WEBVTT - Your Streaming Subscription Could Be the Next Trade Battlefield

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>So far, President Trump has waged a pretty conventional trade war.

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<v Speaker 3>Since the start of his second term, President Trump's push

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<v Speaker 3>to reshape global trade has been chaotic. The presidents announced

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<v Speaker 3>big tariff deals he said would bring in trillions of dollars,

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<v Speaker 3>and he's had to deal with a major setback decision.

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<v Speaker 3>The Supreme Court has struck down President Trump's tariffs, healing

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<v Speaker 3>a huge blow to his economic agenda. Brendan Murray is

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<v Speaker 3>Bloomberg's Global Trade editor, and he calls this a pretty

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<v Speaker 3>conventional trade war because of what Trump has targeted.

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<v Speaker 2>He has put tariffs on physical goods that we use

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<v Speaker 2>in our everyday life that he thinks should be made

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<v Speaker 2>in the US, rather than a broad.

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<v Speaker 3>Goods like cars and pharmaceuticals. But the President's trade war

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<v Speaker 3>is about to get a lot less conventional.

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<v Speaker 2>So there's a whole nother section of trade economists would

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<v Speaker 2>refer to as services trade. These are banking services and services,

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<v Speaker 2>legal services, and the like. But there's this growing subset

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<v Speaker 2>known as digital services that count as trade that is

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<v Speaker 2>the fastest growing part of trade overall.

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<v Speaker 3>It also includes social media, digital advertising, and streaming Brendan

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<v Speaker 3>says cross border sales of digital services are growing twice

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<v Speaker 3>as fast as more traditional goods. He says they now

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<v Speaker 3>make up about fifteen percent of global trade, and last

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<v Speaker 3>year the value of global exports of services delivered digitally

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<v Speaker 3>increased to more than four point five trillion dollars. That's

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<v Speaker 3>a number Brennan says will continue to rise as AI

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<v Speaker 3>becomes more prevalent. So far, digital services have not been

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<v Speaker 3>covered by traditional trade rules and regulations, and the US

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<v Speaker 3>has tried to keep it that way. It's pushback on

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<v Speaker 3>countries that have threatened to impose taxes and tariffs on

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<v Speaker 3>digital services from tech companies that are based in the US,

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<v Speaker 3>including Alphabet and Apple and x.

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<v Speaker 2>There are discussions and disagreements about whether those services, those

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<v Speaker 2>things that we buy and sell on our phones and

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<v Speaker 2>our laptops, will become the next frontier of the trade

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<v Speaker 2>wars that President Trump is waging around the world.

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<v Speaker 3>That battle is getting started on a couple fronts. We

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<v Speaker 3>have a new Section three I one investigation. This week,

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<v Speaker 3>Trump and his trade team started to lay the groundwork

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<v Speaker 3>for a new teriff regime, one that could penalize countries

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<v Speaker 3>that tax US digital services.

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<v Speaker 2>This Section three zero one authority will allow the US

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<v Speaker 2>Trade Representative to impose tariffs not just on goods, but

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<v Speaker 2>also go after services and investment that it feels are

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<v Speaker 2>being treated unfairly in foreign markets.

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<v Speaker 3>And in less than two weeks, the World Trade Organization

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<v Speaker 3>will hold its next meeting, where global leaders will have

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<v Speaker 3>the chance to turn the tables on Trump's efforts.

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<v Speaker 2>So some of them will go along, but others may

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<v Speaker 2>see it as an opportunity to hit back with some

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<v Speaker 2>protectionism of their own.

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<v Speaker 3>I'm David Gerreh and this is the big take from

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<v Speaker 3>Bloomberg News Today. On the show, the next front in

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<v Speaker 3>President Trump's trade war is online. A looming battle over

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<v Speaker 3>digital services could put the president on the defensive what

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<v Speaker 3>it could mean for the price of an ebook and

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<v Speaker 3>the operations of US tech giants. For the last three decades,

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<v Speaker 3>the world's major economies have decided, without a lot of fanfare,

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<v Speaker 3>not to put tariffs on e commerce.

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<v Speaker 2>We didn't know back in nineteen ninety eight that these

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<v Speaker 2>kinds of services were going to dominate our lives, but

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<v Speaker 2>now they are, and the WTO is trying to deal

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<v Speaker 2>with it.

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<v Speaker 3>Bloomberg's Brennan Murray says, that Ever since, the World Trade

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<v Speaker 3>Organization has been kicking the question of digital services tariffs

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<v Speaker 3>down the road using something called the moratorium on customs

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<v Speaker 3>duties on Electronic transmission.

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<v Speaker 2>That moratorium has been renewed every two years, basically with

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<v Speaker 2>few headlines. The idea was that if e commerce reaches

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<v Speaker 2>poor countries rich countries, we all benefit from the proliferation

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<v Speaker 2>of e commerce.

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<v Speaker 3>But as digital services become a bigger and more lucrative

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<v Speaker 3>part of the global economy and our daily lives, the

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<v Speaker 3>future of that moratorium is up in the air.

