The Biden Digital Trade Policy That Wasn’t

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Digital trade—the movement of data across borders—is the fastest-growing segment of global trade today. When data moves freely, the capacity to innovate and generate economic value expands, turbocharging growth. Nonetheless, American politicians have become increasingly wary of the digital economy, the vast power of Big Tech, and the free-market orthodoxy enabling its rise. The Biden administration has taken this shift in the zeitgeist to a new level by repudiating the market-oriented model of governance for digital trade—even at the cost of diminishing American leadership and fragmenting the global economy.

The United States has long championed protecting the free flow of data, limiting data localization, and safeguarding source code from forced disclosure. These core principles are enshrined in the United States-Mexico-Canada Trade Agreement (USMCA), ratified by Congress, and in the United States-Japan Digital Trade Agreement (USJDTA). They once informed the U.S. position on digital governance at the World Trade Organization (WTO). Not anymore.

President Joe Biden reversed decades of U.S. policy last year when his trade representative, Katherine Tai, stopped supporting these principles in Geneva and paused negotiations on the digital chapter of the Indo-Pacific Economic Framework (IPEF). U.S. officials wanted “policy space” for domestic regulation. This approach sounds reasonable, but it is unfounded because “policy space” is built into such agreements. Trade-phobia is a partial explanation at best. Democrats in swing states reportedly feared being branded as job-outsourcing globalists in the general election, even though the Republican administration of former President Donald Trump negotiated the USMCA and the USJDTA and tabled a paper at the WTO echoing the old policy line. The Biden team could have done the same, relying on the legal precedent of a ratified USMCA and decades of policy precedent. They had zero precedent to reverse course. So why did they take such a drastic step, and what are the consequences for the United States and the global economy? 

A Reversal Rooted in Biden’s New Washington Consensus

Biden believes historic levels of corporate concentration and the digital revolution itself are “drivers” of economic inequality, weakening democracies. A “fairer” America and a fairer global economic order thus require state intervention. Biden’s new Washington consensus demands that the United States leave its laissez-faire comfort zone and let the government redirect domestic investment, channel innovation, and fight unchecked corporate power using an expansive interpretation of antitrust law and a whole-of-government competition policy. In the bullseye is “Big Tech,” which Democrats and many Republicans agree is too powerful. Biden hired what the New York Times called the most aggressive antitrust team in decades at the Justice Department and the Federal Trade Commission (FTC) with a roadmap for rewriting the rules of American capitalism.

The team put digital matters at the center of their efforts, arguing that the digital economy enables unprecedented levels of monopoly power and new ways of abusing it. The worldwide connectivity of digital platforms makes this a global challenge. Cheered by progressives in Congress, they focused on IPEF’s digital trade chapter to further those efforts. In October 2023, prior to the annual gathering of Asia-Pacific Economic Cooperation leaders Biden was to host in San Francisco, his team paused negotiations, deprioritizing U.S. digital leadership in Asia and undermining part of Washington’s approach to technology rivalry with China. The digital reversal at the WTO followed. A U.S. official cited the right to “regulate in the public interest” and the need to “address anticompetitive behavior in the digital economy.”

“Bigness” Is Bad Again

Biden’s antitrust team is not wrong to consider how competition presents itself in the digital era. For many decades, antitrust laws have protected consumers from economic harm through the application of the consumer welfare standard, which considers alleged monopolistic behavior in terms of the impact on price, innovation, and quality. It is reasonable to consider whether digital platforms have changed the architecture of market power such that antitrust enforcement should address it. The U.S. trade representative is also not wrong to assert that digital trade is about more than just “trade rules.” The digital world engages social and political concerns, as well as concerns over national security, geopolitics, privacy, as well as consumer and labor rights. With the rise of artificial intelligence, it has to wrestle with crucial moral, ethical, and philosophical questions. 

Nonetheless, the administration’s starting point is that “bigness” itself is harmful because it allows companies to exert force over how the market operates and facilitates other social and political harms. The idea is not new or unique to the digital era. It originated during the Industrial Revolution when corporate trusts in oil, sugar, tobacco, steel, and railroads used exclusionary practices to crush competitors. In the 1890s, “bigness” became equated with monopolism and “immoral and injurious” pursuits, according to Senator John Sherman, author of the Sherman Antitrust Act, suggesting a broad definition of harm. That view persisted until the 1970s with the rise of the consumer welfare standard, the intellectual underpinnings for which were laid at the University of Chicago by Judge Robert Bork and adopted by the Supreme Court in 1979. The Biden administration wants to deemphasize reliance on economic analysis in enforcing antitrust laws. As a former Biden antitrust advisor explained, massive economic power can translate into massive political power, undermining democracy and threatening free speech and privacy. The administration wants to capture all these aspects of harm under an antitrust silver bullet rather than rely on other policy tools. 

