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Digital Deals: Kiss or Compete?

Oct 02, 2021
  • Zhang Monan

    Senior Fellow, China Center for International Economic Exchanges

China and the U.S. have competing and conflicting interests in the field of digital trade, but at the same time have enormous mutual complementarities and room for cooperation. Digital trade agreements should be a fresh platform for China-U.S. coordination and collaboration, rather than a U.S. tool to contain China.

Digital trade naturally leads to competition for science and technology, for rule-making and for dominance. In recent years, the internet and the rise of a new generation of digital technologies have overthrown the traditional states of trade. Digital products, services and technologies are increasingly taking the place of trade in goods as new commodities. Unlike the system of rules for traditional trade in goods, which have achieved full maturity, rule-making in the digital trade realm is in its infancy, lagging far behind the rapid growth in digital trade itself. In particular, multilateral frameworks such as the WTO have yet to make effective headway on the new subjects of digital trade, leading to fierce competition and wrangling over the rules.

Taking advantage of its strong capacity for rule-making and agenda-setting, the U.S. has wasted no time exporting rules templates via such regional trade agreements as the USMCA and UJDTA. Such agreements, which encompass the most comprehensive and advanced rules for digital trade in history, promote digital trade rules that cater to U.S. tastes from the bilateral level to the multilateral level, achieving leadership in the making of a new generation of trade rules and helping large internet companies with strong competitive advantages to enter overseas markets and expand the scope of digital globalization. 

During the Donald Trump era, the U.S. identified China as its foremost strategic rival and initiated competition with China from the perspective of digital geopolitics. Since taking office, Joe Biden and his administration have accelerated deployment of U.S. trade policies to the Asia-Pacific region. Digital trade will be an important link in U.S. attempts to rebuild its leadership there.

Asia and the Indo-Pacific have become hot spots in the global digital game. In early July, the Biden administration considered the possibility of reaching a digital trade agreement with such Asia-Pacific countries and regions as Australia, Canada, Japan, Malaysia and Singapore. The agreement would set standards for digital economy and trade, including setting uniform standards and rules for electronic payments, digital signatures, cross-border data flows and intellectual property and privacy protection.

Formulating a U.S.-led Asia-Pacific digital trade agreement outside the WTO actually means the U.S. has taken the first step toward indirectly joining the CPTPP. Biden is also attempting to integrate such trans-Pacific and transatlantic alliances as the Indo-Pacific Strategy and the Democratic Technology Alliance to form a sphere of digital influence and alliance, in the hope of reinforcing the containment of China at the level of international rules.

Forming small exclusive circles and artificially creating competition — and even confrontation — between two different systems and sets of rules will result in a lose-lose scenario in the long run. Strategic competition between China and the U.S., the world’s two greatest digital powers, will very likely be reflected increasingly in the digital field. However, for all their divergence in the area, they should not ignore the tremendous mutual complementarities and room for cooperation.

The U.S. leads the world in digital technology development. As a major exporter of digital technologies, patents, digital content and trade rules, the U.S. holds digital trade as a core interest. China has not only rapidly become a major player in the digital economy and in digital trade but is also increasingly evolving into a major digital consumer with promising potential. With its tremendous demands for digital technologies, services and products, China will have to attract global digital companies and promote international cooperation in digital trade.

As a long-term trend, it’s not impossible for China and the U.S. to both be members of the CPTPP. China is proactively accelerating negotiations to dovetail with the high standards of international digital trade under the CPTPP framework, trying hard to formulate a Chinese solution to digital trade. The CPTPP sets a high-threshold in digital trade second only to the USMCA, and China formally applying to join suggests that it has the will and determination to use it to press for domestic reforms, expand opening-up in a comprehensive manner and dovetail with high-standard international frameworks of economic and trade rules. In the foreseeable future, with Chinese obstacles to digital trade being steadily removed, in step with further reform and opening-up, as well as with innovation in the domestic digital market, there will be greater space for China-U.S. cooperation. 

For example, China has made strenuous efforts in such aspects as reducing and even eliminating unreasonable departmental stipulations that impede cross-border data flow, improving technologies for data supervision, managing data by category and enhancing coordination with its main trading partners regarding cross-border privacy protection. It will work hard to promote institutional openness of digital trade in rules, regulations, management and standards, which means digital trade — an area where openness has been quite limited — will be a new area of higher-level opening-up in China.

Regional digital trade agreements should thus not be a U.S. tool to contain China but should be a new platform for bilateral digital cooperation and consultation.

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