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Trump is right about Britain’s tech laws
Ben Ramanauskas
It’s been reported that officials in the Trump administration have given their UK counterparts a dressing-down over the Online Safety Act and the social-media ban for under-16s. As someone who previously worked on digital trade for the UK government, this does not surprise me.
Both the Trump and Biden administrations have seen British laws such as the Digital Services Tax (DST) and the Online Safety Act as irritants, arguing that they discriminate against American tech firms.
Neither law was written with America in mind and on paper both are neutral as they apply to any qualifying firm regardless of nationality. However, as the US is home to most major tech firms, the burden of taxes and regulations on tech falls almost entirely on US companies.
In the mind of President Trump and his advisers, ‘discriminatory’ does not require intent and this is the crux of the tension. Although they don’t actually think that successive British prime ministers have sat down and said ‘let’s punish American tech’, they argue that while on the face of it a policy might be neutral, it can still have a discriminatory effect, and that trade law has long recognised effect as much as intent.
The Digital Services Tax is a clear example of this. As it is structured around revenue thresholds that only the largest global platforms clear, and because those platforms happen to be American, the US Trade Representative’s (USTR) has treated digital services taxes (such as the DST and similar levies elsewhere) as a form of discrimination against US firms.
This has been rumbling on for some time. For example, the first Trump administration launched Section 301 investigations into DSTs in multiple countries back in 2019 and 2020, and the underlying complaint hasn’t changed: these taxes look less like general business taxation and more like a targeted levy on a handful of American companies, dressed up in nationality-neutral language. And they don’t like it one bit.
American firms dominate the tech industry and so almost any domestic digital regulation a foreign government passes will land disproportionately on US companies.
The Online Safety Act raises a subtler version of the same concern. It’s not a tax, so it doesn’t touch revenue directly. However, compliance costs fall hardest on the platforms with the largest reach into UK users. Critics in Washington, including some free-expression advocates, have also argued that the Act’s rules around ‘legal but harmful’ content and its extraterritorial reach effectively let a UK regulator, Ofcom, set content standards for global platforms that then propagate worldwide. Whether or not this was the intention, it looks to American eyes like a foreign government using regulatory leverage to extract concessions from (and impose costs on) US firms specifically.
As discussed above, this has been bugging successive US presidents and USTRs for quite some time. It has become increasingly relevant as it shows how the current Administration views trade. Much of the attention has rightly been on the tariffs imposed on goods entering the US and Trump upending the rules-based system.
Trump’s tariffs and his hatred of imports are economically illiterate. However, the President and his trade officials are right to take umbrage with non-tariff barriers such as taxes and regulations and the impact they have on international trade.
The USTR’s current obsession with non-tariff barriers appears to be on Geographical Indications which is where a certain cheese or wine or even the humble Cornish Pasty gets recognition and protection by the government. I personally think that Trump is correct to take issue with this as it does favour incumbents, reduce competition and are a significant barrier to trade.
However, the USTR is concerned about more than cheese and sausages when it comes to non-tariff barriers. It has increasingly treated them as the primary battlefield of digital trade policy. It does so for a very simple reason: American firms dominate the tech industry and so almost any domestic digital regulation a foreign government passes will land disproportionately on US companies. This creates a structural asymmetry where the UK, EU and other jurisdictions see themselves as regulating their own digital markets in the public interest while also raising revenue. The US, on the other hand, sees the same measures as a pattern: sovereign regulatory tools being used, consciously or not, in ways that systematically disadvantage one of its most important export sectors.
This is all coming to a head now for three main reasons.
First, the DST itself was always meant to be a placeholder. The UK, like France and others, adopted it while waiting for the OECD’s global tax deal to reallocate taxing rights over digital profits. As things tend to do with the OECD, this process has stalled repeatedly, leaving national digital services taxes in place far longer than anyone originally intended. This hardens US objections that these were never really about tax policy but about capturing revenue from US firms.
Second, the Online Safety Act is now in force and with more to come. Ofcom’s codes of practice are now being applied, and the first real fines and enforcement actions against major platforms make the compliance costs and legal exposure concrete rather than theoretical.
Third, as discussed above, the US approach to trade policy has become much more assertive in general and specifically about non-tariff barriers. Trump and his team have decided that they have a legitimate reason for treating regulatory measures that burden American digital firms as targets for retaliation, rather than just complaining to an ambassador or ranting on Truth Social. Section 301 authority, once used mainly for intellectual property theft and forced technology transfer, is now squarely aimed at exactly this kind of regulatory friction.
So, where does this leave the UK?
While it may feel odd to read someone arguing that Trump is right on trade in the pages of CapX, it’s true. Many of the laws brought in by successive UK governments such as the Digital Services Tax and the Online Safety Act do discriminate against American tech firms. There are lots of other things wrong with them as well, but for our purposes they are a real barrier to trade and are increasingly trying the patience of the already mercurial and easily offended Leader of the Free World. The government should scrap them.
The UK government should also work with international partners to reform the trading system. I have spent the past few days in Geneva at the World Trade Organisation’s annual forum. The focus has been on services trade. While the World Trade Report rightly recognises the importance of services trade and the issues facing it, the report is light on solutions. The UK should use its position as a relatively newly independent trading nation to work with like-minded countries and blocs such as the EU, Canada, Australia, New Zealand and the other CPTPP members to push for a round on services trade where digital trade is prioritised and non-tariff barriers are highlighted and eliminated so that the rules-based system is fit for the present and the future.
It might be painful to admit it, but Trump is right in this regard. Andy Burnham should accept the admonition, repeal the Online Safety Act and Digital Services Tax, and work with international partners to remove other non-tariff barriers to trade.
Ben Ramanauskas is an economist and a former government adviser.
