Playing into China’s Hands

It was distressing to learn last week that the Biden administration plans to retreat from the U.S. long-standing positions on digital trade in the World Trade Organization (WTO) e-commerce negotiations and instead opt for “policy space,” ostensibly to figure out what it wants to do. For those unfamiliar with the term, the need for policy space is an argument that India and a few other developing countries make when they don’t want to do anything but don’t want to admit it. It’s code for nonaction. Even if one assumes that the United States is sincere in wanting time to review its policy, unlike others who make the argument, the decision to do so is appalling. It is not just a missed opportunity, like the Indo-Pacific Economic Framework (IPEF), but a decision that will do actual harm to U.S. companies and U.S. strategic interests. Since the Office of the U.S. Trade Representative (USTR) was created more than 50 years ago, its mission has been to stand up for U.S. economic interests and U.S. companies through trade agreements that provide benefits to the U.S. economy. It appears that the Biden administration is now planning to abandon that mission and throw our companies under the bus.

This is particularly important because it is about digital trade, which is not only the wave of the future—not to mention the present—but also a sector where the United States is the global leader, thanks to companies like Google, Meta, Microsoft, Apple, and Amazon. These companies are global champions, not only employing millions of people and accounting for 10 percent of the nation’s GDP but also demonstrating U.S. technology and expertise all over the world, as well as disseminating American culture. Digital infrastructure is an important element of U.S. soft power, and normally, countries try to boost their economic and cultural leaders and help them run faster and compete more effectively. In this case, the Biden administration has decided to kneecap them. Instead of celebrating them, they have become villains.

That matters, of course, to the companies, but it also matters to the rest of us ordinary citizens because we are the beneficiaries of the global digital trading system the companies are largely responsible for creating. Do you shop on the internet? Use an ATM in a foreign country with your U.S. credit card? Use your cell phone in a foreign country? Use a secure messaging app with end-to-end encryption overseas? The interconnectivity largely created by Americans sustains the global trading system, and it is at serious risk of fragmentation from authoritarian states like China, which seek to control the internet and the access to information it provides, and from over-zealous regulators in the European Union who want to promote their companies at the expense of ours. The big issues are ensuring free flow of data and limiting requirements to store data locally—precisely the issues where the administration is withdrawing its support after decades of defending an open internet where data can flow freely.

The ostensible reason, policy space, masks the real reason, which is another example of the administration catering to progressives in the Democratic party. They are arguing for weak digital provisions in the IPEF as well as the WTO on the grounds that binding agreements would prevent Congress from acting in the digital space. This is wrong—Congress has always inserted language in the implementing legislation for trade agreements making clear that if an agreement’s provisions conflict with U.S. law, the latter prevails. It is also misleading. Progressives do not just want to give Congress time to act; they want it to act their way—meaning measures that will crack down on the “Big Tech” villains. Unfortunately for them, it is apparent from the last decade that Congress is not going to do what they want. More likely, Congress will do nothing of consequence since the divisions on digital issues are deep. That does not mean there are no tech policy issues that need to be addressed. But in the absence of congressional action, those issues are being addressed in U.S. courts and globally as the rest of the world moves on to deal with them in the absence of U.S. leadership.

That is too bad. This is a policy area that badly needs Congress and the administration to settle on clear policies. Absent that, EU digital trade regulation is likely to become the global default position, except for authoritarian states, to the further disadvantage of U.S. companies. I had hoped that while Congress may be paralyzed, the administration would not be and instead would demonstrate some leadership in support of a free and open internet, as previous administrations have done. Unfortunately, the administration seems to be in retreat mode and, as a result, is playing into China’s hands. This is politics at its worst, and the losers will not only be our global champion companies but also consumers of digital services around the world, including in the United States. In soccer terminology, this is not just a missed opportunity but a classic own goal. The administration should be ashamed of its policy decision.

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