Trade policy is a vital part of promoting domestic technology entrepreneurship. The Internet is inherently borderless and can enable startups to think global from day one. But it takes international cooperation and smart trade policy to keep it this way. Punitive trade policy that focuses on the imposition of new tariffs undermines goodwill with trading partners, invites retaliatory trade barriers, and threatens the vitality of digital trade policies relied upon by startups.
The policy choices critical to digital trade and U.S. startup success are increasingly under threat. Since the dawn of the commercial Internet, World Trade Organization members have agreed not to impose tariffs on digitally delivered products and services and data has generally been permitted to flow across borders. But several countries have erected barriers to cross-border data transfers, and a handful desire to tax digital goods. Addressing or avoiding imposition of these barriers takes cooperation from like-minded partners and confidence that eventual agreements will be honored, neither of which are helped by trade uncertainty, tariffs, or the mere threat of tariffs.
Imposing tariffs is generally bad policy in its own right. Tariffs are import taxes and increase costs for domestic entities. They invite countries to retaliate, which can take many forms harmful to U.S. startups. That could include tariffs of their own, reducing market access for U.S. companies. It could include the imposition of export controls for key tech components, like semiconductors, or key minerals needed for their production. Or it could include discriminatory digital services taxes, or implementing protectionist measures prohibiting cross-border data flows. Startups are likely to experience negative consequences on multiple fronts, and it’s essential that both startups and policymakers understand these dynamics.
The most generous way to view tariffs is as a negotiation tool, but the primary result so far has been heightened uncertainty, and the earliest framework deals announced have not addressed central digital trade issues. There are more effective and less caustic ways to achieve trade goals that open markets, enhance U.S. influence, and increase U.S. economic growth. U.S. trade policy should seek to smooth global regulatory patchworks, facilitate cross-border data flows, avoid sector-specific levies, and lower both tariff and non-tariff barriers to foreign markets. Pursuing a positive agenda guided by these goals is essential to unleashing U.S. economic prosperity and powering startup success.
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