Affirming Globalization While Trying to Kill It

Several weeks ago, I ranted about the letter from a number of progressive senators and representatives attacking the administration for its presumed proposals in the Indo-Pacific Economic Framework (IPEF) negotiations on digital trade rules. Subsequently, Nigel Cory and Robert Atkinson of the Information Technology and Innovation Foundation posted their own piece on the same subject which is much better (and longer) than mine but makes similar points. At about the same time a group of business associations wrote a letter criticizing the administration from the opposite perspective—that it was not being ambitious enough in seeking strong rules that would guarantee the free flow of data, prohibit requirements to “localize” data—store it in its country of origin—and protect intellectual property. Apparently, the Office of the U.S. Trade Representative (USTR) can’t please anybody these days.

Another parallel fight has been going on for some time that raises similar issues—the U.S. high-tech community’s objection to a growing number of EU measures to regulate digital trade. CSIS has studied that issue in some depth in a series of papers, the largest of which estimated the cost of complying with the European Union’s Digital Markets Act and Digital Services Act to U.S. and European businesses: $22–50 billion for U.S. companies and as much as $71 billion for EU companies. There are other similar proposals being developed that will also harm U.S. tech companies, most recently the proposed EU Cloud Services Certification (EUCS), which is ostensibly voluntary, but USTR fears it will end up mandatory in at least some situations—see its annual National Trade Estimate on Foreign Trade Barriers issued last March. The U.S. industry’s criticism in these cases is not that USTR is supporting these measures (though there are progressives that do) but rather that it is not fighting them hard enough. They note the enormous fuss the European Union has created over the Inflation Reduction Act’s electric vehicle tax credits and want to know why USTR is not creating a similar fuss about what the European Union is doing on digital regulation. They are worried that these issues appear not to be on the table at this week’s Trade and Technology Council meeting in Sweden and see a significant missed opportunity amid the absence of other appropriate venues for taking them up.

I could go on with a rant against the U.S. progressives and the European Union, since I think the U.S. industry has the better argument on these issues, but instead I want to comment on two larger consequences of these debates. The first is that, stripped of a lot of the rhetoric, these issues are really about discrimination. The various EU regulatory measures, certainly in effect and probably in intent, clearly discriminate against large U.S. firms like Google, Meta, Amazon, and Apple. The U.S. progressive argument likewise is that the antidiscrimination measures on data flows USTR is pursuing in IPEF would benefit the same large firms:

“Big Tech wants to include an overly broad provision that would help large tech firms evade competition policies by claiming that such policies subject these firms to ‘illegal trade discrimination.’ This language would provide a basis for Big Tech firms, as well as foreign governments, to attack tech policies as ‘illegal trade barriers’ simply because they may disproportionately impact ‘digital products’ of dominant companies that happen to be headquartered in the U.S.”

In other words, “antidiscrimination” is bad because it would help big companies, which should be regulated more tightly than small ones. (Both the European Union and the progressive views on competition policy are essentially that big is, per se, bad.)

These arguments are contrary to national treatment, which is one of the two bedrock principles of the World Trade Organization and its predecessor, GATT. National treatment requires countries to treat foreign parties the same as domestic parties. Arguing that discrimination should be okay is a dangerous trend that will undermine the trading system. We are already seeing it elsewhere in calls to remove Permanent Normal Trade Relations (PNTR) status from China, for example, and it can only lead to a more fragmented economic world at the cost of growth and jobs.

Ironically, these movements toward discrimination effectively affirm the reality and importance of globalization. The commission is upset because there are U.S. firms winning the competition in Europe, presumably at European companies’ expense (though it is hard to find a European Google or Meta analog). Our progressives don’t want the same companies to do the same thing in Asia, or in the United States, for that matter. Apparently, success has become a bad thing, but that’s an issue for another column. However, in both cases, the opponents of our companies’ success are going after them internationally, acknowledging that companies operate in a global environment and if they are to be limited, it must be done multilaterally. Cynics will argue, correctly in my view, that our progressives are going after them globally because they don’t have the votes to contain them domestically, but even if that is true, their efforts are a de facto acknowledgement of globalization and that dealing with things they don’t like needs to be done globally if they are to be effective. So, even as they are fighting globalization, trade skeptics are affirming that it is an essential element of our lives. You’ve got to love the irony!

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