Why the EU’s digital trade figures don’t tell the full story

By Joakim Reiter, Vodafone Group Chief External & Corporate Affairs Officer

The EU’s Digital Decade was launched with a bold promise: that digital transformation would secure competitiveness, strengthen sovereignty, and protect the EU’s economic future.

Mid-way through the decade it is clear that digitalisation has transformed our daily lives, our economies and our societies. But questions have been raised as to whether the benefits of digitalisation are fully enjoyed in the EU, and if not, what should be done about it.

In this context, the Vodafone Institute has started a collaboration with the University of Bonn to assess how the EU’s digital capabilities are developing and the implications of these trends.

It finds that given where the EU is today, the Digital Decade will not succeed through short-term fixes built on a ‘go-it-alone’ approach to sovereignty. It will succeed only if the EU works with like‑minded partners, builds long‑term digital capacity at home, and grounds its policy choices in proportionate, evidence‑based assessments of risk.

What the analysis reveals about the EU’s digital resilience

The first output from this collaboration finds that six years on, the headline numbers would suggest that optimism was justified. Digital trade is booming. ICT goods and services now represent a quarter of the EU’s total trade balance, and official statistics show a healthy digital trade surplus of US$145 billion in 2024.

But the University of Bonn found that beneath the surface there is a fragility that is not immediately apparent. Firstly, the digital trade surplus is actually a deficit when correcting for the surplus in digital services driven by US companies located in Ireland.  Secondly, and more importantly, the EU’s share of value add in the digital sector is not keeping pace with other parts of the world. As a result, the EU’s real position is not one of strength, but one of exposure.

Ireland’s strength hides the EU’s real dependence on the US

The brief found that the headline numbers in the EU’s digital trade balance are skewed as a result of the significant presence of US tech companies in Ireland. Between 2020 and 2024, Ireland accounted for 23% of all global digital services exports, more than China, India or the United States. And it also represented 87% of the EU’s entire ICT services surplus.

This would be encouraging if the EU itself were the source of these gains, but it is not.
According to Ireland’s Central Bank, 94% of profits and 97% of value added in the Irish ICT sector come from non-Irish firms, overwhelmingly American tech multinationals such as Apple, Google and Microsoft.

To put it in other words, the EU’s “digital surplus” is largely the product of US hyper-scalers booking global revenues through Ireland. If you remove Ireland from the data, the EU’s digital services surplus becomes a deficit, with the EU’s overall digital trade balance exceeding €100bn per annum.

This isn’t a statistical quirk. It’s an embedded feature of the EU’s lack of domestic value-add. The EU’s digital dependency cannot be understood or addressed without acknowledging this effect.

China drives the other half of the EU’s digital deficit

The brief also found (as expected) that whilst the US dominates the EU’s digital services, China dominates in digital goods. Between 2020 and 2023, The EU bought US$529 billion more in Chinese ICT goods than China bought from the EU. These deficits deepened across computers, communications equipment and electronic components.

But digging a little deeper, the brief highlights that unlike every other major digital economy, the EU’s own ICT exports have become increasingly reliant on non-EU value-add. 

With this stark starting point, measures to boost the EU’s digital competitiveness must be carefully balanced. For example, policy measures to boost exports might actually increase the EU’s digital dependency.

The EU needs a Digital Decade built on strategic realism

As noted in the brief, the European Commission is not blind to the challenge of digital dependency and has initiated a number of policy initiatives.

But the findings of the University of Bonn show that there is a need for long-term and cohesive policy rather than short-term and reactionary tactical approaches. 

If the EU wants to secure its autonomy, competitiveness and geopolitical resilience, its digital strategy must recognise the underlying data to ensure policy is based on real strategic constraints. Short-term measures that lack proportionality or a well-evidenced risk-basis are likely to be counter-productive.

The University of Bonn makes three policy recommendations:

• a more coordinated and long-term industrial and trade policy;
• a targeted approach to trade partnerships to deliver diversification, and
• policy language consistent with partnership to appeal to allies rather than alienate them.

None of this implies a retreat from open markets or international trade. It’s the opposite – the EU’s strength has always come from openness, competition and partnership, provided they are matched by resilience and domestic capability.

The EU’s digital trade and value-add deficit is not simply a statistical anomaly. It is a structural warning.

The Digital Decade remains achievable but only with a long-term strategy built on the reality of where the EU finds itself today.