Act (DMA), which as Senate Finance Committee leadership has pointed out, appears designed to disadvantage American industry.

American app companies often prefer distribution through online marketplaces like the major app stores because they are managed. In a permissive regulatory environment, American companies in tech-driven markets have been able to leverage online marketplaces to grow quickly and thrive. By contrast, in Europe, broad regulatory mandates and pervasive liability has helped create a culture of compliance rather than innovation. As a result, few tech-driven firms have reached the extraordinary stages of growth seen more commonly in the U.S. In general, small companies not only stay small, but they also have difficulty maturing and adapting, which should be their advantage over larger competitors. Comparing these two approaches, it is inevitable that governments cannot regulate their way to entrepreneurship or industry leadership on the global stage.

As we outlined back in March, the DMA’s approach could presumptively outlaw some of the most important aspects of online platform management. However, a corollary to DMA’s scope is that by deliberately undermining American online marketplaces, it necessarily elevates the distribution offerings of companies based in other countries, such as China. As we noted in Senate Judiciary Committee testimony way back in 2020, the digital distribution market is broader than just American marketplaces—it includes “the giant Chinese platforms.” In an effort to provide a leg up for European champions, European policymakers are undermining the very platforms that would provide a boost for entrepreneurs across the EU. On the other hand, American small businesses in the app economy have benefited greatly from light-touch regulations that allow them to compete on a level playing field against their multi-million (or billion) dollar competitors. Prioritizing DMA-like regulations in any trade framework would perpetuate the very regulations that would hamstring small businesses and give China a competitive advantage. Realistically, online platforms based in China are best positioned on the global stage to take the market share that American platforms would be forced to cede. This outcome would harm not just our national security interests but also, relatedly, competitive conditions for American app companies. For most of our members, the American distribution platforms provide superior services, and they would prefer to distribute through marketplaces based in the United States. The legal landscape currently allows these online marketplaces to provide better privacy, security, and quality guarantees that cultivate a trusted marketplace in which small app companies excel.

So, in the process of trying to combat Big Tech’s success, Sen. Warren’s efforts to spread DMA and shortchange American competitors’ ability to challenge discriminatory trade practices would have two negative consequences for American small businesses, if successful:

  • Diminishing their favored, American distribution options, while
  • Enhancing China’s prospects and influence in digital markets.

At its core, the Warren letter seeks mainly to prevent an awkward scenario where a bill like the American Innovation and Choice Online Act (AICOA) could run afoul of the negotiated trade framework, if enacted. The concern may be misplaced, though, since AICOA would mainly disadvantage American competitors while advantaging foreign adversaries.