Europe is losing. Just look at the numbers.
Economic activity on the continent of Europe has been mostly flat for the last decade, all while America continues its ascent. Measured per-person, European GDP is about half of what it is in the U.S., and household wealth has grown three times faster in the U.S. than in Europe since 2009.
Instead of competing, European politicians are erecting barriers to American business. The most egregious might be the recently enacted Corporate Sustainability Due Diligence Directive. Don’t let the wonky name fool you. “CS3D,” as it’s been dubbed, seeks to impose European regulatory restrictions on American businesses just because they operate there.
The law holds any large company operating in Europe liable for environmental or human rights violations that occur anywhere in their global supply chain – anywhere in the world. Companies of a certain size will run afoul of the law if a contractor in Mongolia fails to file the proper paperwork or a supplier in Uzbekistan overlooks a European compliance code. The Europeans are ignoring other countries’ sovereignty to impose their red tape on the rest of the world.
European governments have choked off their own economies over the last two decades by adopting a thicket of rules, levies, price caps, and red tape that make it increasingly difficult for businesses to operate. This regulatory overreach has bled the continent of its economic vitality. But it’s not our fault the Europeans decided to tie both hands behind their back.
The biggest beneficiary of these rules won’t be European companies. It will be the Chinese. Because American businesses play by the rules, this CS3D law will tie some of our most successful firms in knots trying to comply. China – and Chinese businesses – aren’t encumbered by the same fidelity to the rule of law. They have no problem telling EU authorities everything checks out while they ignore requirements established by this law. And feckless European regulators will just look the other way.
This law has nothing to do with the environment or human rights. It’s all about impeding American businesses that continue to take market share from their European counterparts by outcompeting. This law will require American businesses to spend billions annually on lawyers and auditors to scrub their entire supply chain for potential violations. Beyond the money, this process will cost American companies thousands of hours on paperwork and bureaucracy each year. Instead of investing money in new factories or workers, this law forces American businesses to spend even more on ridiculous compliance costs.
Thankfully, there is still time to fix it. The initial trade framework between the U.S. and EU included a commitment by the Europeans to address American concerns with CS3D, including a specific pledge “to reduce administrative burden on businesses” associated with the law. As the Trump administration continues its trade talks with Europe, the president and his team, including EU Ambassador Andy Puzder and US Trade Rep Jamieson Greer, should hold their counterparts’ feet to the fire to make sure the European Union abandons this law or softens it significantly. The EU will undertake a series of votes later this year before finalizing the law, and this request could be another factor in the American demands to finally start to level our trade footing with Europe.
Congress can also weigh in. Tennessee Sen. Bill Hagerty, Trump’s ambassador to Japan during the president’s first term, has introduced legislation to shield American businesses from these “harmful extraterritorial regulations.” The senator teamed up with Congressman French Hill of Arkansas to outline their concerns about this “power grab” in an editorial in the Wall Street Journal. And Congressman Scott Fitzgerald of Wisconsin has introduced a companion bill to Sen. Hagerty’s in the House. Members should show their support for Trump’s efforts to rebalance trade with Europe by sponsoring this important legislation.
This anticompetitive behavior is nothing new. The EU adopted its Digital Markets Act to crack down on American tech and retail businesses operating on the continent. These rules are a de facto tax on American businesses. For all of Europe’s complaints about tariffs, this CS3D is protectionism at its worst. Economies that can’t win the race fair and square establish new rules that require the victors of American business to run twice as far to reach the finish line.
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