Why the Trade Debate Isn’t Just About Material Goods

October 1, 2018, 7:14 PM UTC

The public debate over global trade and tariffs that is playing out around the world is squarely focused on material goods. And for good reason: Products you can see and touch, such as cars, corn, or mobile phones, are the easiest way to understand how global commerce works.

But the less tangible trade story that has yet to make headlines is digital trade. The reality is that digital trade has become crucial to economic growth and job creation, and if we don’t use the opportunity today to protect and responsibly grow global data flows, we will jeopardize growth around the world.

To say that data is critical to the global economy would be an understatement. In the U.S., from 2006 to 2016, the digital economy grew at a rate almost four times faster than the economy did as a whole. And of the 13 million new U.S. jobs created since 2010, almost two-thirds needed employees to possess medium or advanced digital skill levels. Cross-border data flows already make a bigger contribution to global GDP than trade in manufactured goods does.

Take a moment to think about what would happen if all the data supporting the modern global economy were suddenly restricted through the digital equivalent of tariffs or protectionism. How drastically would the economic value of the Internet plummet? How dramatically would all of our daily lives be impacted? What would happen to job creation? The picture would not be pretty.

At IBM, we intimately understand the role that digital trade plays in our lives and its importance to the health of the global economy. We process 87% of global credit card transactions, manage half the world’s telecommunications IT infrastructure, and support nine of the top 10 global retailers. The free flow of data is at the center of all of this.

It is imperative that governments work in partnership with corporations to protect and expand data flows. This will allow businesses and individuals to move, manage, and share data responsibly and seamlessly around the world. We are seeing some progress in new trade agreements currently being negotiated, but big opportunities call for an even bigger idea. It’s time for world leaders to negotiate an international digital economy agreement to protect and grow data flows on a global level. This agreement would be built on three key principles of digital trade:

  • Permit free flows of data across borders. The rule should be that data flows freely unless there is a compelling public policy reason why it should not. Exceptions could be granted to obvious areas such as national security.
  • Prevent data localization mandates. Some countries, in the interest of data security, are pursuing trade policy that forces data to be stored locally—but hackers don’t care where data is stored. These policies won’t solve the security issue and will slow down innovation. We need an agreement that protects data flows from protectionist localization policies.
  • Protect algorithms and source code. Governments should not mandate that firms give up control of their algorithms or source code—the crown jewels of their business—as a condition of doing business in a country. IBM goes to great lengths to secure our source code, and we believe governments should treat companies’ rules today with the same care and protection that they gave to product design companies in the 20th century.

Implementation of these principles is gaining traction. The U.S., Mexico, and Canada have added them to the United States-Mexico-Canada Agreement (USMCA), on which a deal was reached on Sunday to replace the North American Free Trade Agreement (NAFTA). In Europe, policymakers have created a robust Digital Single Market.

This progress is promising, but it’s not enough. We need to develop a global digital trade agreement grounded in trust and responsibility. Cars and corn and phones are vitally important, but unfettered movement of data must become part of the trade discussion. The risks to future economic growth for the world are too great to ignore it.

Martin Schroeter is the senior vice president of IBM Global Markets.

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