Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: So far, President Trump has waged a pretty conventional trade war.
Speaker 3: Since the start of his second term, President Trump's push
Speaker 3: to reshape global trade has been chaotic. The presidents announced
Speaker 3: big tariff deals he said would bring in trillions of dollars,
Speaker 3: and he's had to deal with a major setback decision.
Speaker 3: The Supreme Court has struck down President Trump's tariffs, healing
Speaker 3: a huge blow to his economic agenda. Brendan Murray is
Speaker 3: Bloomberg's Global Trade editor, and he calls this a pretty
Speaker 3: conventional trade war because of what Trump has targeted.
Speaker 2: He has put tariffs on physical goods that we use
Speaker 2: in our everyday life that he thinks should be made
Speaker 2: in the US, rather than a broad.
Speaker 3: Goods like cars and pharmaceuticals. But the President's trade war
Speaker 3: is about to get a lot less conventional.
Speaker 2: So there's a whole nother section of trade economists would
Speaker 2: refer to as services trade. These are banking services and services,
Speaker 2: legal services, and the like. But there's this growing subset
Speaker 2: known as digital services that count as trade that is
Speaker 2: the fastest growing part of trade overall.
Speaker 3: It also includes social media, digital advertising, and streaming Brendan
Speaker 3: says cross border sales of digital services are growing twice
Speaker 3: as fast as more traditional goods. He says they now
Speaker 3: make up about fifteen percent of global trade, and last
Speaker 3: year the value of global exports of services delivered digitally
Speaker 3: increased to more than four point five trillion dollars. That's
Speaker 3: a number Brennan says will continue to rise as AI
Speaker 3: becomes more prevalent. So far, digital services have not been
Speaker 3: covered by traditional trade rules and regulations, and the US
Speaker 3: has tried to keep it that way. It's pushback on
Speaker 3: countries that have threatened to impose taxes and tariffs on
Speaker 3: digital services from tech companies that are based in the US,
Speaker 3: including Alphabet and Apple and x.
Speaker 2: There are discussions and disagreements about whether those services, those
Speaker 2: things that we buy and sell on our phones and
Speaker 2: our laptops, will become the next frontier of the trade
Speaker 2: wars that President Trump is waging around the world.
Speaker 3: That battle is getting started on a couple fronts. We
Speaker 3: have a new Section three I one investigation. This week,
Speaker 3: Trump and his trade team started to lay the groundwork
Speaker 3: for a new teriff regime, one that could penalize countries
Speaker 3: that tax US digital services.
Speaker 2: This Section three zero one authority will allow the US
Speaker 2: Trade Representative to impose tariffs not just on goods, but
Speaker 2: also go after services and investment that it feels are
Speaker 2: being treated unfairly in foreign markets.
Speaker 3: And in less than two weeks, the World Trade Organization
Speaker 3: will hold its next meeting, where global leaders will have
Speaker 3: the chance to turn the tables on Trump's efforts.
Speaker 2: So some of them will go along, but others may
Speaker 2: see it as an opportunity to hit back with some
Speaker 2: protectionism of their own.
Speaker 3: I'm David Gerreh and this is the big take from
Speaker 3: Bloomberg News Today. On the show, the next front in
Speaker 3: President Trump's trade war is online. A looming battle over
Speaker 3: digital services could put the president on the defensive what
Speaker 3: it could mean for the price of an ebook and
Speaker 3: the operations of US tech giants. For the last three decades,
Speaker 3: the world's major economies have decided, without a lot of fanfare,
Speaker 3: not to put tariffs on e commerce.
Speaker 2: We didn't know back in nineteen ninety eight that these
Speaker 2: kinds of services were going to dominate our lives, but
Speaker 2: now they are, and the WTO is trying to deal
Speaker 2: with it.
Speaker 3: Bloomberg's Brennan Murray says, that Ever since, the World Trade
Speaker 3: Organization has been kicking the question of digital services tariffs
Speaker 3: down the road using something called the moratorium on customs
Speaker 3: duties on Electronic transmission.
Speaker 2: That moratorium has been renewed every two years, basically with
Speaker 2: few headlines. The idea was that if e commerce reaches
Speaker 2: poor countries rich countries, we all benefit from the proliferation
Speaker 2: of e commerce.
