It just shifts competition into new areas that are compliant with the law. If you can't use aws-us-east from france, then AWS is incentivized to build a (compliant) center in france or else lose that slice of the pie to the locals (or to a potential compliant azure center there).

It's always a tradeoff between racing to the bottom and stagnating. Both are bad, both hurt consumers, and this seems like a good balance between them.