Why the United States Needs Europe in Order to Win the Technology Race

Context

As Washington strives for technological dominance and Beijing builds technological self-sufficiency, the global technology system is splitting. The race for technological superiority between the United States and China requires third countries to sustain the advantages of each great power. Europe has a key role to play in this geopolitical rivalry, but its perceptions and cost-benefit analyses are being reevaluated as the Trump administration’s stance toward the European Union becomes more aggressive.

Initiatives to build Europe’s technological sovereignty have proliferated in recent years, and opposition to reliance on U.S. platforms has grown as the United States’ retaliatory and punitive measures have intensified. The costs for Europe of building its own technology stack are considerable, with estimates starting at €3.6 trillion. But the security costs of continued reliance on U.S. technology are equally severe.

The United States, for its part, is committed to achieving technological dominance. The Trump Administration’s “AI Action Plan” states that the United States “must meet global demand for AI by exporting its full AI technology stack . . . to all countries willing to join America’s AI alliance.” Yet adversarial measures toward longstanding allies, including Europe and Canada, are pushing those same partners to diversify away from U.S. technology, ultimately undermining Washington’s technological ambitions.

U.S. technological dominance must be global, and for it to succeed, it must be coproduced. The United States needs allies to not only absorb its technology but also to help produce the technology––all the more so as technological competition concentrates at the cutting edge. Adversarial behaviors and policies, by contrast, will produce the opposite effect, reducing the incentives to rely on U.S. technology and spurring technological indigenization as well as diversification, including toward China.

The Costs of Losing Europe

The United States holds a technologically dominant position relative to Europe. Sensitive European government, health, and corporate data is stored on servers subject to U.S. surveillance laws, such as the Clarifying Lawful Overseas Use of Data (CLOUD) Act and the Foreign Intelligence Surveillance Act. Regulatory control over platforms gives the United States the capacity to retaliate against European policy initiatives it perceives as discriminatory. Cloud access can be deliberately interrupted for political purposes. Europe’s perceptions of U.S. hostility are turning these concerns into a conviction that reliance on U.S. technology poses an existential threat.

European governments are actively working to move away from U.S. technology. The Tech Sovereignty Package introduced earlier this year, the Cloud and AI Development Act, and the Chips Act 2.0 are emblematic of this shift. France, meanwhile, has restricted the use of Zoom and Microsoft Teams. France, Germany, the Netherlands, and Italy have joined forces to build European digital commons.

Most commentary on these initiatives has questioned their credibility and feasibility. Indeed, in October 2026, Europe-based search engine Ecosia announced it would drop French AI company Mistral from its backend, instead opting to use cheaper and more capable Chinese alternatives. But Europe’s motivation, and the resources it commits to reducing its dependence on U.S. technology, will grow in proportion to perceived U.S. antagonism. While budget strains might complicate these efforts, if national security is on the line, traditional fiscal orthodoxy is still likely to bend, with efforts to decouple increasing at either the supranational or national level. And while Europeans will undergo a costly process of adjustment, Americans risk losing significant market access that will not automatically be absorbed elsewhere. The result will be a net loss on both sides of the Atlantic.

The scale of the transatlantic market is far from negligible. In 2025, U.S.-EU trade was valued at approximately $2 trillion. No other bilateral trade and investment relationship in the world is comparable. The transatlantic economy accounts for almost a third of global trade in goods and services and 43 percent of global GDP. Moreover, the relationship is complementary: In 2025, U.S. goods exports to the European Union totaled $412.5 billion and imports $632.9 billion; in services, U.S. exports amounted to $324.8 billion and imports from the bloc to $217.6 billion.

In digital services, Europe is a vital market for U.S. cloud providers. In 2025, the market share of U.S. cloud providers in Europe exceeded 80 percent, compared with around 15 percent for European providers. In artificial intelligence, European model providers struggle to compete with Anthropic and OpenAI. Dependencies cut both ways: Europe’s reliance on the United States for technology supplies is mirrored by U.S. tech providers’ reliance on European demand.

Moreover, U.S. technology is coproduced with European industry leaders. The case is clearest when it comes to U.S. reliance on Dutch company ASML’s extreme ultraviolet machines. But ASML is not the only U.S. dependency. ZEISS’s optics and TRUMPF’s lasers are indispensable components of the extreme ultraviolet lithography ecosystem; Imec is a critical hub for advanced semiconductor research and development; Ericsson and Nokia are major suppliers of US 5G and telecommunications infrastructure; and companies such as Infineon, STMicroelectronics, Siemens, and Bosch Rexroth are deeply embedded in U.S. automotive, power-electronics, industrial-automation, AI, and manufacturing supply chains.