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<v Speaker 2>At the last meeting two years ago, the agreement was

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<v Speaker 2>will extend it one more time, but then it expires.

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<v Speaker 2>So the agreement that the members of the World Trade

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<v Speaker 2>Organization came to was that this was going to sunset period.

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<v Speaker 3>Representatives of the WTOS one hundred and sixty six member

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<v Speaker 3>countries will debate it when they gather in Cameroon later

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<v Speaker 3>this month.

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<v Speaker 2>How do we factor in that all of these goods

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<v Speaker 2>and services are increasingly moving across borders invisibly on subse cables,

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<v Speaker 2>and there's no customs checkpoint on the subse cable that

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<v Speaker 2>connects the European Union and the United States. What they're

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<v Speaker 2>trying to do at the WTO is figure out a

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<v Speaker 2>way to head off these kinds of disputes, to measure

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<v Speaker 2>digital trade and to come to some consensus as to

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<v Speaker 2>how countries should treat it as a subset of trade.

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<v Speaker 2>It used to be, you know, a company would have

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<v Speaker 2>a physical presence in a market that it operated in,

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<v Speaker 2>But that doesn't have to be the case anymore. I

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<v Speaker 2>have a Venmo account on my phone, and Venmo is

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<v Speaker 2>based in New York City, and I'm based in the UK,

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<v Speaker 2>and I can send birthday gifts to my nieces and

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<v Speaker 2>nephews through Venmo. I don't need a Bank of America

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<v Speaker 2>branch here in the UK to make a transaction like

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<v Speaker 2>that anymore. So if you are one of these companies

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<v Speaker 2>and you are trying to operate in a country like

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<v Speaker 2>France or Spain that have these digital services taxes on

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<v Speaker 2>the revenue, then it gets very difficult to apply the

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<v Speaker 2>same business model in one country as opposed to other

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<v Speaker 2>countries where the rules and regulations and taxes may not

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<v Speaker 2>be existent at all.

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<v Speaker 3>What the US wants is to make that moratorium I

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<v Speaker 3>duties on digital services permanent, but Brennan says that will

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<v Speaker 3>be a tough sell to other countries.

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<v Speaker 2>There are countries like Indonesia, like India, like Brazil, like

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<v Speaker 2>South Africa that see this as a way to raise

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<v Speaker 2>a lot of money, and they see the big US

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<v Speaker 2>tech companies making a lot of money in their countries.

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<v Speaker 2>And Indonesia actually has a tariff line in its customs

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<v Speaker 2>code for digital transactions. It's currently zero, but all they

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<v Speaker 2>have to do is to change that to twenty percent.

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<v Speaker 2>And the ebook that you download in Bali just became

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<v Speaker 2>twenty percent more expensive. But recently, as the US administrations

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<v Speaker 2>from Biden through Trump have become more protectionist in the

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<v Speaker 2>way they approach the US's trade balance with the world,

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<v Speaker 2>those countries on the receiving ends of those digital services

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<v Speaker 2>imports are saying, hey, you can't be protectionists with your

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<v Speaker 2>imports and free traders with your exports. And some of

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<v Speaker 2>these trade deals that President Trump has signed with these

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<v Speaker 2>countries have a provision in then that says you must

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<v Speaker 2>support a permanent moratorium on electronic transmissions.

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<v Speaker 3>I'm lingering on something you just said, which is, if

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<v Speaker 3>you took a trip and downloaded any book that could

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<v Speaker 3>be subject to attacks, can you play that out a

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<v Speaker 3>bit more like, how big a deal would it be

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<v Speaker 3>if we saw that moratorium end.

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<v Speaker 2>Well, this is the real difficulty in how do you

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<v Speaker 2>identify that book that you just downloaded? Where did it

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<v Speaker 2>cross from an Amazon hub where it exists to the

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<v Speaker 2>beach where you want to read the book. The digital

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<v Speaker 2>services trade globally is about five trillion dollars, and so

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<v Speaker 2>we're talking about a lot of money and a lot

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<v Speaker 2>of potential for countries, particularly developing countries see dollar signs.

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<v Speaker 2>And many of them have budgetary problems, fiscal deficits that

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<v Speaker 2>they need to address, and so this is one of

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<v Speaker 2>the main ways that they would look to do that.

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<v Speaker 2>So the US has a lot of work to do

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<v Speaker 2>to convince countries to agree to either extend the moratorium

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<v Speaker 2>or push it aside completely. And the US has not

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<v Speaker 2>made a lot of friends over the last year or

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<v Speaker 2>so in the world of trade. They've applied tariffs to

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<v Speaker 2>a lot of countries that would sit on the other

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<v Speaker 2>side of the US, countries like India. So we'll see

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<v Speaker 2>how willing those countries are to go along with the US.

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<v Speaker 3>Brendan does the rise of AI can change the conversation

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<v Speaker 3>at the WTO about digital services or maybe add to

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<v Speaker 3>its urgency.

