Why Is the U.S. Surrendering to China On Digital Trade?

Americans have come to expect to be No. 1 in technological innovation. We have also come to expect that we will defend our global leadership position in technology.

Yet, a recent decision by the U.S. Trade Representative to withdraw key digital trade proposals from negotiations at the World Trade Organization raises questions.

Is America still serious about its commitment to safeguarding its global technology leadership? It’s difficult to answer this question with any confidence.

The USTR’s withdrawal from digital trade negotiations among 90 WTO nations not only undermines America’s position in the global tech landscape but also strengthens the standing of some of our most antagonistic adversaries in the race for technological dominance — especially China. The implications extend beyond economic considerations, affecting the values that underpin the international digital landscape.

The three digital trade proposals that the USTR abandoned — promoting the free flow of data across borders, rejecting data localization requirements and prohibiting the forced transfer of software source codes — were crucial for maintaining America’s global leadership on technology principles and practices.

—The promotion of the free flow of data is fundamental to global innovation, fostering collaboration and driving the digital economy. When data flow is restricted, not only does it stifle America’s economic potential but it also concedes ground to nations that advocate for a closed, censored and controlled vision of the internet, in contrast to American democratic values.

—Data localization requirements — mandating that companies store data locally — pose significant challenges and create cybersecurity vulnerabilities. Such constraints provide rival countries with a strategic advantage, granting them direct access to customer data stored within their borders, potentially compromising sensitive information, and preventing fraud detection and hindering cybersecurity across borders.

—The prohibition of forced transfers of software source codes is critical in preventing intellectual property theft and the unauthorized replication of original software. China has a track record of stealing $600 billion annually in intellectual property from the United States. Forced transfers of software source codes would make it even easier for China to acquire American trade secrets, facilitating rapid reverse engineering and potentially eroding the unique innovations of U.S. technology.

Republicans and Democrats in Congress have expressed dismay over the USTR’s decision. Senators Ron Wyden, D-Oregon, and Mike Crapo, R-Idaho, decried the fact that walking away from these negotiations not only abandons democratic allies but also creates a void that China is more than willing to fill.

It’s as if the USTR has raised a white flag and surrendered.

What’s most troubling is the apparent short-sightedness of withdrawing from these key digital trade proposals.

Does the United States still have the goal and the motivation to be the world’s leader on technology?

Wyden called the USTR’s withdrawal “a win for China, plain and simple.”

Crapo said, “We have warned for years that either the United States would write the rules for digital trade or China would. Now, the Biden administration has decided to give China the pen.”

Indeed, China has been trying for years to write the rules, and, unlike the United States, China has a vision for writing the rules well into the future.

In 2022, China laid out specific implementation roadmaps (an “Action Plan”) to flesh out its National Standardization Development Outline. The Action Plan provides a look into China’s highly strategic, long-term approach to becoming the authority on technical standards.

Giving further insight into China’s determination to play the long game, the “China Standards 2035” strategy was launched in 2018, creating a blueprint for China and its tech companies to set global standards for emerging technologies such as the Internet of Things, artificial intelligence and 5G.

The Action Plan emphasizes China’s desire to have greater involvement in international standard-setting bodies. Take, for example, the International Organization for Standardization and International Electrotechnical Commission, which are international standard-setting bodies that focus on IT and communications technology. The number of China’s ISO and IEC proposals has grown by 20 percent yearly. This shows China’s determination to gain long-term influence in standard-setting as well as in system design and rulemaking. Clearly, China’s goal is to assume the prime position in the global technology market.

At a time when one of our greatest global adversaries — a country with objectionable moral standards, a provocative military stance and antagonistic economic intentions — is making strides to gain technological and economic dominance, we must recognize that we are in a marathon to maintain American preeminence in global technology. 

The USTR should not allow foreign adversaries to overtake us.

Zach Sirek is a communications intern at Trade Alliance to Promote Prosperity.

Reprinted with Permission from DC Journal – By Zach Sirek