Foreign nations are saddling U.S. companies — including startups — with discriminatory burdens. That deserves policymaker attention and fierce pushback from the administration’s top trade official. Instead, the U.S. Trade Representative is tacitly endorsing those barrier-raising policies. That should be a scandal. U.S. companies — especially startups that naturally have fewer resources to overcome foreign trade barriers — need their trade representative to fight for them.
The last few months have brought a cascade of disappointments. In multilateral talks at the World Trade Organization last October, the U.S. Trade Representative retreated from important and long-held negotiating positions on source code protection, antidiscrimination, and free data flows. Shortly thereafter, the trade pillar of the Indo-Pacific Economic Framework was seemingly jettisoned. Last month, in the National Trade Estimate — an accounting of trade barriers faced by U.S. companies — USTR markedly dialed back the number of digital trade barriers they intend to address, especially around data localization. These changes are alarming for startups that rely on smart digital trade policy to keep barriers low and help them reach markets around the world.
This week, Ambassador Katherine Tai, the U.S. Trade Representative, will sit for annual hearings in both chambers on the trade agenda, the first time she’s appearing since her unilateral 180 on digital trade that prompted bipartisan outrage. Members of Congress must use the opportunity to probe why her office is abandoning U.S. startups on the global stage.
Startups contribute overwhelmingly to U.S. economic growth and job creation, and they make up the majority of U.S. exporters. In order to succeed, they need a policy environment that keeps barriers to trade low. Historically and across administrations, the U.S. has pursued a strong, forward-looking digital trade agenda that sought to address digital trade barriers like data localization. That focus supported U.S. startups’ competitiveness abroad, because the myriad barriers encountered by startups dictate the markets where they can reasonably enter, create additional costs that could instead fuel R&D and job creation, and hamper U.S. economic growth by limiting the flow of goods and services across borders.
Restrictions on cross-border data flows have particularly negative impacts on startups. When startups encounter limitations on how and when data can be transferred across borders, it increases costs and can cause startups to lose clients in jurisdictions where the restrictions are present. As one founder explained, such data restrictions forced their company to “make major investments” in new digital infrastructure that was both “very costly,” and led the company to lose “prospects and customers as a result.” Another startup founder emphasized how data-localization measures impact what is economical for the company to offer to their users, saying “there’s a lot of things that can go away,” because the policy puts them in the difficult position of “choosing to keep local data or drop it if it might not be worth it price-wise for customers.” These sorts of barriers — where a foreign jurisdiction’s policy is increasing costs and limiting offerings for U.S. companies — are the type that USTR signals they’ll no longer fight. That’s a stark change and leaves a bleak outlook for startups’ competitiveness.
Ambassador Tai has sought to justify her moves on digital trade citing the need to provide “policy space,” for domestic regulation in the tech sector. But the reversal seems motivated by favor for policies that critics of the tech sector can’t pass through the Congress. Worse, that tussle over large technology companies leaves startups as collateral damage, especially when it comes to trade barriers like data localization.
The supposed need for “policy space” also seems to wrongly regard addressing trade barriers and domestic regulation as strictly in tension, which they are not. For example, USTR addressing discriminatory local data storage requirements (often imposed under the guise of enhancing privacy) does not impede the Congress from enacting a U.S. data privacy law. Ambassador Tai likes to say her agency “can walk, chew gum, and play chess at the same time.” That’s close enough a description for how trade policy and domestic regulation can coexist, just as they have until this point.
Ambassador Tai also need not worry about getting ahead of the Congress for another reason. The vote authorizing the United States-Mexico-Canada Agreement was overwhelmingly bipartisan. That agreement included a novel and forward-looking digital trade chapter that should be regarded as the gold standard.
Startups need Congress to reorient USTR back toward the meat-and-potatoes of trade policy — advancing U.S. interests. In an open letter earlier this year, dozens of startups called on U.S. trade policymakers to “aggressively pursue policies that lower barriers to trade and enable startup success.” The opposite — active retreat — is happening now. Let’s hope Congress can steer the agency back on course.