This suggests that antitrust laws could be used to break up U.S. technology giants because they have too much political power or to protect small firms, even if they are inefficient. More importantly, the assumption that “bigness” is almost unequivocally harmful is disproven by the fact that it also arises because consumers simply like a firm’s products and services. For instance, they like ordering products from Amazon that arrive the next day. Some corporate concentration also boosts innovation and employment, according to recent research. “Bigness” might even be a necessary condition for innovation and lower prices, some argue. Research and development are expensive. Moreover, sacrificing the benefits of economies of scale and scope to consumers in order to address harm to other groups creates more problems. After all, everyone is a consumer.

Edging Closer to the EU

The administration is kicking America’s market-oriented model of digital governance to the curb and warming up to the rights-driven model of the European Union (EU). The concept of “bigness” as a potential indicator of current or future economic, social, and political harms, for example, lies at the heart of the EU’s designation of Big Tech as “gatekeepers” of the digital world under the Digital Markets Act (DMA). The act changes antitrust from law enforcement to preemptive regulatory compliance, as the Biden team is also attempting to do. Thus far, Big Tech has not exited the EU market but is adapting to the DMA. 

The perspectives of the administration and the EU have converged. FTC chair Lina Khan reportedly praised the DMA for addressing markets controlled by “digital gatekeepers.” U.S. trade representative Katherine Tai has not only extolled regulation as the EU’s “superpower,” but also, in defending the right to regulate in the public interest, has said that even if foreign governments target U.S. corporate giants, the United States should not object because, from a tax perspective, they may not be “American” after all. This is a shocking statement from a U.S. official, but it reflects the mood among some politicians on both sides of the aisle. 

The progressives pushing for these changes believe the United States should not enter into trade agreements, including on digital issues, that could tie Congress’ hands on possible future legislation. They want to enact legislation resembling what the EU is doing, but they do not have the votes to do so. Although both parties want more regulation and strong antitrust enforcement to rein in Big Tech, the members of each party disagree on methods—one of the reasons the United States has no federal privacy laws. Furthermore, taking free things away from consumers is always a political liability. Commerce Secretary Gina Raimondo made that point in February 2023 when she warned that banning TikTok would “lose every voter under 35 forever.”

That said, a growing cohort of younger Republicans are fans of the Biden approach because they think big business imposes a “woke” political agenda on the country. The Heritage Foundation’s blueprint for the FTC under a second Trump administration channels Biden’s arguments about unchecked corporate concentration undermining democracy. Should Trump win in November, given his past activism on antitrust and belief that Big Tech is biased against conservatives, he may continue the Biden policies and force Republicans to fall in line. 

For now, the administration is content to free-ride on Brussels’ activism while designating the DMA a barrier to trade on paper and claiming that its hands are tied on digital trade until Congress acts on digital policy. In fact, the administration is not only fine with the EU reining in Big Tech but also more comfortable than it should be with letting Europe set global rules. That explains the administration’s complacency toward serious bipartisan accusations that the president has ceded global economic leadership with his reversal on digital trade policy.

The Consequences for the United States and the Global Economy

Even if Washington no longer seeks to foster the conditions conducive to the expansion of American corporations abroad, the U.S. government should not support foreign governments in curbing American corporate expansion. The EU is going after the most valuable businesses in the U.S. economy, and its targeting of Big Tech in the short run benefits China. The DMA designated only one of its technology titans, ByteDance. Eventually, more Chinese digital platforms will be subject to EU regulations, but by that time, they will have a foothold in the EU market. As for the EU model of governance, there is a reason Europeans “use an American search engine, shop on an American e-commerce site, thumb American phones, and scroll through American social media feeds.” The EU is apparently unwilling or unable to address the need for both innovation and regulation at the same time. 

The U.S. trade representative implies that the administration’s digital reversal does not put America’s global leadership at risk because China’s model of state control over data flows is unappealing to most. Nonetheless, regional digital economy agreements and trade agreements with digital chapters dot the global landscape, but they do not all conform with each other. If trade is resilient to U.S. withdrawal, so is the business of setting the rules and norms governing it. 

The alternative to a global framework for digital rules is a “Splinternet” and balkanized digital trade. All nations would then make things that could only be sold in limited markets abroad. That is a recipe for shrinking, not growing, the middle class. 

Keeping America’s technological edge sharper than its competitors requires constantly running against the best in the business, no matter what corner of the globe they hail from. Ring-fencing American technology companies into the highly regulated, democracies-only global order the administration prefers will incentivize imitation over innovation.   

Unfortunately, the U.S. path is set—regardless of who wins the White House in November. That is the ultimate irony: an approach aimed in part at changing the political climate at home, growing the middle class, and forcing the political marketplace to reward the center rather than the extremes will do the exact opposite. Washington needs to reconsider its direction of travel before the rest of the world makes other plans.

Ferial Ara Saeed is the Founder of Telegraph Strategies LLC, a consulting firm. She has deep experience in economic, foreign policy, and national security issues and expertise in North Asia and the Middle East. A former senior American diplomat, she has advised cabinet and sub-cabinet officials in each of these areas. Follow her on X: @TelStratLLC.

Image: Salma Bashir / Shutterstock.com.