Speaker 3: But as digital services become a bigger and more lucrative
Speaker 3: part of the global economy and our daily lives, the
Speaker 3: future of that moratorium is up in the air.
Speaker 2: At the last meeting two years ago, the agreement was
Speaker 2: will extend it one more time, but then it expires.
Speaker 2: So the agreement that the members of the World Trade
Speaker 2: Organization came to was that this was going to sunset period.
Speaker 3: Representatives of the WTOS one hundred and sixty six member
Speaker 3: countries will debate it when they gather in Cameroon later
Speaker 3: this month.
Speaker 2: How do we factor in that all of these goods
Speaker 2: and services are increasingly moving across borders invisibly on subse cables,
Speaker 2: and there's no customs checkpoint on the subse cable that
Speaker 2: connects the European Union and the United States. What they're
Speaker 2: trying to do at the WTO is figure out a
Speaker 2: way to head off these kinds of disputes, to measure
Speaker 2: digital trade and to come to some consensus as to
Speaker 2: how countries should treat it as a subset of trade.
Speaker 2: It used to be, you know, a company would have
Speaker 2: a physical presence in a market that it operated in,
Speaker 2: But that doesn't have to be the case anymore. I
Speaker 2: have a Venmo account on my phone, and Venmo is
Speaker 2: based in New York City, and I'm based in the UK,
Speaker 2: and I can send birthday gifts to my nieces and
Speaker 2: nephews through Venmo. I don't need a Bank of America
Speaker 2: branch here in the UK to make a transaction like
Speaker 2: that anymore. So if you are one of these companies
Speaker 2: and you are trying to operate in a country like
Speaker 2: France or Spain that have these digital services taxes on
Speaker 2: the revenue, then it gets very difficult to apply the
Speaker 2: same business model in one country as opposed to other
Speaker 2: countries where the rules and regulations and taxes may not
Speaker 2: be existent at all.
Speaker 3: What the US wants is to make that moratorium I
Speaker 3: duties on digital services permanent, but Brennan says that will
Speaker 3: be a tough sell to other countries.
Speaker 2: There are countries like Indonesia, like India, like Brazil, like
Speaker 2: South Africa that see this as a way to raise
Speaker 2: a lot of money, and they see the big US
Speaker 2: tech companies making a lot of money in their countries.
Speaker 2: And Indonesia actually has a tariff line in its customs
Speaker 2: code for digital transactions. It's currently zero, but all they
Speaker 2: have to do is to change that to twenty percent.
Speaker 2: And the ebook that you download in Bali just became
Speaker 2: twenty percent more expensive. But recently, as the US administrations
Speaker 2: from Biden through Trump have become more protectionist in the
Speaker 2: way they approach the US's trade balance with the world,
Speaker 2: those countries on the receiving ends of those digital services
Speaker 2: imports are saying, hey, you can't be protectionists with your
Speaker 2: imports and free traders with your exports. And some of
Speaker 2: these trade deals that President Trump has signed with these
Speaker 2: countries have a provision in then that says you must
Speaker 2: support a permanent moratorium on electronic transmissions.
Speaker 3: I'm lingering on something you just said, which is, if
Speaker 3: you took a trip and downloaded any book that could
Speaker 3: be subject to attacks, can you play that out a
Speaker 3: bit more like, how big a deal would it be
Speaker 3: if we saw that moratorium end.
Speaker 2: Well, this is the real difficulty in how do you
Speaker 2: identify that book that you just downloaded? Where did it
Speaker 2: cross from an Amazon hub where it exists to the
Speaker 2: beach where you want to read the book. The digital
Speaker 2: services trade globally is about five trillion dollars, and so
Speaker 2: we're talking about a lot of money and a lot
Speaker 2: of potential for countries, particularly developing countries see dollar signs.
Speaker 2: And many of them have budgetary problems, fiscal deficits that
Speaker 2: they need to address, and so this is one of
Speaker 2: the main ways that they would look to do that.
Speaker 2: So the US has a lot of work to do
Speaker 2: to convince countries to agree to either extend the moratorium
Speaker 2: or push it aside completely. And the US has not
Speaker 2: made a lot of friends over the last year or
Speaker 2: so in the world of trade. They've applied tariffs to
Speaker 2: a lot of countries that would sit on the other
Speaker 2: side of the US, countries like India. So we'll see
Speaker 2: how willing those countries are to go along with the US.
