U.S. businesses across industries of all sizes would benefit from U.S.-led efforts to strengthen the global digital trade environment through robust commitments and new market access opportunities. However, other governments are taking advantage of the United States’ relative absence from significant bilateral and multilateral trade engagement to promote rules and policies that undermine U.S. competitiveness and limit opportunities for U.S. companies and workers.
The United States should address this challenging policy environment by engaging with trading partners to pursue new meaningful digital trade commitments and enforce existing commitments, among other actions. The United States’ ability to promote its national interests depends on harnessing its economic and business strengths, diplomatic clout, and unrivaled instinct for innovation. Advancing a robust trade and investment policy is critical to driving U.S. economic prosperity, influence, and, ultimately, security.
This paper defines digital trade, explains the importance of this topic to the U.S. economy and U.S. leadership, and outlines specific recommendations for Congress and the Executive Branch to consider.
What Is Digital Trade?
Digital trade refers to a broad range of trade activities, including e-commerce transactions (e.g., the buying and selling of goods and services over an electronic network), information and communications technology (ICT) services such as cloud computing and software, and all trade enabled by the internet and other ICT networks. Digital trade relies on the secure movement of data across international borders and other key disciplines that are under threat as jurisdictions worldwide increasingly propose new regulatory approaches that do not embody transparency, interoperability, or non-discrimination.
Why Does Digital Trade Matter?
The United States is a global leader in digital trade, and companies across all sectors of the economy benefit from fair competition and open markets abroad. Digital trade, and increasingly all trade, is underpinned by the free and secure cross-border flow of data and their historical increase over time.
- In 2020, U.S. exports of ICT services totaled $83.9 billion – with a trade surplus of $37 billion.
- U.S. exports of potentially ICT-enabled services reached $520 billion, with a trade surplus of over $213 billion.
- Cross-border data flows increased 45 times and increased global GDP by at least 10 percent between 2005 and 2015.
American firms in every sector, from medical professionals and educators to farmers and manufacturers, benefit from digitalization to support their operations in the United States and compete around the globe. For goods producers, digital trade provides platforms for companies to sell goods to a global marketplace and expands access to technologies that facilitate trade and improve efficiency, such as the digitalization of customs procedures, that benefit all exporters. Access to diverse digital products and services, such as digital platforms, helps U.S. micro, small, and medium enterprises (MSMEs) enhance productivity. Digital trade also enables companies of all sizes to be “born global” in that they can reach customers worldwide and better integrate into global supply chains from day one. This virtuous cycle helps to grow U.S. businesses and create domestic jobs.
Digital tools and data help farmers in the United States to improve production by increasing crop yields and lowering costs. The economic benefits of data-informed agriculture have been estimated at over $12 billion, or 7% of the $177 billion that American farmers contribute to U.S. GDP. Robust international data flows also helped the world fight the COVID-19 pandemic: researchers and governments alike relied on cross-border data flows to develop vaccines, track and simulate the spread of infection, and maximize the deployment of critical supplies to hospitals and other healthcare providers.
U.S. Leadership Under Threat
Increased digital authoritarianism policies and market barriers threaten the future of U.S. leadership in goods and services that benefit from digital trade. Many governments – both democratic and authoritarian – are advancing a range of policies that restrict the movement of information, goods, and services under the guise of data protection, data sovereignty, cybersecurity, government access to data, or industrial policy. Major allies, including Canada and several EU Member States, have proposed or enacted digital services taxes (DSTs) that target U.S. companies. Select U.S. trading partners support efforts to end the longstanding World Trade Organization (WTO) Moratorium on Customs Duties on Electronic Transmissions, which would undermine efforts to develop more secure and resilient supply chains and limit the ability of U.S. companies of all sizes to access overseas markets.
Despite these alarming dynamics, the United States has stepped away from pursuing comprehensive trade agreements that could address or prevent the establishment of trade barriers in the first place. The United States has not concluded a free trade agreement with a new partner in over a decade and chose to withdraw from the Trans-Pacific Partnership (now the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)). In that time, the European Union finalized five trade agreements, and China completed eight.
Other countries are advancing agreements that are shaping the rules of the global economy and are doing so without U.S. input. For instance, in the Asia-Pacific region, the CPTPP and the Regional Comprehensive Economic Partnership (RCEP), which account for more than one-third of the world’s population and GDP, both entered into force within the last five years and did not include the United States. While initiatives such as the Indo-Pacific Economic Framework for Prosperity (IPEF) are commendable, they lack the substance and U.S. market incentives to generate meaningful outcomes.
In some cases, the newly formed digital trade agendas harm U.S. companies and consumers through actions such as data localization mandates, market access barriers, and unfairly restricting U.S. innovators from competing on an even playing field. The U.S. must prioritize binding digital trade commitments to stem the erosion of American global economic, diplomatic, and technological leadership. Without this step, regulatory fragmentation will continue to make global markets less accessible to U.S. exporters, ultimately impacting U.S. workers whose jobs rely on sales to overseas markets.
Policy Recommendations
To promote U.S. competitiveness, establish global rules of the road that reflect U.S. values, and engender greater connectivity and opportunity for individuals, businesses, and communities, the U.S. government should:
- Actively pursue digital trade commitments with binding and enforceable rules;
- Take action against restrictions that inhibit exports of digital products and services;
- Enforce existing trade agreements to ensure U.S. companies and workers can compete fairly; and
- Increase efforts and resources to support the development, execution, and enforcement of a robust U.S. digital trade policy agenda.
The Administration should also look to include market incentives in economic frameworks to incentivize more ambitious outcomes and expand opportunities for U.S. exporters.
Moving Forward on Digital Trade
Recent landmark agreements such as the U.S-Mexico-Canada Agreement (USMCA) and the U.S.-Japan Digital Trade Agreement set the appropriate standard for future digital trade commitments. By working together, the Administration and Congress can advance strong digital trade commitments that bolster opportunities for U.S. firms of all sizes and support domestic jobs, economic growth, and innovation. Future digital trade commitments should preserve and expand upon the success of these agreements by:
- Prohibiting restrictions on cross-border data flows (allowing only for narrowly tailored exceptions);
- Prohibiting forced localization of computing facilities, including for financial services data;
- Securing commitments to refrain from discriminatory taxation measures;
- Prohibiting customs duties on electronic transmissions;
- Promoting government cooperation on and risk-based approaches to cybersecurity, including adopting best practices related to the sharing of threat information and incident response;
- Facilitating access to and use of open public data in machine-readable formats to spur the adoption of AI and other new technologies;
- Promoting international data flows by codifying protections into domestic laws for the Global Cross-Border Privacy Rules (CBPR) System as a valid basis for transfers of personal data;
- Facilitating innovation, competition, and technology choice by encouraging the widespread use of open standards;
- Prohibiting government requirements to access source code and algorithms; and
- Eliminating local content and forced partnership requirements that hinder efforts to bolster supply chain resiliency.