A chance for Biden to defy protectionists on the left, rally allies, create jobs and promote economic growth.
By Robert B. Zoellick
Wall Street Journal
Feb. 1, 2022
Despite his talk about “extreme competition” with China, President Biden is abandoning the fight over who will set the ground rules for the future digital economy. U.S. trade policy remains stuck in the past because Democrats fear the wrath of progressive protectionists and Republicans fear a backlash from reactionary economic isolationists. Yet the public’s outlook differs. The Chicago Council on Global Affairs reports that mainstream America thinks trade is good for the U.S. economy (75%) and that globalization is mainly good (68%).
Digital policies to regulate and tax the transfer and use of information, data, software and technology will drive the future of trade. The Organization for Economic Cooperation and Development estimates that rapidly growing cross-border data transfers already contribute $2.8 trillion to the global economy. The Commerce Department explains that more than half of all global trade in services, which is the fastest-growing activity and an arena of U.S. competitive advantage, now depends on cross-border data flows. In 2016 the McKinsey Global Institute estimated that cross-border data exchanges had grown 45 times larger over the prior decade and forecast exponential expansion.
The rise of large digital platforms and cloud computing has made the flow of data across borders ubiquitous. People now trade virtual goods and services with bits, not boats. And the software and chips in traditional machines and products—whether vehicles, handheld devices, exercise machines or inventory instruments in warehouses—enable data connectivity across geographic frontiers.
When I became U.S. trade representative in 2001, rules governing data and digital trade terms weren’t even on the agenda. In 2022 no country can afford to ignore them. Today, the open digital economy should be America’s top trade priority.
Digital rules extend far beyond tech industry interests. McKinsey estimated a decade ago that 75% of the value of data transfers accrue to traditional enterprises such as manufacturing, agriculture and logistics. Machinery, chemical and materials producers rely on smart factories and digital supply networks that draw on data from around the world. Digital software and hardware comprise more than half of the value of cars today. Maintenance crews for planes make predictive repairs based on real-time information sent during flights. Caterpillar’s construction machines glean terrain and performance data, boosting productivity and fuel efficiency. To assist planting and harvesting, John Deere’s sensors gather five million to 15 million measurements a second about temperatures, precipitation and other environmental conditions from more than 130,000 connected devices.
Modern farmers analyze field, crop, livestock and aquaculture data. Agricultural marketing depends on up-to-the-moment international pricing, export sales, insurance and transport data. Digital agronomy can boost environmental sustainability as well, because farmers use 70% of the world’s freshwater supplies and a third of production is lost or wasted.
The pharmaceutical industry relies on international data at every stage of drug discovery, development, clinical trials, quality control, manufacturing and distribution. Medical devices depend on data for real-time, continuous monitoring of patients, diagnoses, treatments, and clinical support. Anonymized data tracking will help epidemiologists monitor and respond rapidly to emerging diseases and virus variants globally.
Covid has accelerated the shift of the U.S.’s dynamic service businesses to digital infrastructure, including cloud platforms. Telecom, finance and payments, entertainment, retail, warehousing, delivery, energy, education and information-technology ventures can’t compete globally without fair standards and rules. Small companies—without access to international affiliates and local data centers—rely on digital networks to advertise, cut costs and speed transaction times.
A U.S. digital trade agenda would help developing countries. The World Bank’s 2020 Development Report estimated that poorer countries would achieve average productivity gains of about 4.5% if they overcame restrictive data policies and would also boost their service enterprises by 5% in doing so.
While Washington dithers, others are dictating the maxims of the digital economy. China demands authoritarian controls and data localization, restricts transfers, discriminates, constrains technology choice, compels transfers of software, and favors national champions. Other countries, especially in Asia, are adopting parts of the Chinese model. Right now, as it debates the Digital Markets and Services Acts, the European Union is considering firewalls, digital sovereignty and strategic autonomy.
The U.S. should advance principles of digital trade: openness, inclusiveness, fairness, trust, privacy with interoperability, and cybersecurity. U.S. negotiators could build support across countries and topics by trying out new rules in modular packets. In doing so, Washington and its partners would retain the freedom to establish new domestic laws—for privacy, antitrust and platforms, to name a few—as long as they are nondiscriminatory.
To start, agreements could authorize e-signatures and interoperable authentication systems, encourage open architecture and technology choice, prohibit duties and fees on digital products, enable cross-border data flows while ensuring protection of personal information, limit data localization, and prohibit forced technology and software transfers. The U.S. should also promote open government data systems, which would encourage citizen participation and assist small businesses in accessing opportunities.
Over time, the U.S. should advance industry-led international standards for new services such as 5G, blockchain and quantum computing. Cooperation among business and government against cybersecurity threats would help, too. And Americans should promote ethical artificial-intelligence frameworks.
This digital trade agenda should begin with America’s natural partners: Australia, Canada, Japan, Mexico, New Zealand, Singapore, South Korea and the U.K. With such a coalition, the U.S. could work with those European Union countries that favor innovation, competition and connectivity as well as human rights and safeguards. Latin American, African and Asian countries that choose international openness could adopt parts of the new agreements as they gain experience.
As Mr. Biden begins his second year, he needs an idea that taps American innovation, looks outward and to the future, enhances competitiveness, creates good jobs and lowers prices, advances open societies, and draws centrist support. He needs a digital trade initiative.
Mr. Zoellick is a former World Bank president, U.S. trade representative and deputy secretary of state. He is author of “America in the World: A History of U.S. Diplomacy and Foreign Policy.”