Transatlantic digital relations are in crisis. With the EU-U.S. Privacy Shield invalidated and other legal mechanisms for transferring data under scrutiny, there is a serious risk of a de facto data localization policy hurting both sides.

Cross-border data flows are critical for firms across the whole economy—from manufacturing and transport to financial and Internet services. Millions of jobs and a large share of transatlantic trade thus depend on strong digital ties.

Restrictions on data flows disproportionately affect SMEs, which often rely on digital tools to reach new customers and grow their businesses and are less likely than large firms to have the resources to navigate complex legal requirements.

Beyond trade and commerce, government agencies also depend on cross-border data flows for purposes ranging from regulatory oversight to investigating crimes, protecting national security, and more.

Policymakers should rebuild a robust framework for transatlantic data flows with a successor to the Privacy Shield, new GDPR-compliant transfer mechanisms, and improved law enforcement cooperation to access electronic evidence.

Fully harmonizing policies is unrealistic, but the EU and United States should be pragmatic and forge a broad cooperative agenda based on shared values as a strategic counterweight to authoritarian digital powers like China and Russia.

A pragmatic U.S.-EU digital alliance would be mutually beneficial in influencing global data-sharing frameworks, AI regulation, electronic IDs, standards setting, investment screening, and export controls for data and digital technologies.