Redefining Protectionism: The New Challenge in the Digital Age

by Susan Ariel Aaronson (George Washington University)

IIEP Working Paper 2016-30

Twenty-first century protectionism is a slippery concept. With the introduction of digital trade, it is important for scholars and policymakers to rethink how they define, measure, and address protectionism. This is most clear in the United States where attitudes towards digital trade and digital protectionism have been murky at best.

While the digital is important to all countries, it is particularly important to the United States, where digital trade represents nearly 55 percent of U.S. service exports and has generated an annual trade surplus of over $150 billion. In a principal effort to limit digital protectionism and maintain an open internet for the advancement of the free flow of information, the United States made the move to create binding rules to govern trade in the Trans-Pacific Partnership and was the first country to call out digital protectionism in other nations. Policymakers now understand that information, whether it is created or altered within their county, is an asset. Therefore, measures that restrict content, limit the flow of data, or impose standards that keep out foreign competition could threaten the generativity of the internet as a whole.

However, many governments disagree with the scope and breadth of U.S. claims about digital protectionism. For example, Canadian and Australian policymakers are determined to protect the privacy of their citizens’ health records and require such information to be stored on local servers to an extent that tends to outpace U.S. standards. Adding to the confusion, U.S. arguments against digital protectionism are often inconsistent. For example, in a 2013 report on foreign trade barriers, U.S. officials complained about Japan’s uneven, and Vietnam’s unclear, approach to consumer privacy. At the same time, the United States has argued that China’s failure to enforce its privacy laws is harmful to digital trade.

Despite the importance of digital trade and digital protectionism, the United States has not thought out its stance on questions like: Is a policy truly protectionist? How harmful are these policies to U.S. interests? Are trade sanctions an appropriate response, and which agency should be responsible for making these decisions? As digital trade takes up a bigger portion of the global economy, policymakers and companies will need clarity. Given the stakes, it is important that the United States takes a leading role in defining digital protectionism.

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