The digitalization of the economy promises to bring significant benefits to consumers. In this regard, digital platforms play a pivotal role by acting as intermediaries between the various economic actors on either side, whether buyers or sellers. Yet, the intrinsic characteristics of the digital economy – notably, extreme economies of scale and scope – enable a few firms today to behave almost independently of their direct competitors. There is no need to enumerate the names of the US tech companies participating in this winner-takes-all competition. Once monopoly power is established, the limited contestability of markets, due to consumer lock-in, drastically reduces the chances for new entrants to displace the incumbent. Moreover, platforms have consistently implemented, over the last decade, practices aimed at entrenching their economic power by acquiring promising start-ups whose minimal turnover makes the deals fly under the radar of antitrust authorities responsible for preserving market competition.
One of the most pernicious effects of this market scenario is the dependence of both firms and consumers on these platforms, which facilitates the imposition of unfavorable trading conditions.
National governments have responded differently to this phenomenon, adopting a number of regulatory approaches that reflect cultural, economic, and political attitudes. The European Union (EU), the United States of America (USA), and China are currently driving this race in a scenario referred to by Professor Anu Bradford from Columbia University as a conflict among “Digital Empires”.
While regulatory interventions in the US remain limited, with a focus on antitrust enforcement rather than proactive regulation, the EU prioritizes individual rights, data protection, market contestability, and fairness. The General Data Protection Regulation (GDPR) and the Digital Markets Act (DMA) exemplify this approach. The latter is a regulatory instrument whose principles are built upon competition law, a branch of law is said to be too slow in adapting to the fast-paced digital economy. The DMA tries to fill this gap in new competition tools that combine antitrust law and regulation. It targets a small number of tech platforms tailoring a web of requirements on their business models, ultimately addressing the perceived lack of contestability of digital markets, and, on the other, fairness in negotiation vis-à-vis both smaller companies and consumers. Conversely, China is characterized by centralized enforcement, integration with broader policies, and dynamic adjustments. This Chinese governance model is increasingly influential, particularly among developing countries seeking to emulate its unique framework.
One of the most noteworthy aspects of digital economy regulation is its extraterritorial effects beyond the boundaries of the enacting government. This phenomenon occurs for two main reasons. First, because it can alter trade flows by functioning as ‘behind-the-border’ trade barriers (BTBs): national regulations, standards, and policies that, although not explicitly discriminatory, may impede trade by increasing the cost or complexity of market entry for foreign firms. These barriers differ from ‘at-the-border’ measures (e.g., tariffs or quotas), as they operate within a country’s internal regulatory framework. The former indirectly influences how goods and services are produced, certified, and distributed in domestic markets.
Although traditional trade barriers have been reaffirmed recently, they have declined consistently since the mid-20th century, having been supplemented by other forms of barriers, among which BTBs play a central role. Their rise is due to several drivers of international trade. First, the emergence of global value chains and the resulting fragmentation of production across borders allow regulation in each country to affect the cost structure of the entire international supply chain. Second, the shift toward service-oriented economies and the reliance on digital flows have made domestic rules on finance, data, privacy, and intellectual property pivotal to trade. Finally, increasing bottom-up demand for regulation, especially from wealthier and environmentally conscious societies, drives these trends.
Overall, BTBs are shaped by political influences, and their effects are contingent on the institutional frameworks in which they are embedded. While some political objectives reflect genuine concerns, such as environmental or consumer protection, at other times these tools hide purely rent-seeking or protectionist aims.
The so-called ‘Brussels Effect’ of EU regulation is a notable case study on the extraterritorial effects of regulation. This term refers to the EU’s capacity to unilaterally shape global regulations via its internal market standards (among the three Empires mentioned above, EU is characterized by, on the one hand, the absence of companies competing on a global scale comparable to the US ones but, on the other, a sophisticated approach to regulation ultimately reflecting its deep legal tradition). In brief, in order to understand the functioning of the Brussel Effect, one should focus on the EU single market’s attractiveness for companies due to the favorable ratio between territorial size and the density of wealthy consumers, making it an essential hub for global trade.
