Old Wine in New Bottles – How Protectionism Takes Hold of Digital Trade
| DOI | http://doi.org/10.1111/1758-5899.12737 |
| Published date | 01 November 2019 |
| Date | 01 November 2019 |
| Author | Erik Marel |
Old Wine in New Bottles –How Protectionism
Takes Hold of Digital Trade
Erik van der Marel
European Center for International Political Economy (ECIPE), and
Universit
e Libre de Bruxelles (ULB)
Abstract
This commentary argues that digital restrictions are spreading across many parts of the world, holding back prospective pro-
ductivity gains from trade. Barriers to digital trade have the same effect as standard barriers to trade in goods –they protect
incumbent firms at the expense of consumers. Just like tariffs on cars or semi-conductors slowed down the diffusion of new
technologies in previous spurts of innovation, digital protectionism will cripple countries in our current wave of Industrializa-
tion.
Call it the paradox of technological development. Innovation
is a force of ‘creative destruction’that ushers new competi-
tion into markets, but it also provokes protectionist
responses. During the first wave of Industrialisation in the
1800s new technology brought new goods which made
societies better off. But it also carried swathes of industrial
protectionism.
For instance, no country applied tariffs on cars before
they became tradable, but once they could be exported
many countries started to protect their auto producers with
border barriers. And later, when Asian producers rocked the
market for semiconductors, many of them were immediately
faced by tariffs or, as in the 1980s, by contingent trade mea-
sures such as quotas and voluntary export restraints.
Obviously, no country applies protectionist measures
before goods and services become tradable, but once they
are traded, there is a rush for protecting their own nascent
industries. And now, when societies go through the Fourth
Industrial Revolution, are policymakers about to repeat past
mistakes?
1
Do they try to protect incumbents by fighting
against new digital foreign competition?
It surely seems that way. In fact, barriers to digital trade
are becoming so widespread that it’s digital protectionism –
not Donald Trump’s silly tariff wars –that is the biggest
threat to globalization today.
The number of measures is growing fast. When colleagues
and I released last year the Digital Trade Restrictiveness
Index (DTRI), we listed more than 1,500 measures restricting
digital trade. And since then, we have seen a 3 per cent
increase of the number of measures being applied varying
from traditional barriers on digital goods to new types of
21st Century trade restrictions on new digital technologies.
The rise of digital barriers forms the biggest challenge to
today’s globalization not because of the size of the digital
economy, which only accounts for 6–8 per cent of value-
added and 4 per cent in employment tops (IMF, 2018;
OECD, 2014), but because the entire non-digital economy
depends on digital goods, services and data in order to
make them more productive. The digital economy is com-
prised of information and communication technology goods
and services such as telecommunications to provide the dig-
ital infrastructure, online platforms, digital-enabled services,
as well as the cross-border flow of data.
Restrictions in the digital economy slow down the ability
of digital trade to boost sectors becoming more effective by
using novel digital technologies that can come from abroad.
Many of these new restrictions have oftentimes been noth-
ing but thinly disguised digital protectionism. For instance,
data localization measures –requiring companies to localize,
store and process data within their jurisdiction –have
become the go-to regulation for many governments today
that want to reduce competition from abroad.
To be fair, data regulations themselves may not always
be necessarily bad. The exponential use of data in our
economies has presented policy makers with a trade-off
between economic digital opportunities and individual pri-
vacy. The heavy task of government is then to find the
right regulatory balance between developing the optimal
amount of protection against minimum economic costs.
For instance, the right to amend inaccurate data on the
web guarantees that individuals keep on having trust in
the global internet.
But the free flow of data across borders over the internet
itself now seems a distant past and all new restrictions force
many data-based services to stay local. Forced data localiza-
tion measures have become rife in countries varying from
China to Canada and prevent companies from sending data
abroad. These restrictions therefore stop data-intensive ser-
vices from being traded. Data localization policies also tend
to fragment the open nature of the internet.
Other regulations do not specifically target foreign com-
petitors but nevertheless have the effect of raising barriers
Global Policy (2019) 10:4 doi: 10.1111/1758-5899.12737 ©2019 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 10 . Issue 4 . November 2019 737
Practitioner Commentary
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