Viewpoint: US reversal on e-commerce rules will hurt global consumers

​The World Trade Organization headquarters in Geneva.

The World Trade Organization headquarters in Geneva.

REUTERS/Denis Balibouse
Last month’s surprise decision by the Office of the US Trade Representative to withdraw e-commerce proposals under discussion at the World Trade Organization is a new sign of growing US skepticism of free trade and the influence of big tech. The proposals, introduced by the US in 2019, aimed to establish rules protecting cross-border data flows and prohibiting national-level data localization requirements. We asked Xiaomeng Lu, a director of Eurasia Group’s geo-technology practice, to explain the consequences of the USTR’s reversal.

What are data flows and why are they important?

Technology firms gather a lot of information on our daily online activities such as whether we like a Facebook post, someone else likes our Facebook post, or how much time we spend browsing websites for a new pair of shoes. They use that information to improve their services, to give us recommended posts or websites based on our preferences.

The internet is designed as a seamless web, so your data can flow around the world. So a US or Chinese internet company with operations in Vietnam, Cambodia, and Thailand might choose to have a single data center for Southeast Asia in one of those countries that collects data from all three. That is the most cost-effective and secure set-up.

However, there has been a trend, especially among developing countries, to establish so-called data localization requirements that prohibit the transfer of their citizens’ data to another country.

Why is that?

There are multiple arguments given, but I think the main driver is economic. Countries increasingly see data as a new resource to exploit. They believe that a data center set up within their borders will be a source of new jobs and investment.

But they often dress up the requirements as being about law enforcement or national security, saying that if law enforcement needs access to their citizens’ data, it needs to be close by for easy access, which technically is not really the case.

How do restrictions on data flows affect companies and consumers?

Data localization rules can function as a type of trade barrier. Smaller companies might not be able to afford the investment of building a data center in a new market. Even larger companies might decide it doesn’t make economic sense to do so and decide to steer clear of a market with that requirement.

Ultimately, the consumer and digital inclusiveness will suffer. The classic example is the consumer in Africa, where people have come to rely on phone-based payment services. So if a small country in Africa imposes a data localization requirement, Apple Pay and other providers might opt to suspend operations there, depriving users of their services.

Why did the USTR reverse its position on this issue?

It's purely political. Lawmakers such as Sen. Elizabeth Warren (D-MA) who have been advocating tougher regulation on big technology firms have been pressing USTR to abandon attempts to enshrine protections for e-commerce in international trade agreements. They argue that making binding commitments to foreign governments limits the space for domestic policy debate on big tech.

Similarly, labor groups and associations of domestically focused manufacturers such as the Coalition for a Prosperous America have opposed US attempts to push for free data flows because they fear that whatever foreign governments ask for in return may hurt workers and companies in the US.

What has been the reaction to this move by USTR?

Anti-trade US lawmakers and advocates are obviously very happy. Warren responded by saying that USTR had rejected the efforts by big tech lobbyists to use trade deals to thwart regulation.

But the reversal of a longstanding US position came as a shock to other members of Congress, the US business community, and several countries that have been key US partners on digital trade priorities. A long list of tech and non-tech business groups issued statements and sent letters condemning the action.

So, what happens next?

The e-commerce discussions track at the WTO will continue but is not likely to achieve much, at least in the near term. The US reversal on data flows will probably affect the positions of other countries, including some that had moved away from data localization requirements. India, for example, recently significantly revised its policies to allow most data to freely transfer across borders. In the aftermath of the US reversal, reports in Indian media suggested India might follow suit.

Meanwhile, US protests over the USTR move prompted the White House to convene an interagency process with the National Security Council, State Department, and Commerce Department to discuss the issue. USTR is coming under some pressure to change its position on data flows at the WTO, or at least moderate it, but it’s not clear whether that’s really possible. Consultations may continue for some time and fail to reach any conclusion.

Edited by Jonathan House, senior editor at Eurasia Group.

More from GZERO Media

Staff remove bottles of US alcohol from the shelves of a Liquor Control Board of Ontario store as part of retaliatory moves against tariffs announced by President Donald Trump, in Toronto, Canada, on March 4, 2025.
REUTERS/Arlyn McAdorey

On Tuesday, Washington imposed tariffs of 10% on energy and 25% on all goods imported from Canada and Mexico and doubled its existing tariffs on Chinese imports from 10 to 20%. All three countries responded with harsh words and retaliatory measures. Will Donald Trump stay the course or backtrack in the days ahead?

A high-stakes race is underway to determine which country will supply the technology that powers the world’s emerging AI economy. While the US has the opportunity to lead, a last-minute Biden administration regulation – the AI DiffusionRule – risks undermining America’s ability to compete. By capping the export of essential AI components to key allies and partners, the rule could unintentionally push countries toward China’s rapidly expanding AI sector. @Microsoft supports strong national security protections, including ensuring AI technology is deployed in secure, trusted data centers. But the rule’s broad restrictions put vital markets – including Switzerland, Poland, Singapore, India, and Israel – at a disadvantage, limiting their access to American AI infrastructure and stalling economic growth. The Trump administration now has an opportunity to refine the rule – simplifying it, strengthening enforcement, and eliminating restrictions that hurt American innovation and exports. The race for AI dominance starts at home, and the US must empower its tech sector to compete on the global stage. Read the full blog to learn more here.

- YouTube

Does Trump's relationship with Putin isolate or concern China? What does the resignation of Iran's Vice President Zarif signal about tensions in the country? What's next for the Israel-Hamas ceasefire as the first phase comes to an end? Ian Bremmer shares his insights on global politics this week on World In :60.

Midjourney

Microsoft has joined a growing revolt against Biden-era chip export controls that tech companies claim will hurt American competitiveness. On Feb. 27, Microsoft publicly urged the Trump administration to roll back one specific set of restrictions on advanced AI chips imposed during Biden’s final days in office.

Viewpoint: China’s annual NPC meeting to address lackluster economy and Trump threat
VCG via Reuters Connect

Beijing is warning top artificial intelligence leaders – including researchers and corporate leaders – to avoid traveling to the United States owing to security concerns, according to a report published Saturday by the Wall Street Journal.

Elon Musk listens as President Donald Trump speaks in the Oval Office of the White House in Washington, DC, on Feb. 11, 2025.
REUTERS/Kevin Lamarque

Donald Trump’s administration laid off 170 employees at the National Science Foundation in February as part of a government-wide staff reduction. Critics say the cuts, which included artificial intelligence specialists, could hurt American competitiveness in AI research. While the agency said Monday it will reinstate 84 workers following a court ruling on March 3, experts warn the cuts, combined with looming government-wide staff reductions, could severely hamper the agency.