Speaker 3: Brendan does the rise of AI can change the conversation
Speaker 3: at the WTO about digital services or maybe add to
Speaker 3: its urgency.
Speaker 2: Well, the big issue for the WTO when it comes
Speaker 2: to digital services and AI is what they call data sovereignty.
Speaker 2: All of those data centers that we see being built
Speaker 2: from the UK to the US to pretty much every
Speaker 2: major economy are seeing this huge boom and data centers.
Speaker 2: The question becomes whose data is that? Just say, for example,
Speaker 2: you have a large tractor manufacturing company that's based in Ohio,
Speaker 2: and that tractor company sells its products all over the world,
Speaker 2: and that tractor company has data embedded in those pieces
Speaker 2: of machinery that collect all sorts of information from soil
Speaker 2: moisture to the temperature outside. So if that tractor is
Speaker 2: sold in Brazil and it's beaming its data into a
Speaker 2: data center in Brazil, whose data is that. Is that
Speaker 2: the American company's data or is it the Brazilian governments data?
Speaker 2: It becomes very valuable to know how well Brazilian farmers
Speaker 2: crops are going to be that year. So that would
Speaker 2: be important information that could be sold to another company,
Speaker 2: a fertilizer company. This is where the rubber meets the
Speaker 2: road with the data sovereignty issue. Is everything we use nowadays.
Speaker 2: Modern electronics are just collecting all sorts of data and
Speaker 2: where that data is physically located is becoming a big
Speaker 2: source of debate.
Speaker 3: The upper meets the soil.
Speaker 2: In effect, it means that I was going to.
Speaker 3: Jug when we come back the years long clash between
Speaker 3: the US and Europe on taxing and regulating big tech
Speaker 3: and how meta alphabet and X have been caught in
Speaker 3: the middle. The EU has gone after some of the
Speaker 3: biggest US tech giants.
Speaker 2: Seeking aim at he speech, disinformation, and other harmful content.
Speaker 3: Armline Union have fined Apple the equivalent of about two
Speaker 3: billion dollars or dismissed an appeal from Google over a
Speaker 3: two point eight billion dollar fine against the company by
Speaker 3: the Europe. As big US tech companies have become global giants,
Speaker 3: EU regulators have brought some high profile actions against them.
Speaker 2: The US would say the euro over regulating our companies,
Speaker 2: and the Europeans would say, well, we want to protect
Speaker 2: our citizens and our businesses against harmful practices.
Speaker 3: Bloomberg's Trade editor Brendan Murray says what these cases expose
Speaker 3: is of philosophical divide between Europe and the United States.
Speaker 2: And this is where the real flare ups are starting
Speaker 2: to happen. They're sort of smaller brushfires at the moment,
Speaker 2: but this is where digital services could become a much
Speaker 2: more volatile place for trade wars to erupt.
Speaker 3: He says. The tensions over digital services are deeply rooted
Speaker 3: and what he calls competing models, different views of what
Speaker 3: the Internet was and what it could become.
Speaker 2: The Internet was going to democratize the world if you believed,
Speaker 2: you know, some officials back in the early two thousands,
Speaker 2: that this was going to bring China into the fold
Speaker 2: out from behind it's sort of protected economy. But what
Speaker 2: we really ended up with is three basic models of
Speaker 2: the Internet.
Speaker 3: The first is the US model.
Speaker 2: This one that the US espouses the Trump administration the
Speaker 2: Biden administration to a lesser degree. That says it should
Speaker 2: be for free speech, free commerce, and unimpeded by government
Speaker 2: regulations for the most part.
Speaker 3: Second, Brendan says, is the European model, which is more regulated.
Speaker 2: The Europeans are concerned about safety, particularly among young people.
Speaker 2: They're concerned about anti competitive practices, and they're also concerned
Speaker 2: about privacy protections much more so than the US model.
Speaker 3: And the third model is what Brendan calls the pure
Speaker 3: authoritarian model.
Speaker 2: The Chinese, the Russians, and to some extent we've seen
Speaker 2: it with the situation in Iran where some protests start
Speaker 2: to happen and the Internet goes off. So we basically
Speaker 2: have these three competing models, and one of them is
Speaker 2: going to rule out at some point, and at the moment,
Speaker 2: the battle is really between the US and the European models.
