China in Mind: Lawmakers, Industry Urge Biden Admin to Reverse Digital Trade Policy

Sen. Marsha Blackburn (R-Tenn.) speaks during a hearing on Capitol Hill, on Dec. 10, 2019. Alex Wong/Getty Images

Concerned over the Biden administration’s reversal on digital trade issues, politicians cutting across lines, and industry leaders have urged the White House to reformulate the country’s digital trade stance and stand up to China by supporting American workers and human rights.

The sudden shift in policy by the Biden administration last year has eroded American leadership in digital trade and poses a risk to the prosperity of both large and small U.S. companies, they say.

The decision also creates uncertainty and directly harms American innovation, which depends on the unrestricted flow of data and a digital trade framework based on rules, they add.

In late October 2023, the Office of the U.S. Trade Representative (USTR) informed the World Trade Organization of its decision to retract support for digital trade regulations initially proposed by the Trump administration in 2019.

These regulations included several key provisions, including ensuring the unhindered flow of data across borders, allowing tech firms to freely transfer user data between countries, prohibiting data localization requirements, which require data collected domestically to remain within national borders, and preventing authorities from scrutinizing potentially harmful software source codes.

The USTR also withdrew its support for non-discriminatory treatment of digital products, which would prohibit nations from giving preferential treatment to software, applications, or other tech products based on their country of origin.

“We are concerned that the administration is taking a laissez-faire approach to the foreign trade barriers that shut U.S. goods and services out of markets abroad. We have seen no new negotiations launched for market-opening trade agreements to tear down foreign trade barriers.” John Murphy, senior vice president and the head of international at the Washington-based U.S. Chamber of Commerce (Chamber), told reporters in a press call on Monday.

Mr. Murphy was addressing the press after the Chamber transmitted a letter to the directors of the National Security Council and the National Economic Council, urging the administration to reaffirm the country’s leadership in digital trade and advocate for U.S. businesses and workers confronting detrimental digital trade obstacles abroad.

“Our concerns regarding USTR’s retreat from digital trade protections underscore the critical need for a return to policies that safeguard cross-border data flows and prevent discrimination against American companies,” the letter said.

According to the Chamber, this move comes after the USTR abandoned key U.S. policy goals in the Indo-Pacific Economic Framework for Prosperity talks, significantly contributing to the breakdown of those trade negotiations.

The recently released 2024 National Trade Estimate (NTE) Report on Foreign Trade Barriers fails to address numerous digital trade barriers, contradicting the digital trade priorities. This omission also disregards the USTR’s statutory duty to identify and quantify barriers to “e-commerce” and “services exports” under Section 181 of the Trade Act of 1974.

“The enforcement of existing trade barrier agreements has also been deemphasized. Foreign governments may see this as a green light to raise trade barriers or discriminate against American companies,” Mr. Murphy added.

China Concerns

According to U.S. Senator Marsha Blackburn (R-Tenn.), American inventors and businesses of all sizes trade digitally. Without tariff or non-tariff obstacles, data flow enables rural families with online shops to sell their wares worldwide. It also lets businesses use cutting-edge supply chain management tools and share best practices with partners. The digital economy is crucial in every industry, and removing obstacles helps small enterprises to compete globally, generate economies of scale, and overcome geography-based trade restrictions.

However, many nations demand local storage of data acquired within their borders. American small enterprises pursuing worldwide expansion must invest heavily in data storage facilities and hire legal specialists to overcome complex international restrictions. Some nations allow American corporations to engage with local enterprises for data storage, but this might undermine data security control, exposing businesses and consumers to cyber dangers and data breaches.

Data localization regulations may spread internationally without strong U.S. leadership, hurting American firms’ ability to enter overseas markets, according to Ms. Blackburn. Smaller companies will struggle to comply with data localization laws, while huge enterprises can afford them.

She adds that the USTR’s actions threaten the United States’ position as a global leader in innovation and the digital economy.

“Degrading leadership on these issues will allow for adversaries like China to write protectionist digital trade rules that undermine the rule of law, open American businesses to additional intellectual property theft, and harm the millions of small businesses that are the lifeblood of the American economy,” Ms. Blackburn and her eight Republican colleagues wrote in a letter to President Biden last month, criticizing the administration’s digital trade decision.

Likewise, a bipartisan letter spearheaded by the House Digital Trade Caucus called on the USTR to reassess its decision regarding the policy shift.

“The decision to walk away from key digital trade proposals, which was made without sufficient consultation with Congress, runs counter to the interests of American workers and businesses of all sizes, while ceding more leverage to foreign powers, like the People’s Republic of China, to write the rules that will govern the global digital economy for years to come,” the letter said.

Widespread Opposition

Aside from Republicans and businesses, House and Senate Democrats too are demanding transparency on USTR’s decision-making process and its significant departure.

In early December, according to reports, a bipartisan coalition of 32 lawmakers, led by Senator Ron Wyden, a Democrat from Oregon and chair of the Senate Finance Committee, wrote a letter to President Biden, warning the USTR’s decision could result in a “policy vacuum,” allowing China and Russia to potentially shape global regulations on digital trade.

The signatories included Democrat chairs of Senate committees on Appropriations, Commerce, Foreign Relations, and Environment and Public Works, as well as 15 Republican senators.

“As we continue to navigate the complexities of the digital economy, we urge the USTR to reassert America’s leadership in advancing a digital trade agenda that serves the interests of our nation’s economy, companies, and workers,” the Chamber’s letter to the White House concluded.