Trump’s Bilateral Trade Focus Won’t Work for the Internet

World Politics Review, 20.03.2017
Susan Ariel Aaronson, profesora e investigadora de RRII (U. George Washington) y Kimberly Ann Elliott, miembro del Center for Global Development

Representatives from member countries of the Trans-Pacific Partnership met to discuss a possible new regional trade deal, Vina del Mar, Chile, March 15, 2017 (AP/Esteban Felix).

While much about U.S. President Donald Trump’s trade policy remains uncertain, his official 2017 “trade policy agenda,” released on March 1, clearly stated the preference for bilateral over multilateral negotiations. Echoing what he said during the election campaign, the trade agenda also emphasized national sovereignty and the enforcement of U.S. trade laws. Trump’s focus on bilateralism, however, comes with real costs. Bilateral negotiations are time-consuming and entail significant negotiating resources. Even when “successful” in narrow market access terms, firms can incur significant transaction costs from having to navigate the resulting tangle of inconsistent or conflicting rules.

Multilateral trade rules—such as those embodied in the World Trade Organization or in broad regional agreements like the Trans-Pacific Partnership, or TPP, that Trump quickly pulled the U.S. out of—bring more predictability and continuity to trade relations. With respect to one of America’s most important exports, digital trade, bilateral trade talks simply would not be useful because of the crisscrossing nature of global information flows. The platform for facilitating those information flows—the internet—is designed to be universal, open and global. That is why the system of rules governing trade in information flows needs to be global, as well.

Global information flows via the internet facilitate trade in ideas, services, data and other products. Businesses rely on these flows to access and manage markets and supply chains, and to enable transactions around the world. Individuals rely on these flows for information, to communicate with family, friends and colleagues, and also to access markets. Cross-border data flows are a key component of trade in information, goods and other services online. According to the McKinsey Global Institute, this digital trade is the fastest-growing component of world trade, and more than 10 percent of global trade in goods was conducted via e-commerce platforms in 2014. The WTO’s 2016 World Trade Report also highlighted the role of e-commerce in facilitating increased trade by small and medium-sized enterprises, which account for roughly half of U.S. employment and more than that in most countries.

Moreover, trade in information makes educational, scientific and technological progress vastly easier. And it brings those opportunities for progress to far more people than ever before. Anyone who can get online can take courses at the world’s most prestigious universities, study computer code or a new language, or search for information. Cross-border information flows create new ways for individuals to improve their livelihoods, whether driving for Lyft or Uber, renting rooms through Airbnb, or finding part-time work on global task sites such as Amazon Mechanical Turk.

Digital trade is increasingly vital to the American economy. The most valuable companies in the world today are U.S.-based internet firms such as Alphabet—Google’s parent company—Amazon, Apple, Facebook and Microsoft, which provide the hardware, software and platforms for such trade. Their growth also contributes to growth in other sectors. According to estimates from the U.S. International Trade Commission, roughly 75 percent of the economic growth created by the internet accrues to companies in traditional sectors such as steel, chemicals or textiles. These traditional industries have used these technologies to become more competitive and connect with new customers in markets around the world.

In that 2014 report, the U.S. International Trade Commission also estimated that digital trade’s combined effects of increased productivity and lower trade costs increased real gross domestic product in the U.S. by between $517.1 billion and $710.7 billion—some 3 to 5 percent. According to new estimates from the Bureau of Economic Analysis, the U.S. exported over $385 billion in digitally enabled services in 2014, more than half of the total exports of U.S. services that year. Digital exports contribute crucially to the U.S. running a surplus on services trade, unlike the goods side of the ledger. The trade commission also estimated that if the U.S. could reduce or remove the foreign barriers to digital trade, the country’s GDP could grow from between $16.7 billion and $41.4 billion. The easiest way to reduce these barriers is to find common ground on global rules governing cross-border flows of information.

Cross-border trade in data flows and other information are different from cross-border trade in goods or other services and need special rules. The current rules under the WTO are badly out of date, and American companies—which currently dominate key internet businesses, including social platforms, search engines and cloud computing—are keen to participate in multinational or regional talks to improve them. If not immediately rejected by the administration, the TPP agreement could have been a step toward the needed new rules. As negotiated, the TPP was the only such deal to include binding language on the free flow of information and digital trade. Just last week, the other signatories of the TPP met in Chile where they agreed to move ahead on a new regional trade deal without the United States—but perhaps with China.

If Washington negotiates bilaterally while other states negotiate regionally or internationally, American influence over the rules for such trade will be much weaker. Moreover, bilateral negotiations take time, and given the pace at which digital technologies are moving, the U.S. could find its companies being left behind. More fundamentally, separate bilateral deals with different rules could confuse market actors and undermine the stability and coherence of the internet.

Given the special features of global information flows, the Trump administration should recognize the limitations of a bilateral approach and consider a sectoral agreement on digital trade that encompasses as many countries as possible, encourages cross-border information flows and limits digital protectionism. Trump’s nominee for United States Trade Representative, Robert Lighthizer, said last week that digital trade is important and that he supports the free flow of information, but beyond that, offered no other details. If the administration backs a multilateral approach to digital trade, it could achieve multiple goals: preserving the internet as a shared global resource, maintaining the competitive position of American digital firms and protecting the growth of an increasingly important segment of the American economy.

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