Digital Trade: More Questions Than Answers

After months of reflection, U.S. Trade Representative Katherine Tai has been on a roll lately, giving speeches on China, the World Trade Organization (WTO), steel, and, most recently, digital trade. Quantity, however, is not a substitute for quality, and all of her speeches provided more questions than answers. I have previously commented on the China and WTO speeches, and this week I want to focus on her digital trade speech, which was simultaneously the most elegant, eloquent, and frustrating of all.

Here are a few brief excerpts:

“How do we ensure that our digital trade agenda supports our broader national security interests, for example with respect to physical infrastructure, cybersecurity, and reliable semiconductor supplies?”

“How can we balance the right of governments to regulate in the public interest, with the need for rules that guard against behavior that discriminates against American workers and businesses?”

“We’ve seen what happens when trade agreements and trade policy become outdated and fail to address modern challenges. By maintaining flexibility in our digital trade policies, we can ensure they remain resilient and long-lasting.”

“We must remember that people and workers are wage earners, as well as consumers. They are more than page views, clicks and subjects of surveillance. . . . This means they have rights that must be protected—both by government policy and through arrangements with other governments.”

“Nearly every aspect of our economy has been digitized to some degree. Our efforts to formulate and pursue digital trade policies should, therefore, begin with a high level of ambition to be holistic and inclusive.”

What do we learn from these comments? Digital trade policy should be consistent with our other policies. It should be flexible, holistic, and inclusive. People are consumers as well as workers. Nothing earthshaking there. Instead, we are left with a bunch of questions—the same questions the administration has been asking since it took office—and once again I am tempted to say, just get on with it. Make a decision and do something. There are no perfect answers to these questions, and nobody is waiting for them anyway. The rest of the world is moving ahead, forging alliances, building bridges, setting international standards, and negotiating agreements, and in the process realizing that they don’t need the United States. Several friends have described Biden’s trade policy as Trump Lite, and they have a point. Trump rejected plurilateral opportunities; Biden ignores them. The bottom line is the same; only the rhetoric is different.

This is particularly relevant for digital trade, a relatively new and rapidly growing part of the trade universe less encumbered by long-standing examples of protection and special treatment. The U.S.-EU Trade and Technology Council (TTC) is focusing on it for precisely that reason—there are no built-in “iron rice bowls” of protection and therefore there is an opportunity to develop new common rules.

It remains to be seen what the TTC will produce, but if you were looking for hints in Ambassador Tai’s speech, you wouldn’t find very many. It was also widely rumored that she would propose negotiating an Indo-Pacific digital trade agreement. That didn’t happen either. (Of course, allowing Trade Promotion Authority to expire makes such a negotiation much more difficult, but that’s a subject for a future column.)

More distressing was her answer to a question about how best to protect privacy, which was that standards for privacy must be determined domestically and priorities for U.S. digital trade policy lie in protecting how U.S. data standards are respected in cross-border data sharing. There are two problems with that. First, relying on national standards simply guarantees internet fragmentation, encouraging every government to develop its own rules that interfere with cross-border data sharing. Second, even if it were a good idea, Congress has been incapable of developing standards, with the result that the European Union’s General Data Protection Regulation is rapidly becoming the global default (except in China).

Privacy is only the tip of the iceberg. The European Union, via its Digital Markets Act, Digital Services Act, and artificial intelligence proposal, is using first-mover advantage to build the precautionary principle into digital trade rules to the detriment of U.S. platforms, service providers, and consumers. The workers that Ambassador Tai is concerned about are also voracious consumers of data and users of apps. How these regulations are sorted out internationally will have a major impact on their lives, if not their jobs. It is axiomatic in politics that you can’t beat something with nothing, and right now the United States has nothing in the digital regulation space. It is not Ambassador Tai’s job to develop those domestic policies, but it is her job to seek multilateral approaches that protect our interests while maintaining the free flow of data. A purely domestic approach will do the former at the expense of the latter. A strategy to develop international standards (presumably without China) can do that, but there were few signs in Ambassador Tai’s speech that the administration both understands that and has a plan for implementing it.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C. 

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