The Best...and Worst of Both AI Worlds

Recently, US Secretary of Commerce Howard Lutnick warned that Europe needs to relax its digital-regulation regime if it wants more favorable treatment on steel and aluminum tariffs. (1)  Like with many other aspects of the Trump administration’s attempts to Americanize European approaches to, well, everything, it fails to grasp the different approach Europe takes towards regulation.  Today, I’ll compare and contrast the American and European approaches to one of the biggest economic disruptors developed since the invention of Excel: Artificial Intelligence.

AI is quickly becoming the test of how modern governments govern the change that it will bring.  On one hand, AI promises efficiency, insight, and seamless workflows.  However, the cost is disruption, displacement, and the outsourcing of responsibility to a language learning model.  

Both sides of the Atlantic take different approaches towards government intervention or regulation.  The United States is more capitalistic, hand-off, and laissez-faire.  It’s innovate then regulate.  Europe takes a different approach, with a guided economy in which the government helps shape the market. Europe’s “social market” model puts government in the position of steering private enterprise toward the greatest public good.  Meanwhile, the United States believes that leaving the market to its own devices will determine the winners and losers, driving greater progress and innovation.  

In Europe, this managed capitalism, or social democracy, has deep roots.  The continent’s economies combine private ownership with much greater public oversight and social protections than those in the US.  The European Union itself is a project of coordination and compromise. Today, the EU’s rules help steer a single market across 27 member states. It’s the same approach that’s been behind the EU’s stringent food safety standards, labor protections, and environmental laws.  Europe’s model is slow to innovate but quick to protect consumers.  Fewer booms, but fewer busts as well.

The American system developed differently.  While Europe tends to emphasize regulation and collective protection, the U.S economy is grounded in competition, entrepreneurship, and risk-taking.  This brings booms and busts (remember, the Great Depression and the Global Financial Crisis started in the United States).  Washington is reactive rather than directive, and only steps in when markets clearly fail, or public harm becomes undeniable (as in the New Deal and Wall Street bailouts).  Silicon Valley thrives in this environment with light regulation, private equity, and a culture that rewards being first, if not best.  For all its flaws, that freedom bred the innovation that Europe reflexively governs. It’s why most major tech firms, from Apple to Facebook to OpenAI, originate in the US.  The government steps aside and lets companies sink or swim.  Booms and busts.

Europe’s response is the AI Act.  Passed in 2025, the first comprehensive AI regulation of its kind anywhere in the world.  It categorizes AI by risk: unacceptable, high, limited, and minimal.  Systems that threaten fundamental rights, such as mass surveillance from US firm Palantir Technologies, is banned outright.  High-risk systems, such as those used in law enforcement or healthcare, are subject to strict regulation and testing before being made public. The goal is to protect citizens and standardize the market before the pubic is harmed.

In typical European fashion, it’s a top-down framework built on consensus and caution. Businesses know exactly when each rule takes effect, and consumers know their rights.  Europe is trying to lead by setting the standard for predictability, becoming the global regulator before anyone else can.  But predictability comes at a cost.  Compliance can be expensive, and smaller developers face an uphill climb against the sheer weight of paperwork.  

This approach fits its social-market mentality.  It emphasizes fairness and order as prerequisites.  Europe prioritizes stability and values regulation as necessary to prevent harm.  This stands in stark contrast to the American readiness to trade risk for speed. where there is no single AI law, no unified set of rules.  Instead, there is a patchwork of Executive Orders directing agencies to assess risks.  The National Institute of Standards and Technology has published voluntary frameworks, while federal regulators rely on older laws to handle new problems under the “close enough” rule of legislation.  For example, the Federal Trade Commission has penalized companies that exaggerated what their AI could do under existing false advertising laws. (2)

States are moving faster.  California, the home of Silicon Valley, recently passed a law requiring large AI developers to disclose their safety protocols and report major incidents. (3) New York followed suit, and other states are in various stages of drafting their own legislation.  However, California’s market size means that if a company wants to sell its products in the state (the fourth largest economy in the world), it can become a de facto national standard.  

This is America’s laissez-faire model in practice, combined with a healthy dash of federalism. The United States has always seen regulation as something to correct excess, not to pre-empt it.  This means innovation outpaces policy, for better and worse. It's for these reasons that American companies lead AI research, with strong investment and model development.  However, the absence of clear national rules leaves significant gaps in accountability, privacy protection, and fairness. Lawsuits can drive legislation, but that is only after someone is harmed. This creates a race to use AI as much as possible, wherever possible.  If you haven’t been on Facebook lately, then you should hop on and see how much of it is AI just for the sake of AI.  

Both approaches have their own logic and weaknesses.  Europe’s model puts public safety over risk-taking.  America’s model puts innovation before public trust. Europe can say with certainty what it will allow for its 450,000,000 consumers, and Mark Zuckerberg (who has previously asked Congress for some guidelines for social media) will make it for Europe and sell it to Americans as well, just as the EU mandated USB-C chargers for iPhones.  Thanks to their market size, it became the standard in the US as well. Although if you’ve ever visited an EU-based website and had to click through several rounds of GDPR popups, you may long for the wild west.

While no one expects ideological convergence any time soon, both sides are inching (centimetering?) towards each other.   European leaders are trying to avoid placing too many restrictions on AI to encourage innovation, while American regulators are quietly borrowing some European ideas on transparency and accountability.  If there will be convergence, it will be through trade, as American products will be made according to stricter guidelines, or parallel products will be made to American standards, with another product available for Europeans that complies with their regulations.  

In the end, AI is forcing the West to consider how it balances freedom and control.  Europe’s command-style, social democratic model of governance offers security and order, but often kills momentum.  Alternatively, America’s market-driven system fuels creativity but leaves the door open for abuse. As the slow machine of bureaucracy catches up to technology, expect a shared understanding that innovation without boundaries is reckless, but control without experimentation is a dead end.