Tariffs miss real China trade war

Global digital domination is at stake

President Donald Trump’s tariffs by tweets and brinkmanship on both sides of the negotiating table have led to a breakdown in talks with China, an escalating trade war, and no doubt many sleepless nights in Chinese and U.S. boardrooms. But for the United States, the unease is misdirected.

What should keep our businesses and politicians up at night has little to do with levies on specific commodities or Chinese products. While Washington targets Beijing with tariffs over individual grievances, China is laying the foundation to direct and influence digital trade — the booming engine of global commerce — unopposed, with deep pockets and grand ambitions.

This should be our strategic and diplomatic focus, because what China is doing globally in this sphere has serious economic and national security implications for us today and well into the future. To the question of who will write the digital trade rules for the 21st century, the answer must be the United States. If it’s China, we will have ceded the global digital future to Beijing.

Digital trade covers everything from e-commerce to bank transfers to data collection. Today there are almost 4.4 billion internet users around the world, up more than 1,000% since 2000, with global e-commerce sales topping $2.8 trillion in 2018.

The costs of our inaction

Global regulations have not kept pace with this rapid growth, and U.S. businesses are forced to operate through a spider’s web of regulatory environments. Rep. Suzan DelBene, DWash., chair of the Digital Trade Caucus, warned recently that it’s critical for Americans to “reassert ourselves on the world stage” now and make sure that “we’re helping shape global digital governance.”

We’re seeing the costs of American inaction in real time.

With legitimate concerns over privacy and cybersecurity, and given the regulatory vacuum, many countries have moved to restrict digital trade. Nigeria, Turkey and others have data localization requirements mandating that companies doing business in their borders must keep the data in country on local servers, among other restrictions, rendering digital trade impractical.

Of even greater concern are countries like China and Vietnam, which use digital restrictions to censor the internet and monitor citizens. China provides its internet regulatory principles to developing countries — essentially exporting these tools of suppression.

With more people on the web than any other country, China has aspirations to remake cyberspace in its own image. Beijing launched the Digital Silk Road in 2015, investing $200 billion in a global digital infrastructure. This is a subset of China’s larger Belt and Road Initiative, a government global infrastructure program with $340 billion invested to date.

When developing countries buy Chinese equipment, they receive the tools to censor and control their internet while leaving their networks vulnerable to Chinese government cybertheft and interference.

U.S. needs digital Marshall Plan

Washington can and must act to counter Beijing’s well-funded and deliberate technological march across the planet. First, the United States must lead negotiations with like-minded nations for an international agreement laying out global digital rules of the road. It should be based on American values with the goal of securing an internet future of free, open and secure trade — not the Chinese model of limited access, censorship and government manipulation. Other countries could aspire to it and join over time.

Second, the United States must launch a major foreign assistance initiative to allow countries in the developing world to purchase U.S. internet and information and communications technology equipment, countering China’s aggressive and cheap financing of equipment. This “Digital Marshall Plan” would make the financing of a digital infrastructure in the developing world a strategic priority.

America would also need to provide technical assistance to develop internet regulations that allow open commerce, respect for privacy and protection of human rights.

Beijing is well ahead of Washington in the race to establish trade rules that tame — or rather maim — digital commerce. Beijing surely understands that though today’s tariff battles must be fought, the trade wars of tomorrow will be waged on a digital battleground. If we don’t commit to urgent, strategic investments and diplomacy to counter China today, Beijing will have a clear path to digital dominance that could undermine America’s national security and economy for generations.

Orit Frenkel, former senior manager for international trade and investment for General Electric, is executive director of the American Leadership Initiative and president of Frenkel Strategies.