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July 20, 2018

EU Protectionism: Five Billion Reasons to Worry

The $5 billion fine against Google is exactly why Trump says relations are unfair.

President Donald Trump has a lot of people worried about a trade war — not without reason — but those who are concerned are generally blaming the wrong side for starting it.

While free trade is an admirable and desirable goal, the reality has been that, over the last few decades, some nations worry more about the status of their favored industries than the idea that their consumers may benefit from trading with nations where certain goods can be grown, extracted, or created more cheaply and efficiently.

In the case of the European Union, its citizens have tied themselves to Google’s mobile device Android program in such a way that they can’t live without it. According to The Washington Post, “Margrethe Vestager, the European Union’s competition chief … faulted Google for using Android as a means to solidify its strong foothold in search, while making it harder for rivals to offer competing apps and services.”

For this transgression, the EU fined Google a whopping $5 billion, with the threat of more to come if the company doesn’t cooperate in the coming weeks. Now, we’re no fans of Google’s leftist brand of “tolerance,” but this is an overreach. Not surprisingly, Google plans to appeal.

But while this one American company has all but monopolized Internet search and advertising, its rivals weren’t so fortunate five years ago. In 2013, the Federal Trade Commission opted not to penalize Google despite an internal report that alleged its actions “helped it to maintain, preserve and enhance Google’s monopoly position in the markets for search and search advertising.”

Even in a similar Android case, though, the FTC was forced to admit that Google’s “strong procompetitive justifications” were enough to preclude intervention. While Google has an outsized market share, it was determined that American consumers were still benefiting. Not so in Europe, according to the EU.

When pressed on the reason for the massive fine, Vestager admitted, “I very much like the U.S. [but] we have to protect consumers and competition. … This is what we do. It has been done before, we will continue to do it, no matter the political context.” EU trade representative Cecilia Malmström added, “We are not prepared to walk away from what we built together, to let the global order fade away like an old memory.” Particularly when the “global order” worked in their favor.

Yet the political context of which Vestager speaks is unlike that seen for decades. Making the case that the U.S. has been a punching bag for nations that demand our markets be open to their goods but shelter their consumers from U.S. exports with protective tariffs, President Trump has enacted tariffs of his own over the last several months, with the intention of backing down when the other side does.

Free traders are understandably squeamish about this development, but Trump has good reasons. In this case it’s easy to see that Europe is simply punishing Google for being successful while the Europeans lag behind in the tech industry. Conversely, the EU’s new GDPR data-privacy initiative has cost American companies $8 billion and counting as they scramble to comply rather than lose access to the EU market. Its merits don’t change the fact that it’s a regulation that acts as much as a barrier that a tariff does.

So while President Trump probably wasn’t all that happy with having another “told you so” moment, the episode was instructive in allowing the American people a glimpse behind the curtain of negotiation and diplomacy that accompanies the high-stakes poker game of balancing economic interactions and interests. The president’s addition of tariffs on steel, aluminum, and other goods upped the ante, but time will tell which side will have its bluff called first.

Surely Google would like to see this game end sooner rather than later.

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