EXPLAINER-IN-BRIEF: THE NETHERLANDS JOIN THE MICROCHIPS WAR AGAINST CHINA

The Netherlands dealt a significant blow to China last week, restricting sales of machines used to make chips. From September, Dutch companies making machines that produce advanced processor chips will need an export licence to sell their products overseas.

The Dutch government has been at pains to specify this policy is “country neutral”, but it’s clear that it is instead part of an American-led push to isolate China. Mark Rutte, the Dutch prime minister, met with US

President Joe Biden in January, and they discussed this issue following the export controls imposed by the US on China in October of last year. China has bet big on its microchips industry. It has invested billions to develop an industry that could compete with other major players like the US, but now risks lagging behind as Washington and its allies attempt to exclude it from the international market. Despite having its own companies, China still needs foreign manufacturing equipment.

Big, American tech companies are striking a delicate balance every day between the needs of the different groups using digital markets: consumers, advertisers, creators and many more. If a regulator ploughs in there is every chance they make outcomes for some or all of those users worse. The new Bill doesn’t require a full consideration of consumer benefits: it’s all of us who are likely to pay the heaviest price over time.

Another problem is the basic fact that politicians and regulators are running years behind the reality of the markets they are seeking to regulate.

The Bill is based on a 2019 review; fastforward a mere four years and Amazon is a growing challenger to Google and Facebook, with TikTok - which didn’t even exist in 2019 - rapidly increasing its market share. In the next four years there is likely to be more businesses seeking to get into the market, including other e-commerce and media com-

Digital Markets, Competition and Consumers Bill will regulate companies like Google panies. Regulation based on outdated information could easily curb this dynamic innovation.

In the end, politicians will find they cannot have their cake and eat it too. You cannot be pro-tech in your rhetoric and then create a regulatory straitjacket for any business that seems too successful. If we seek to unnecessarily restrain innovation, the UK will become a less natural home in which to build new services. That will mean UK startups no longer using the best tools, collaborating with the best global players, and international start-ups not considering the UK as the best market in which to launch or expand.

The CMA may not use the new powers in the DMCC Bill to inflict the most damage, but no one in the tech sector is going to trust that their approach will be careful. Decisions like the one over the Microsoft and Activision Blizzard merger show that UK regulators take a more speculative and hawkish approach than other European regulators.

There is ultimately no substitute for proper checks and balances and keeping some decisions where they belong: with ministers passing laws in Parliament. Some of the powers in the new Bill that give the regulator the final say have been described as “quasi-legislative”. A few years down the line, ministers could find themselves unable to comprehend why they are having to live with the consequences of decisions made by an overpowered regulator.

The complexities of digital markets mean it is particularly important to intervene carefully. There are modest changes that would improve the Bill considerably, such as putting back proper appeals and ensuring consumer impacts are fully considered. Ultimately though it would be better to stick to the existing regulatory toolkit, than go ahead with this exceptional expansion of regulator power.

£ Matthew Sinclair is the Head of Tech and Innovation at the Centre for Policy Studies