Yet, as said, EU regulation is stringent, and the supervisory activity of enforcement authorities is consistent in their supervision.
According to this hypothesis, globally operating companies have no economic or technical interest in maintaining lower standards than those required by European regulation, as this would entail adopting different (and costly) compliance models. This latter mechanism is known as “de facto” mechanism, whereby compliance with EU norms is an essential condition for access to its internal market. In this regard, companies have tended to align themselves with European regulations and, as a result, influence the lawmakers of their home countries (“de jure” Brussel Effect). A striking example is the General Data Protection Regulation (GDPR): Japan adopted privacy protection rules mirroring the EU’s framework, while the State of California has been strongly influenced by these principles, driven by the conduct of companies operating there in compliance with European rules.
That said, the extraterritorial effects of EU regulation are now said to be waning. Indeed, the last decade has been characterized by regulatory competition between US and Chinese models, particularly the latter among countries of the so-called Global South. Furthermore, the rapid pace of technological innovation, especially in areas such as artificial intelligence and digital services, poses difficulties for the EU’s static regulatory apparatus, which, being built on the civil law tradition, is less capable of adapting to market dynamics compared to its common law counterpart (an increasing tendency following Brexit). In brief, EU regulation appears ill-equipped to swiftly address emerging technologies, potentially reducing its relevance in fast-evolving sectors. Finally, the current internal turmoil facing the EU, coupled with relative economic stagnation and an aging population, is reflected in fatigue in maintaining its grip on global regulatory development.
In this evolving scenario of the EU external dimension, it is worth noting the connection between EU regulations and the retaliatory measures proposed by the US administration. The latter has indeed criticized the DMA, considering it a disproportionate burden on American national champions. In particular, the US administration has expressed concerns that the DMA could act as a BTB, potentially violating international trade commitments by discriminating against foreign companies. This raises concerns about the potential for retaliatory trade measures. Indeed, President Donald Trump often threatened to impose tariffs on countries that penalize American companies, and the current administration’s strong rhetoric suggests a willingness to implement such actions that could escalate into a broader trade conflict, affecting not only the digital sector but also other areas of transatlantic commerce.
Similar criticisms were raised by Federal Trade Commission Chair Andrew Ferguson, who stressed the DMA’s enforcement mechanisms based on fines up to 10% of the annual turnover resembled a form of taxation on American companies. In particular, he argued that such measures would disproportionately affect US tech firms and benefit their Chinese counterparts. The EU Commissioner for Competition claimed that the DMA’s agnostic attitude toward a company’s nationality clarifies that its real target is large platforms that undermine the competitive process of the EU’s internal market. However, the EU’s response misses the point: from a US perspective, whether the DMA targets large companies or specifically American ones is irrelevant, since most platforms under scrutiny are American. From the US perspective, the DMA is a behind-the-border barrier that risks undermining the competitive position of American companies in the global arena. Specifically, US concerns regarding the DMA center on its potential, whether intentional or inadvertent, to weaken US tech firms in global markets by imposing asymmetric compliance costs, undermining business models, curtailing innovation incentives, and overlooking the competitive nature of many Chinese competitors.
These concerns are based on the following observations. First, US tech firms operate globally and generate significant revenue in the EU, making them vulnerable regulatory targets, whereas Chinese firms often have limited exposure to the EU due to data sovereignty concerns, cultural barriers, and geopolitical frictions. Second, the DMA may undermine the integrated business models of US tech firms by targeting practices central to their success, notably self-preferencing, data aggregation across services, and tight control over app distribution to ensure security, brand consistency, and revenue capture. By restricting these strategies, the DMA may reduce the economic viability of vertically integrated platforms, whose global strength is built on scalability, user data integration, and cross-subsidization across services. In contrast, Tencent and Alibaba, while integrated, operate primarily within domestic markets or regions with fewer regulatory constraints, making them less vulnerable to the DMA’s compliance requirements.
