Commentary / World

Risks of unilateral governance of digital trade

by Jia Yao Kuek and Jason Jia-Xi Wu

Cambridge, Massachusetts

Recent developments in the U.S.-China trade war, particularly on issues of digital trade, reflect the deficiencies of international law. Specifically, recent unilateral actions by both sides show how multilateral institutions such as the United Nations and the World Trade Organization are ill-equipped to handle issues of global governance relating to digital technology. These actions include the most recent round of unilateral U.S. tariff increases on Chinese imports, as well as China’s response — such as retaliatory tariffs on $60 billion of U.S. goods.

In the tech arena, the mandated sale of U.S. firms Grindr and Patientslikeme by the U.S. Committee on Foreign Investment in the United States by their Chinese investors, as well as President Donald Trump’s executive order last week — giving the U.S. government more control over any sale of U.S. technology related to the intentionally vaguely defined areas of national security or the digital economy — all reflect this growing interventionist approach by the U.S. government.

Ultimately, the task of regulating the international digital economy has largely been left to individual states. For example, a recent development in digital trade protection has been the addition of digital regulation requirements in chapter 19 of the United States-Mexico-Canada Agreement. While the USMCA understandably seeks to standardize rules for digital privacy protection, online consumer welfare and government data disclosure across its participating countries, such agreements are always designed in conjunction with the strategic national security priorities of its member states. Specifically, a stronger member-state — in this case, the U.S. — would take the initiative to center the creation of such regional norms around its own national security interests.

As such, this unilateral approach sets a worrying precedent for potential U.S. negotiations of free trade pacts with allies and partners, while more fundamentally reflecting a new era of ad-hoc globalization in interstate relations. Such fragmented global governance would manifest in unilateral policy changes, and a preference by states for bilateral (over multilateral) dialogue. All this will entail a more unpredictable, arbitrary operating environment for firms — all the while reinforcing the distribution of power in international politics.

More worryingly, an increasingly ad-hoc approach to globalization is also conflated with a larger issue of potential decoupling in the world’s two largest economies. Decoupling and disengagement reduce mutual exposure of both sides to each other. Hence, given the diverse players in the global economy, the specter of economic decoupling between the world’s two largest economies also risks pulling in other global players.

As a result, the world may witness the emergence of competing spheres of people, goods, ideas and data. Given the conflation of digital trade and security issues, national governments may coalesce around rival political blocs as well. Currently the U.S., together with its allies and partners, is linked by a strong network of intelligence sharing and security cooperation agreements. For example, the Five Eyes defense partnership relies on the data-gathering and analysis efforts of the U.S., the U.K., Canada, Australia and New Zealand. Additional partners and allies include several other NATO members, Japan and South Korea.

On the Chinese side, while overseas data collection allegations about the Chinese government have so far coupled as much truth as hyperbole, partnerships are emerging. For example, Beijing has been promoting its Beidou navigation system — rivaling the U.S.-run global positioning system — to countries along the route of its “Belt and Road” initiative. In addition, the rapid expansion of Chinese social networking apps abroad — such as Tiktok, Helo and SHAREit — has sparked a backlash in many countries.

For example, Indian politicians accuse Chinese apps of capturing and potentially misusing Indian user data, with the Indian defense ministry even classifying many of these apps as spyware. Tiktok was recently banned in India because of alleged government accusations that the app failed to manage the spread of explicit material on its platform.

In contrast to the flow of foreign user data from Chinese apps back to China — the Chinese government has consistently imposed digital barriers relating to cross-border data transmission and cloud computing services, in addition to data localization requirements for foreign companies operating in China. A parallel global data ecosystem, as dominated by Chinese government interests, is emerging.

This process was only further evidenced, and exacerbated, by Google’s decision on Sunday to rescind Huawei’s license to various critical Google apps and services, as well as further updates to its Android operating system. The trend of both American and Chinese firms increasingly marching in lockstep with their respective government’s policies is a worrying omen for the strength of the free market and private enterprise in an increasingly protectionist global landscape.

Conversely, even avoiding a worst-case scenario, any alternative predictions are equally daunting. If the trend of a gradually emerging unilateral governance approach toward digital trade issues continues, all countries stand to suffer from the increased curbs on the free flow of people, ideas and goods across the globe.

Citing the aforementioned backlash to Chinese apps in India, such a nascent prospect is nevertheless rapidly turning into reality. Indeed, the previous example of the Chinese government’s control over data collection and storage is prescient. China is not alone in pursuing many of its data protection policies. Various countries, such as Russia, Indonesia and India, have also issued regulations mandating firms to store data locally for a range of data categories.

At the end of the day, however, raising barriers to digital trade specifically, or advocating a unilateral, ad-hoc approach to governance of digital trade more generally, risks more than just economic losses. Future global challenges in managing the digital economy, as well as an emerging Sino-U.S. geostrategic rivalry, are inherently intertwined narratives. Ultimately, economic decoupling may feed into an increasingly escalatory geopolitical rivalry between the U.S. and China — as manifest in parallel global data ecosystems.

Jia Yao Kuek is a graduating Masters of Arts student in the Regional Studies East Asia program at Harvard University and Jason Jia-Xi Wu is an M.A. candidate in that program.