Is Digital Protectionism a Threat to International Market Expansion?

Some policy-makers are growing increasingly concerned about a number of issues related to data and cyber-security – individual privacy rights, consumer rights around the ownership of data and domestic law enforcement, etc. Others, however want to place greater controls over the flow of data via the internet, which could create market barriers for global trade.

This ‘digital protectionism’, as it is known, has many forms, and differs greatly in different parts of the world. Many have observed that it is on the rise globally, and is threatening to hinder growth for economies and businesses expanding into international market.

Digital protectionism includes web censorship through firewalls, cyber security and privacy laws, forced transfer of intellectual property and data localisation, among other restrictive measures.

Experts say this is particularly a hindrance in China, where onerous requirements are placed on many foreign companies doing business within the country. These regulations allow data to go into the country, but not out. Some say China is using this method to boost Chinese firms over international companies, to protect its growing AI, robotics and biotechnology industries.

And the EU has also has ramped up its digital protectionism in recent years, with the implementation of rigorous privacy standards, regulating social media with a top-down approach.

Often, the criticisms leveled at this sort of protectionism focus on privacy and civil liberties, but businesses are also affected. The global digital economy has fast become a huge and integral part of international trade. While trade of goods and services flat lined following the 2008 global financial crash, data and digital information went against this trend, and have grown exponentially.

The digital economy is changing globalization, partly by increasing global dependence on virtual goods amid increasing pressures on the trade of goods and services, including the US-China trade war.

Digital protectionism, it has been argued, could therefore hinder competitiveness – but it won’t just affect innovation. There are concerns it will threaten traditional sectors, too. For example, manufacturing is growing increasingly reliant on 3-D printing and digital manufacturing, which needs cross-border data flows. Another industry affected is agriculture, with the growth of biotechnology, as well as the energy sector. Many industries are becoming increasingly dependent on data at a time when digital protectionism is rising higher on political agendas across Europe, and further afield.

For example, the EU’s General Data Protection Regulation (GDPR) which came into effect last year, aims to strengthen EU residents’ ability to protect their personal information. It does this by allowing data transfers only to countries deemed to be providing adequate data protection.

This could potentially discourage technology firms from establishing themselves in European markets, or convince existing tech startups to relocate to countries with less complex and expensive compliance costs.

Barriers to the free flow of data and digital information could impact international businesses. The future of globalization relies on cross-border flows of data, rather than goods, more than ever before. The preferred way forward is to develop more nuanced solutions, rather than all-or-nothing approaches, for international businesses to continue growing and trading.

If you’re looking at expanding your business abroad, you may want to consider getting advice and support from our team of experts at Galvin International, who can help you through every step of the process. Contact us for advice and support.

 

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