The Digital Rant Continues

Last week I wrote about challenges facing the trading system and promised to reveal solutions to them in a subsequent column. This is not that column, but I will get to it soon. Instead, I’m afraid I must rant once again about the administration’s decision to back away from its longstanding support for free flow of information and opposition to data localization and source code sharing requirements. This is prompted by the administration’s multiple listening sessions last week to discuss its actions. Apparently, it has been stung by criticism from just about everybody on the way the decision was made and the lack of consultation on it. There has also been no shortage of people pointing out that the time to have listening sessions is before a decision is made, not after it had already been announced.

I was fortunate to be invited to one of the sessions. It was off the record, so I cannot report what other people said, but I can repeat what I said, with some embellishment, since we were supposed to talk for only three minutes. The group was diverse—people from think tanks, companies in a variety of sectors, trade associations, labor, and advocacy groups. And it was true to its name—we talked, and the administration listened. There was even some note-taking. Actual back-and-forth dialogue was missing, although it’s fair to say that if that had been attempted, we would never have gotten beyond the first two or three speakers.

Some of the participants had actual facts and examples to support their points, but, true to form, I just provided a rant and emphasized the following points:

1. Retreating from our historic support for free flow of information is an abandonment of American values of openness and transparency.

2. In making the decision to pull back its support, the United States has effectively abdicated its leadership, leaving the playing field to more active regulators in the European Union and China, whose actions are rapidly becoming the default alternatives for digital service providers—an outcome definitely not in our interest.

3. Worse, we have done this to a sector where the United States is the global leader and has a competitive advantage. I have always believed that our government’s obligation is to stand up for our guys. Regulate them if we deem it appropriate, but don’t surrender that authority to foreign parties who do not have U.S. interests in mind. Effectively, we are kneecapping our own industry—a self-inflicted wound if there ever was one.

4. The consequences of this decision accrue not only to the large tech companies, which appear to be the target of the administration’s progressive faction, but to virtually everyone in manufacturing or services, who depend on their ability to store and transmit data and protect proprietary source code. The biggest victims will be small and medium-sized businesses that do not have the resources to comply with foreign regulations.

5. The change in position has also sowed confusion among our friends and allies and in some cases caused difficulties for individuals who, at some political risk, have been defending the U.S. historic position in their countries and now find themselves undercut by the Biden administration’s action.

6. The stated reason for this action, the need for “policy space” to provide time for the U.S. to figure out what it wants to do, is a tactical mistake that will come back to haunt us. Policy space is a term that India, South Africa, Venezuela, and a few others have used as an excuse to block action in multilateral fora. It is widely seen as code for not wanting to do anything. The result is that instead of leading in the World Trade Organization (WTO), the United States is joining the group of countries dedicated to stopping progress. (Our refusal to comply with other WTO decisions has also contributed to our loss of influence there and the organization’s lack of progress.)

7. The idea that we need to take a pause and wait for domestic policy to catch up with technological reality is like waiting for Godot. Congress has failed to act in this space for years, and there is no likelihood that it will do so anytime soon. Meanwhile, the rest of the world is not waiting for Godot or anybody else. It is moving ahead with different regulatory approaches, led by the European Union and China that are designed to serve their political and commercial interests and not ours. The argument that we need time to “get it right” also ignores the fact that we had it right the first time. The administration’s time would be better spent persuading Congress to support the historic policy that embraces our values rather than withdrawing from the field and ceding leadership in the vain hope they might come up with something better.

Readers of this column know I have often been disappointed with the administration’s approach to trade. That disappointment is based largely on missed opportunities for more exports or better rules. The digital retreat is worse. It not only misses an important opportunity for leadership; it will do actual harm to an important part of our economy, cede our leadership in the global economy, and hang our friends and allies out to dry. We can and should do better.

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