British and European tech firms are falling further behind their American peers in the AI arms race, after suffering a barrage of regulatory delays, lost clients, and rising costs, leaving US businesses to rake in more and more cash.

Fresh research from trade group the App Association, which represents small and medium-sized tech companies around the world, found that despite three-quarters (73%) of all tech SMEs viewing AI as critical to business success, only 32% of EU/UK firms have fully integrated it into workflows, compared to 45% of those in the US.

Even as the UK Government pours billions into AI adoption and research to position Britain as an ‘AI Superpower’, the transatlantic gap is widening fast, with only half of EU and UK startups actively using AI compared to nearly two-thirds in the US.

The biggest problem, according to the App Association, is that an abundance of red tape is strangling success.

Polling 1,000 startups, scaleups and tech SMEs, 76% of UK/EU firms said that regulations and compliance issues had negatively affected their AI adoption, with around 17% saying regulations had hindered or completely blocked their AI plans.

Regulatory burdens are also having an outsized impact on the next generation of AI models, with more than a third of British and European developers stripping or downgrading features to comply with rules, while 60% face delayed access to AI tools compared to other regions, including 11% who cite significant delays.  

“We’re restricted from accessing innovative new tools and features that Apple and other companies release in the US and other regions,” said Mitchel Volkering, founder of Vaic.at software, a Dutch-Brazilian tech company.

“In the EU, when these tools do arrive, they’re often late and degraded versions. Competing with the United States has never been more challenging than it is today.”

That could be because in America, regulation is more like a speed bump than a brake. While that has always been the case, given the power of US tech lobbies, it has become more true under President Trump.

His administration has rolled back earlier attempts to curb AI development with safety guardrails, with Trump calling out the intrusion of politics and “foolish rules” within America’s nascent AI industry.

Though the merits of this strategy are up for debate, data from the App Association suggests it may be paying off, at least in the short-term, for US tech firms.

In the United States, 44% of AI developers report launch delays tied to regulation, compared to 58% of UK/EU firms, and unlike their European counterparts, smaller US tech firms also don’t report any significant structural barriers to accessing the latest AI models.

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While US businesses are steaming ahead, half of British and European companies report slower innovation, 45% face higher costs, leaving nearly 30% to report losing clients

To put a cash value on it, these regulatory delays cost UK and EU tech SMEs an average of $109k – $375k (£82k – £282k) every year per firm, rising to $186k – $528k (£140k – £397k) for directly affected firms. 

“We’ve long known that European and British regulations on AI are having a negative impact on adoption and innovation, but now we have data that shows just how stark that impact has become, and how dire the consequences will be for European economies and commerce,” said Morgan Reed, president of the App Association. 

“American lawmakers and regulators should take note of the transatlantic AI gap, and how it came to be, in order to keep the U.S. at the forefront of AI innovation and avoid a culture of compliance.”