American policymakers are grappling with substantial political pressure to “rein in” some of our most successful online marketplaces. The smartphone-driven entry of social media platforms like Facebook, curated online retail marketplaces like Amazon’s, software platforms like the major app stores, and search platforms like Google’s has brought with it a formidable expansion of choices and value for individual consumers and small businesses.
Unsurprisingly, the rapid growth of these marketplaces and platforms also led to increased scrutiny of competition and consumer welfare in the markets in which they compete. Substantial resources were put into an effort to have government reshape the platforms to fit certain business users’ needs, but for a number of reasons, the crest of that wave has crashed. Even so, as momentum behind the “reining in” efforts in Congress continues to founder, their proponents are now appealing to lawmakers to match the deep, sweeping government interventions in platform-driven markets taking place in other parts of the world. If it works for Europe, it should work for us, they say. And if platforms can handle those interventions in Europe, they can handle them in the United States.
But the evidence suggests that we should shore up our comparative advantage in innovation instead of trading it away for major interventions that other governments have deemed necessary for their own reasons, including to weaken American industry. It is unlikely that platform offerings are going to be as good or beneficial for business users in Europe, depending on how regulators implement the Digital Markets Act (DMA), for example. The smallest app companies are not asking for a dismantling of integrated services bundled with distribution of apps and would be disappointed at having to pay more to find them elsewhere if DMA disallows them. Fortunately, congressional leadership is questioning the scope as well as the unintended consequences of proposals like DMA. Senate Finance Committee Chairman Wyden and Ranking Member Crapo wrote in February 2022, that the lead DMA negotiators’ comments, “reflect[ing] no rationale for the scope of the law beyond nationality, are alarming.” The Senators went on to express a related concern that DMA could create an “unfair competitive advantage to . . . China and Russia, which do not reflect shared U.S.-EU values of democracy, human rights, and market-based principles.”
In comparison with other nations, like China, the United States’ secret sauce is in its regulatory humility. We have managed to cultivate online marketplaces’ success without major domestic industry subsidies or regulatory advantages versus foreign competitors. Instead, the law has enabled these markets to evolve and flourish with maximum flexibility to meet demand. Viewed in this light, proposals like the DMA—which could seriously limit certain platforms’ conduct, including activities considered pro-competitive under American antitrust standards—appear to be an odd fit for the United States. In other words, just because European citizens want their government to manage online marketplaces does not mean it’s a good fit in the United States.
Congress and the Biden Administration must also consider how these efforts might disadvantage our domestic interests. Depending on how their respective governments implement them, these online marketplace regimes could raise trade barrier concerns. DMA could impose must-carry requirements on the major app stores that give cyber thieves and other bad actors a guaranteed spot in the stores alongside legitimate developers. Retail platforms could also have much greater restrictions in place limiting their ability to police for intellectual property theft and counterfeit items that can endanger safety and even lives. Meanwhile, all of the efforts to better protect children online that Congress seeks to develop would be thwarted by requirements for platforms to provide personal information and carte blanche access to consumer devices to any business user, including those backed by Russia or China. The bottom line is that foreign proposals to regulate (mostly American) online marketplaces have significant implications for American industry, including their direct impacts on domestic businesses, as well as indirect effects related to privacy and security. We are hopeful that the Biden Administration and Congress can continue to spotlight these issues from a trade lens and can recognize where overseas proposals are not the right path for American policymakers.