The digital economy, trade agreements and the 99 percent

The Internet has enabled a global market where small businesses, entrepreneurs and consumers all thrive.

Image credit: Getty

Who benefits from trade deals like the Trans-Pacific Partnership (TPP)?

Critics—like Joseph Stiglitz and Senator Elizabeth Warren—charge that these agreements would primarily help the world’s one percent. Stiglitz, for example, claims there’s a real risk that TPP will “benefit the wealthiest sliver of the American and global elite at the expense of everyone else.”

But a rapidly growing segment of the 99 percent—entrepreneurs, small businesses, and consumers who trade globally on the Internet—likely sees things differently. For these newly empowered traders, the TPP—and pacts like the Transatlantic Trade and Investment Partnership (TTIP) and the Trade in Services Agreement (TiSA)—can play a critical role in supporting their businesses by writing new rules that promote and protect electronic trade.

With some 3 billion people connected to the Internet, world trade is increasingly digital. As we detail in a new Progressive Policy Institute report, this electronic revolution is radically transforming who can trade. Increasingly, e-platforms like eBay and PayPal and shippers like FedEx and UPS enable even the smallest traders to sell worldwide—often as easily as large, deep-pocketed multinationals.

North Carolina entrepreneur Katie Hughes, for instance, uses the Internet to export her innovative “Slip-On Dancers”—a $15 band that turns virtually any shoe into an aerobic dancing shoe—to over 20 countries. Many on-line entrepreneurs are actually “born global.” During its very first year in business, on-line custom tailor Black Label used digital tools to export to 74 countries.

Consumer International’s Helen McCallum calls this the “democratization of trade.” And as one recent study put it, “cross-border trade is no longer an activity exclusive to global corporate elites.”

Small firms that use digital platforms are especially prolific exporters. While only about one percent of America’s small businesses export, an astounding 97 percent of eBay’s small commercial sellers are exporters—and 81 percent of these exporters sell to five or more foreign markets.

Growing global commerce in software, mobile apps and cloud services also drives more inclusive trade. For example, foreign sales have fueled rapid growth at companies such as Midwest-based JAMF Software, an enterprise software developer for Apple devices, which has grown from a one-person shop to a 300-employee global operation that serves 30 of the Fortune 100. 88 percent of the top 500 app developers are small businesses; over half of the millions of jobs in the cloud sector are with small or mid-sized firms.

By boosting small business trade, the Internet provides significant—and broadly shared—dividends for communities, workers, and the overall economy. Studies show that small firms that trade are more productive, grow faster, pay better, and are more resilient than other small businesses and, like small firms generally, are a powerful force for job creation, opportunity and mobility.

Digital commerce can only deliver these benefits, however, if electronic trading routes remain open. Unfortunately, there’s a growing trend toward digital protectionism, as governments worldwide adopt or consider an array of trade restrictions on the Internet and e-commerce.

An expanding list of countries—including Australia, Brazil, Canada, Mexico, Russia, South Korea, and Vietnam—are enacting or have proposed rules that significantly restrict the ability to send personal data across borders. Other countries are mandating the “localization” of digital infrastructure by, for instance, requiring that e-commerce providers set up expensive—and commercially unnecessary—local data centers. Some in Europe want a “splinternet” where European data would stay in a “European cloud.”

Some digital restrictions are based on a genuine concern for privacy or security, but are often too broad, and unnecessarily impede trade. In many other instances, however, digital barriers are little more than a misguided grab at the economic benefits of the Internet economy.

Studies show that digital trade barriers are ultimately bad for countries that build them and for the overall global economy. And these barriers can place special burdens on small and non-traditional traders, who often lack the bandwidth to deal with proliferating data rules or establish local operations, and who ultimately pay higher costs imposed by expensive localization mandates.

New trade rules would prevent trade barriers from eroding the broadly shared benefits of global digital commerce, and America has been at the forefront of efforts to secure fair and open digital trade in the TPP, TTIP, and TiSA trade talks. Pending Trade Promotion Authority (TPA) legislation would also underscore the importance of digital commerce in U.S. trade negotiations—eliminating barriers to Internet trade and ensuring that legitimate restrictions on e-commerce are transparent and nondiscriminatory.

Protecting and promoting digital trade will not be easy. And it will ultimately require cooperation beyond trade, including a global consensus that supports both strong and interoperable rules on data privacy.

In a recent editorial, Elizabeth Warren asked who would benefit from the TPP: American workers? Consumers? Small businesses? Multinationals? For digital trade, the answer is everyone.

Ed Gerwin is Senior Fellow for Trade and Global Opportunity with the Progressive Policy Institute and Senior Contributing Editor with Republic 3.0.