Small businesses will face increased logistics and e-commerce costs due to the retraction of widely supported U.S. digital trade rules.
the Office of the U.S. Trade Representative (USTR) announced it was walking back the longstanding U.S. position in support of strong digital trade rules. As we previously noted, this move will harm American workers, open the door to unfair treatment of U.S. companies, and threaten our global competitiveness.
These rules are framed to prevent foreign governments from unfairly targeting American companies. USTR’s shift sends a signal that Washington may no longer protest such discrimination against U.S. companies.
Of primary concern is that American small and medium-sized businesses will be hit hard. Let’s take a step back to identify the issue and why it’s so critical to the success of smaller businesses across the U.S.
What is digital trade?
Digital trade is commerce enabled by electronic means. In other words, it is anything that is facilitated by digital technologies, whether it is digitally or physically delivered. For example, digital trade would include the purchase and physical delivery of a paper book through an online marketplace as well as the purchase and digital delivery of an e-book.
Why does it matter to small businesses?
Digital trade is opening markets to American small businesses, which have seen their overseas opportunities grow thanks to e-commerce platforms and digital advertising tools that allow them to benefit from the following (among many other things):
- find new customers via targeted online search and other tools;
- adopt e-payment systems that ensure quick, economical, and safe transactions;
- employ cloud technology that allow them to operate with the sophistication of a major multinational business; and
- utilize shipping, customs clearance, and fulfillment providers that enable them to send products worldwide.
How will USTR’s move impact small businesses?
Unlike larger companies, smaller businesses with fewer products, service lines, and resources usually cannot carry the increased costs of data localization, forced technology transfers, and arbitrary application of regulation to U.S. firms.
Removing U.S. support for combating cross-border data restrictions will make it easier for other countries to impose forced localization of data or other measures on critical data flows. It will also make it harder for smaller businesses to move their data across borders.
Additionally, ending U.S. support for source code protections will make it easier for adversaries to carry out cyber and intellectual property theft against vulnerable businesses—the costs for which are harder for small businesses to bear.
Finally, weakening protections for U.S. companies abroad will incentivize foreign governments to employ discriminatory practices as a way of generating revenue or meeting political goals—all at the expense of the U.S. economy.
This all comes at a time when global barriers—like data localization measures and other regulatory restrictions—to U.S. digitally tradeable services exports are on the rise. Left unchecked, the proliferation of these restrictions threatens to deprive American workers and companies of the potential benefits of exporting digitally tradeable services.
What’s next?
As noted in a recent letter outlining the USTR decision’s impacts on smaller firms:
“Stepping away from the negotiating table weakens the global competitiveness of U.S. startups and small businesses and cedes leadership to countries like China that remain at the table, buoying anti-democratic and oppressive governance proposals and policies that directly contradict U.S. policies, including those just agreed to by the United States in the G7.”
Small and medium-sized businesses are resilient, but that doesn’t mean they are impervious to the harm wrought by sudden policy changes. They shouldn’t have to worry that the U.S. government won’t have their back. USTR needs to restore America’s longstanding support for strong digital trade rules—for the sake of U.S. businesses of all sizes.