Why Tariffs Fuel Big Tech’s Power

Tariffs are usually presented as a fight between domestic producers, foreign exporters and consumers. Domestic firms receive protection. Foreign exporters lose market share. Consumers pay more. This picture is no longer sufficient.

In a platform economy, there is another winner: the digital intermediary.

In a recent paper with Gianmarco Ottaviano and Tommaso Sonno, we show why this matters. Large platforms are not simply sellers of products or advertising space. Their revenues often depend on the value of the transactions they intermediate.

If the price of a tariffed product rises and consumers keep buying it, the platform takes its commission on the higher price. A $100 product subject to a 20 per cent tariff becomes a $120 product. If the platform fee is 15 per cent, its revenue rises from $15 to $18. The platform has not produced the good, paid the tariff or borne the political cost of protectionism. It has simply taken its percentage on a larger transaction.

The key issue is whether consumers stop buying. In many platform-intermediated categories, they do not, or at least not enough to offset the higher price.

Household items, replacement products, personal-care goods and other everyday purchases often have relatively rigid demand in the short run. Consumers may dislike the higher price, but they still buy. In those cases, tariffs can raise the value of transactions more than they reduce the number of transactions. Platform revenues rise as a result.

This changes the political economy of protectionism. The traditional beneficiary of a tariff is the domestic producer. But once commerce is organised through platforms, part of the gain can accrue to firms that were not the declared target of protection. Tariffs inflate the price base on which marketplace fees, platform commissions and advertising bids are calculated.

The rise of this intermediary power has unfolded through three moments of rupture.

The first came in 2011, after the Arab Spring. The revolts in Tunisia and Egypt showed how social media and digital communication could help mobilise mass protest. Governments learned different lessons. China moved towards more direct control of online information. The United States moved towards a closer alignment with private digital platforms.

That alignment soon became visible. The unconditional approval of Facebook’s acquisition of Instagram in 2012 and the closure of the antitrust investigation into Google in 2013 consolidated the largest platforms at the very moment when control over digital information was becoming a political asset.

The second rupture came in 2018, during the first Trump administration. After the Section 301 investigation launched in 2017, the United States imposed tariffs on Chinese imports. But the increases were not uniform. Technology manufacturing was treated more favourably than the rest of manufacturing. Computers, semiconductors, communications equipment and related products were spared some of the tariff pressure faced by other sectors.

This mattered for technology firms. It also mattered for platforms, because much of the digital economy sits on top of the sale, advertising and intermediation of technology-enabled commerce.

The third rupture is the most revealing. From 2017 onwards, the revenues of Alphabet, Amazon, Meta, Apple and Microsoft grew faster than the rest of the S&P 500. They also grew faster than the technology manufacturers that had benefited from lighter tariff treatment. The platforms outpaced not only ordinary firms, but also some of the firms that were more directly protected.

This is where the tariff mechanism becomes politically important. Platforms do not need a tariff written in their favour to benefit from protectionism. They can gain from the tariffed price itself, as long as they intermediate the transaction and charge a proportional fee on the final consumer price.

The same logic applies beyond Amazon Marketplace. Apple’s App Store takes commissions on digital transactions. Google, Meta and Microsoft run advertising systems in which bids are tied to expected commercial value. When transaction values rise, the economic base around which these systems operate can rise too.

Large digital platforms already have reasons to prefer fragmented politics. Fragmentation makes taxation harder, regulation less coordinated and enforcement more dependent on bilateral bargaining. A divided political landscape gives dominant platforms more room to negotiate, delay and arbitrage.

Protectionism adds an economic reason to the same preference. If tariffs can raise platform revenues, economic fragmentation becomes not merely something platforms can survive. In some conditions, it becomes something from which they can profit.

For a long period, much economic research was shaped by the idea that deeper economic integration could make political fragmentation easier to sustain. Smaller political units could survive because open markets gave them scale. The current platform economy points in another direction. Economic and technological power now push for economic fragmentation that reinforces political fragmentation incentives.

Europe’s policy debate often treats trade policy, digital regulation and democratic resilience as separate issues. They are increasingly connected. A world of tariffs does not only change trade flows. It changes the revenues and political incentives of the platforms that organise commerce, advertising and information.

The European question is therefore not simply whether to imitate American protectionism or defend open trade in the abstract. It is whether Europe can reduce its dependence on digital intermediaries whose interests may be increasingly aligned with fragmentation.

Otherwise, Europe will again find itself exposed to decisions made elsewhere. Washington may raise tariffs. Consumers may pay higher prices. Platforms may collect larger revenues. And Europe may discover that the politics is national, the platforms are global and the costs do not stop at America’s borders.

On June 10, Bocconi University hosted the Second Junior Workshop in Geoeconomics, organized by IEP Bocconi in collaboration with the Kiel Institute and the BAFFI Centre’s PERICLES Research Unit.

The workshop brought together young researchers, senior scholars and discussants for a full day of presentations and debate on the relationship between economics and geopolitics. This article is based on the keynote address delivered by Massimo Morelli.

IEP@BU does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.

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