Why Digital Trade Is a Key Component of Economic Freedom

COMMENTARY International Economies

Why Digital Trade Is a Key Component of Economic Freedom

Jul 15th, 2020 2 min read

Commentary By

Gabriella Beaumont-Smith

Policy Analyst, Macroeconomics

Anthony B. Kim @akfreedom

Research Manager and Editor of the Index of Economic Freedom

Through digital connections within the United States and around the world, the pandemic has exponentially amplified the exchange of information, products, and other services. Peopleimages/Getty Images

Key Takeaways

The ongoing coronavirus pandemic has confirmed the critical value of e-commerce—and more broadly, digital trade.

E-commerce has become the lifeline of many businesses and helped others maintain some sense of normalcy during the coronavirus pandemic.

Digital trade is a win/win strategy for producers and consumers, and for Americans and foreigners alike.

The ongoing coronavirus pandemic has confirmed the critical value of e-commerce—and more broadly, digital trade.

The outbreak has significantly constrained people’s physical contact and movement to an unprecedented degree. Even so, through digital connections within the United States and around the world, the pandemic has exponentially amplified the exchange of information, products, and other services.

Over the past two decades, the global reach of the Internet—facilitated by rapid advances in information technology and the related growth of global value chains, through which different production stages are located and added across countries—has expanded the range of products tradable digitally within national borders and far beyond them.

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Countless companies in almost every industry are relying on digital platforms that are often utilized across borders to enhance efficiencies and better compete globally.

Not surprisingly, the coronavirus pandemic has reinforced that trend. E-commerce has become the lifeline of many businesses and helped others maintain some sense of normalcy during the coronavirus pandemic. People can, for the most part, buy what they need online. They can also continue to socialize through the use of platforms such as Zoom.

Growth in trade through digital platforms has improved efficiency, enhancing the benefits that the freedom to trade has already brought to millions of people in the United States and around the globe.

In recognition of the benefits of digital trade, the current Trade Promotion Authority, which was signed into law in June 2015 and extended in June 2018, contains negotiating objectives specific to “digital trade in goods and services and cross-border data flows.”

Among other things, the provisions instruct the president “to ensure that electronically delivered goods and services receive no less favorable treatment under trade rules and commitments than like products delivered in physical form,” as well as “to ensure that governments refrain from implementing trade-related measures that impede digital trade in goods and services, restrict cross-border data flows, or require local storage or processing of data.”

As a result, new trade agreements have notably addressed digital trade. Particularly, the United States-Mexico-Canada Agreement (USMCA), which went into force July 1, offers welcome policy developments, where “substantive improvements” were made in digital trade, intellectual-property rights, and cross-border data flows.

Trade liberalization and digitalization enhance the benefits of trade, improving overall economic freedom for individuals and enterprises. The freedom to trade has increased living standards around the world and pulled millions out of poverty.

The growth of digital trade will propel this effort, increase transparency, and help countries to hold each other accountable for illegitimate trade actions.

Going forward, as our recent Heritage Foundation report highlights, policymakers in Washington need to prioritize digital trade in ongoing trade talks.

Practical and forward-looking discussions on e-commerce present a unique opportunity for mutually beneficial trade negotiations, especially given that engaging in e-commerce will facilitate post-pandemic economic recovery as well.

The modern digital trade provisions of the USMCA and the U.S.-Japan Digital Trade Agreement serve as good models for extending the benefits of trade for additional consumers and producers.

Digital trade is a win/win strategy for producers and consumers, and for Americans and foreigners alike. 

Washington should encourage and enhance digital trade to spark constructive free-market competition and ensure private sector growth for the post-pandemic global economic recovery.

This piece originally appeared in The Daily Signal