Concerns about U.S. technology affect European businesses as well as governments. EU-listed companies rely on the United States for almost a fifth of their revenues. Yet partnerships with U.S. counterparts and the use of components and technologies with U.S. content expose private companies to the risk of suddenly being targeted by extraterritorial rules. This creates an unfavorable business environment and dims prospects for profitability, motivating supply chain and market diversification. In a 2025 survey, more German companies said they planned to reduce their investments in the United States than said they planned to increase them. Smaller member states have noted that some prospective first-time investors in the United States have abandoned their plans, while businesses with long-standing U.S. relationships planned to continue to invest.

Notably, U.S. policies that make alignment with Washington strategically more costly increase the relative attractiveness of diversification. Since Europe began exploring its options in earnest at the start of the second Trump administration, French President Emmanuel Macron made a state visit to China (widely hailed as a success), with Chinese President Xi Jinping embracing Europe’s aspirations for strategic autonomy. German Chancellor Friedrich Merz’s also made a trip to China, accompanied by a delegation of business leaders from Volkswagen, BMW, Mercedes, and Siemens, all of whom were seeking contracts. The visit’s objective was to “improve and make fair” Sino-German relations. Canadian Prime Minister Mark Carney––now in the process of formalizing its association partnership with the European Union––also traveled to China earlier this year to forge a “new strategic partnership with People’s Republic of China.” Given Western concerns over Beijing’s trade practices, such visits send a particularly strong signal to Washington: Traditional allies are willing to hedge their technological dependencies for greater economic security.

Restoring Partnership

There is still an opportunity to make the transatlantic relationship the foundation of a larger and more resilient technology ecosystem. Restoring the partnership, however, does not mean restoring the status quo. The future transatlantic technology relationship should rather enable both sides to gain control over sensitive technological bottlenecks, thereby restoring a domestic sense of security, while deepening interdependence in areas where capabilities are difficult to develop domestically or are not critical enough to justify the effort.

The United States should encourage greater European participation in the U.S. technology ecosystem, including through government procurement, defense cooperation, and commercial partnerships. Precedents for this model already exist: European defense-tech and telecom companies have secured direct U.S. government contracts and entered into transatlantic teaming arrangements.

At the same time, Washington should help foster a positive environment for U.S. firms to participate in EU markets and supply chains. There is an appetite for this. Commenting on Intel’s continued partnership with ASML, Intel’s executive vice president said the company “will continue to work closely with ASML and the entire industry to enable [the AI] transition.” In summer 2026, Paris-based Mistral AI established a strategic cloud distribution and infrastructure partnership with Microsoft, allowing European-developed models to run on U.S. hyperscale computing infrastructure. This is notable, considering the company has long been regarded as Europe’s only AI champion.

Such deals, however, will multiply only to the extent that governments and companies on both sides of the Atlantic perceive the business climate as positive. Efforts to renew the partnership should not assume that current tensions will simply disappear. A significant segment of European political opinion hopes that the current period of confrontation will pass, much as the relationship recovered after the first Trump administration. Still, U.S. rapprochement will possibly be met with European resentment: European governments might use recent episodes of U.S. aversion as leverage to extract political advantages from future engagement with the United States.

While policies adopted today to reduce dependence on the United States could be softened in a period of rapprochement, however, they may still become embedded in Europe’s emerging industrial policy. History points this direction: France’s departure from NATO’s integrated command in 1966 did not end the alliance, but the defense-industrial and nuclear autonomy France built in those years outlasted the rupture by decades.

The more plausible outcome, then, is that cooperation will resume on terms that preserve space for European autonomy.

Conclusion

If the United States wants Europe to remain part of a U.S.-led technological ecosystem, it needs to make participation the more attractive option for European governments.

The United States cannot compete with China while losing its allies. Meeting the China challenge requires building an ecosystem capable of achieving the same scale and offering countries around the world a credible alternative. Europe is indispensable to that effort. Its markets and industrial capabilities sustain the attractiveness and resilience of U.S. technology and enable the United States to shape the next generation of technology.

For the United States to win the technology race and establish technological dominance vis-à-vis China, it must first make sure its allies remain in the race with it. This would require Washington to move away from leveraging Europe’s technological dependencies and toward offering Europe a stake in coproducing the technologies of the future, through more open procurement, joint investment, and commitments capable of enduring across administrations.

Federico Steinberg is a visiting fellow with the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies in Washington, D.C. Riccardo Bosticco is a PhD researcher at the Centre for Security, Diplomacy and Strategy at the Vrije Universiteit Brussel and Fulbright visiting researcher at Georgetown University School of Foreign Service.