Speaker 2: It all goes down to free speech. Free speeches in
Speaker 2: the US constitution, and there are very few limits on
Speaker 2: free speech. Those same kinds of freedoms are not embedded
Speaker 2: in the European democracies. You know, there are restrictions on
Speaker 2: hate speech. And so there's just a fundamental difference between
Speaker 2: the way the US views social media e commerce and
Speaker 2: the way the Europeans look at it, which is much
Speaker 2: more of a It needs oversight, otherwise it will erode
Speaker 2: your democracy rather than build it up.
Speaker 3: How has Europe been at enforcing these regulations.
Speaker 2: They have targeted about twenty US companies. They've hit them
Speaker 2: with fines over content that violated the European rules. Most
Speaker 2: of those twenties have been the big tech companies based
Speaker 2: in the US, companies like Meta Google. Those are the
Speaker 2: ones that the Europeans really feel are crossing the line.
Speaker 3: The EU brought its latest landmark case in December against
Speaker 3: Elon Musk's X, issued a fine of one hundreds twenty
Speaker 3: million euro to.
Speaker 1: For breaching the Digital Services Act.
Speaker 2: This is the first ever find under the DSA.
Speaker 3: The DSA Digital Services Act is one of several European
Speaker 3: regulations of big tech. The European Commission faulted X for
Speaker 3: not being transparent enough on multiple counts, including how it
Speaker 3: decides which accounts on the social media platform get a
Speaker 3: verified check mark. Anyone can pay to obtain the verified status,
Speaker 3: and X does not meaningfully verify who is behind it.
Speaker 3: X appealed that decision about a month ago. Officials in
Speaker 3: the US also objected. The US Trade representative Jamison Greer
Speaker 3: called Europe's decision draconian.
Speaker 1: This is the equivalent of California setting the emission rules
Speaker 1: for cars for the whole country. Right for what they
Speaker 1: do right, The EU was essentially trying to do it
Speaker 1: for global digital operators, and it would be one thing
Speaker 1: if they so.
Speaker 2: President Trump has taken up their arguments to a large
Speaker 2: extent and has threatened Europe more broadly, the European Union
Speaker 2: with tariffs, even though the fines and the regulations and
Speaker 2: the taxes may be done at the country level rather
Speaker 2: than the European Union level.
Speaker 3: Given what seems like the wideness of disagreement among the
Speaker 3: US and Europe, what is this fight likely to be like?
Speaker 2: It's hard to see how the two sides are fundamentally
Speaker 2: going to get together and come out with some agreement.
Speaker 2: The European Union is divided into twenty seven different countries.
Speaker 2: They all set fiscal policy tax policy individually that's not
Speaker 2: governed at the European Union level in Brussels, and so
Speaker 2: it's hard to see how the EU is going to
Speaker 2: come up with a unified approach that will satisfy the
Speaker 2: demands from the US government at the moment. So it
Speaker 2: seems like we're headed for some sort of showdown where
Speaker 2: the US is putting all these demands on the Europeans
Speaker 2: and the Europeans are saying this is a sovereignty issue
Speaker 2: for US. This isn't up for discussion. It's not leverage
Speaker 2: that we can use in a trade negotiation. This is
Speaker 2: how we collect revenue to pay for our government. And
Speaker 2: President Trump has often complained about the Europeans how big
Speaker 2: the trade deficit is with the European Union economy broadly,
Speaker 2: but the US has a surplus of services exports digital
Speaker 2: services exports to the European Union, and so if you
Speaker 2: separate the two, then the Europeans could make the same
Speaker 2: case that, look, we have a big services deficit with
Speaker 2: the US, and therefore we need to we need to
Speaker 2: remedy the situation. So until the two sides can kind
Speaker 2: of reconcile those two ways of looking at things, then
Speaker 2: I think we're going to be at a stalemate at
Speaker 2: the very least, and perhaps there could be some sort
Speaker 2: of more offensive measures that both sides could launch at
Speaker 2: each other. The services arena is really going to be
Speaker 2: where the trade wars of the future are fought. It's
Speaker 2: very hard to game out right now exactly what the
Speaker 2: weapons are going to be, whether they would be tariffs
Speaker 2: or taxes or regulation. But we're in the digital age,
Speaker 2: and the trade wars of the future are going to
Speaker 2: be waged in the digital arena.
Speaker 3: This is the Big Take from Bloomberg News. I'm David Gura.
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