In wake of tariffs, Europe backs its AI industry

Welcome to Cautious Optimism, a newsletter on tech, business, and power.

• 📈 Trending Up: Global trade barriers … international investments … SMB tariff worries … recession chances … spine … idiocracy … crypto investment, kinda …

• 📉 Trending Down: Technology stocks … stock market price estimates … internal comity … corporate guidance … hardware availability … revenue at Twitter …

• Regrets: We linked to Jamie Dimon saying that a recession isn’t unlikely above, but the JPMorgan godking is hardly the only investor biting their nails. Bill Ackman, Mr. X Essay, is also experiencing what appears to be regret after President Trump did what he said he would do, and not what some of his wealthy backers expected him to do. Namely what they wanted.

  • Flashback from CO right after Trump won a second term, noting that a great many business folks were cheering his win:

    • But the rest of the enthusiasm I find puzzling. The only answer that I can summon is that, despite his campaign pledges, the market expects Trump to not do what he has promised to do.

      • Trump has signaled that he wants to enact general tariffs in the realm of 10-20% on all goods entering the United States, 60-100% on imports from China, and 25-100% on goods from Mexico.

        • This is economic and business anathema. The market is rallying. Ergo, it doesn’t think the tariffs are coming.

• AI as the new corporate rallying cry: We recently dug into the Tobi Lutke AI memo, a document that exhorted staff at the ecommerce giant to lean into learning, experimenting with, and using AI tools now. Well, I am hearing rumblings that the missive has found a wider audience than we might have expected. Given that Shopify and Lutke are literal thought leaders, their proclamations could drive AI adoption more broadly. Which is net-good for startups, thankfully.

Europe Rising

Last night sweeping tariffs on trade with the United States came into effect. While there is talk about talk with national trading partners to get new deals done — terms thereof may prove unreachable — reality has settled in and the price of my nation’s decisions is starting to become clear.

• Tariffs north of 100% on China have engendered a second response from China, with tariffs of 84% on US exports, up from a prior 34% figure.

• The stock market largely sold off, yet again. Chinese stocks rallied, but shares elsewhere in Asia fell (the Nikkei sold off nearly 4%). European shares fared even worse, with UK, German, and pan-European indices losing 3-4% on the day.'

The damage is piling up. US debt is selling off — despite claims that the tariff push was to lower the price of Federal borrowing — while Germany is benefiting from a flight to quality. Yes, US government debt is normally the safe haven for global cash, but with the United States the cause of the problems shaking markets, we’ve at least temporarily ceded global demand for capital safe-keeping.

German debt is hardly the only story emanating from Europe indicating that the United States’ trade intransigence is changing the world's economic bedrock.

United States technology companies are the world’s most powerful. The largest. The most influential. And the most valuable. Take a peek at the current ranking of public companies by market cap and you’ll see not only a parade of the Stars and Bars, but also a heck of a lot of companies that make their bread slinging bits.

Europe, without a cohort of tech companies of similar heft, was left to merely arbitrate the relationship between American tech shops and European customers. Given a wide difference in perspective when it comes to the balance of consumer rights and corporate freedom, clashes ensued to the point that a great many American technologists and investors wrote off the continent, content to complain about over-stringent labor and data policies.

That was the old world. Welcome to the new. Not only are German bonds enjoying an unexpected period in the sun, but Europe as a whole is showing signs of changing its internal approach to technology, creating more space for large tech companies to form, build, and stay in Europe.

To wit, there’s a new plan out from the European Commission that details a series of policy plans that could change the global AI landscape:

• Massive investment in AI infra: To “strengthen Europe's AI and supercomputing infrastructure,” the commission is working on 13 “AI factories” and “AI Gigafactories,” shorthand for datacenters tuned for AI compute loads that will carry 25,000-100,000 GPUs, per CO’s reading of a release. And there’s capital backing up the talk with €20 billion on tap from a previously announced AI initiative.

• A unified data strategy, work to bolster AI adoption and offer AI upskilling, and:

• Less burdensome regulation: Past the investment in EU compute capacity, this is probably the most important update from the commission. Here the EU plans to lean on its AI Act (“The AI Act raises citizens' trust in technology and provides investors and entrepreneurs with the legal certainty they need to scale up and deploy AI throughout Europe”) with additional help from new “AI Act Service Desk” that will “help businesses comply” with its new rules.

In the old world order, American tech was supreme outside of China, and a few other, closed markets. Now, European companies are turning to local providers and working to build their own digital future.

From a nakedly patriotic perspective, the moves by Europe to rekindle its digital economy and support new technologies with investment and snipped red tape implies a future in which American tech companies are less dominant. Good for Europe, but probably not good for long-term US technology cash flows, if we have to share the spoils of global technology adoption.

• Don’t forget that European venture capitalists are loudly swinging for the fences to build their own trillion-dollar champions while Project Europe is working to pair young EU founders with more experienced mentors and capital.

• This week UK neocloud NexGen Cloud announced that it raised $45 million at a $354 million valuation. It’s not a world-changing amount of money, but the company notes that it has seen its “AI cloud revenue” rise 280% since 2023. And, the company says that its new funds will go to “scale infrastructure to meet high utilisation and soaring AI demand in Europe.”

If you were say, someone in favor of American economic dominance, potentially ceding technological leadership previously held is a weird way to go about. More simply, the United States was winning in a global system. Now we might win in our sphere of influence, but who wants to win half the pie when you once had a spoon, time, and no one to tell you to save some for others?