California Needs a Digital Trade Deal

It’s no secret that technology is the backbone of California’s economy. In fact, despite the roadblocks posed by the pandemic, the tech sector helped propel California to a $15 billion tax surplus for the 2021-22 fiscal year and a projected $31 billion surplus next year.

However, the role of digital trade in driving the state’s economic success is often overlooked. In 2020, information and communications technology (ICT) services accounted for 16% of California’s total service exports, supporting nearly half a million jobs.

But as digital exports become an even larger part of the economy — in California and the rest of the country — it is imperative that the U.S. seize this opportunity for global leadership. To push back against a rising tide of digital protectionism, the U.S. needs to negotiate an enforceable digital trade agreement with allies and partners around the globe.

As the digital revolution has unfolded over the past decade, U.S. services exports delivered to customers overseas digitally have more than doubled. From software and computer services to audiovisual and financial services, digital services exports have become a major player in the U.S. economy and abroad.

Especially in the aftermath of the pandemic, demand has never been higher for digital services. In 2020, $84 billion of ICT services were digitally exported out of the United States. Of that $84 billion, California led the way, exporting approximately $21 billion worth of services — a quarter of total exports.

According to a report by the U.S. Chamber of Commerce, California’s digitally tradeable services exports supported 293,000 direct jobs and 201,000 indirect jobs for Americans.

However, global barriers to digital services exports are also growing. Other countries are adopting protectionist and discriminatory digital rules that unfairly target U.S. and California companies. These threats pose a major hurdle to American competitiveness and economic growth, and it is time we start addressing these threats head-on.

How would it work? A digital trade agreement would guarantee the ability to move data across international borders, prohibit forced localization of data or restrictions based on nationality of ownership, and bar customs duties on electronic transmissions, among other objectives.

A digital trade agreement is also needed to ensure small businesses can continue their export growth. Digital tools have made it vastly easier for smaller firms to advertise their products in foreign markets in effective and targeted ways. International payments and customs clearance have also been dramatically streamlined by digital tools. As a result, small companies that previously may have exported to just one or two markets abroad are tapping entire regions and watching export sales soar.

When looking for partners for a digital trade agreement, the U.S. should look to both established and potential markets. For example, Singapore has been importing services from California at a rapid pace, with exports of potentially ICT-enabled services to Singapore growing 330%, from $1.1 billion in 2011 to $4.8 billion in 2020. Other Southeast Asian countries are starting from a lower base but hold significant promise, as do countries in the Americas and longtime partners like the U.K.

Our recommendation is that the U.S. should negotiate an enforceable digital trade agreement with key partners who share our ambitions. The administration should approach a group of high-potential partners we’ve called the “Digital Dozen” — including select economies from the Indo-Pacific, the Americas, and the U.K.

The U.S. has not entered into an agreement with a new trade partner in a decade, and a digital trade agreement offers the perfect opportunity for new partnerships abroad. As a leader in digital trade, California should lend its support.

Jennifer Barrera is president and CEO of the California Chamber of Commerce. Myron Brilliant is executive vice president and head of international affairs at the U.S. Chamber of Commerce.