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<v Speaker 2>Well, the big issue for the WTO when it comes

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<v Speaker 2>to digital services and AI is what they call data sovereignty.

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<v Speaker 2>All of those data centers that we see being built

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<v Speaker 2>from the UK to the US to pretty much every

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<v Speaker 2>major economy are seeing this huge boom and data centers.

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<v Speaker 2>The question becomes whose data is that? Just say, for example,

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<v Speaker 2>you have a large tractor manufacturing company that's based in Ohio,

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<v Speaker 2>and that tractor company sells its products all over the world,

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<v Speaker 2>and that tractor company has data embedded in those pieces

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<v Speaker 2>of machinery that collect all sorts of information from soil

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<v Speaker 2>moisture to the temperature outside. So if that tractor is

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<v Speaker 2>sold in Brazil and it's beaming its data into a

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<v Speaker 2>data center in Brazil, whose data is that. Is that

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<v Speaker 2>the American company's data or is it the Brazilian governments data?

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<v Speaker 2>It becomes very valuable to know how well Brazilian farmers

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<v Speaker 2>crops are going to be that year. So that would

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<v Speaker 2>be important information that could be sold to another company,

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<v Speaker 2>a fertilizer company. This is where the rubber meets the

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<v Speaker 2>road with the data sovereignty issue. Is everything we use nowadays.

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<v Speaker 2>Modern electronics are just collecting all sorts of data and

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<v Speaker 2>where that data is physically located is becoming a big

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<v Speaker 2>source of debate.

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<v Speaker 3>The upper meets the soil.

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<v Speaker 2>In effect, it means that I was going to.

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<v Speaker 3>Jug when we come back the years long clash between

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<v Speaker 3>the US and Europe on taxing and regulating big tech

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<v Speaker 3>and how meta alphabet and X have been caught in

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<v Speaker 3>the middle. The EU has gone after some of the

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<v Speaker 3>biggest US tech giants.

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<v Speaker 2>Seeking aim at he speech, disinformation, and other harmful content.

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<v Speaker 3>Armline Union have fined Apple the equivalent of about two

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<v Speaker 3>billion dollars or dismissed an appeal from Google over a

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<v Speaker 3>two point eight billion dollar fine against the company by

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<v Speaker 3>the Europe. As big US tech companies have become global giants,

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<v Speaker 3>EU regulators have brought some high profile actions against them.

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<v Speaker 2>The US would say the euro over regulating our companies,

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<v Speaker 2>and the Europeans would say, well, we want to protect

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<v Speaker 2>our citizens and our businesses against harmful practices.

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<v Speaker 3>Bloomberg's Trade editor Brendan Murray says what these cases expose

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<v Speaker 3>is of philosophical divide between Europe and the United States.

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<v Speaker 2>And this is where the real flare ups are starting

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<v Speaker 2>to happen. They're sort of smaller brushfires at the moment,

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<v Speaker 2>but this is where digital services could become a much

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<v Speaker 2>more volatile place for trade wars to erupt.

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<v Speaker 3>He says. The tensions over digital services are deeply rooted

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<v Speaker 3>and what he calls competing models, different views of what

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<v Speaker 3>the Internet was and what it could become.

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<v Speaker 2>The Internet was going to democratize the world if you believed,

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<v Speaker 2>you know, some officials back in the early two thousands,

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<v Speaker 2>that this was going to bring China into the fold

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<v Speaker 2>out from behind it's sort of protected economy. But what

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<v Speaker 2>we really ended up with is three basic models of

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<v Speaker 2>the Internet.

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<v Speaker 3>The first is the US model.

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<v Speaker 2>This one that the US espouses the Trump administration the

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<v Speaker 2>Biden administration to a lesser degree. That says it should

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<v Speaker 2>be for free speech, free commerce, and unimpeded by government

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<v Speaker 2>regulations for the most part.

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<v Speaker 3>Second, Brendan says, is the European model, which is more regulated.

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<v Speaker 2>The Europeans are concerned about safety, particularly among young people.

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<v Speaker 2>They're concerned about anti competitive practices, and they're also concerned

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<v Speaker 2>about privacy protections much more so than the US model.

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<v Speaker 3>And the third model is what Brendan calls the pure

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<v Speaker 3>authoritarian model.

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<v Speaker 2>The Chinese, the Russians, and to some extent we've seen

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<v Speaker 2>it with the situation in Iran where some protests start

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<v Speaker 2>to happen and the Internet goes off. So we basically

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<v Speaker 2>have these three competing models, and one of them is

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<v Speaker 2>going to rule out at some point, and at the moment,

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<v Speaker 2>the battle is really between the US and the European models.

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<v Speaker 2>It all goes down to free speech. Free speeches in

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<v Speaker 2>the US constitution, and there are very few limits on

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<v Speaker 2>free speech. Those same kinds of freedoms are not embedded

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<v Speaker 2>in the European democracies. You know, there are restrictions on

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<v Speaker 2>hate speech. And so there's just a fundamental difference between

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<v Speaker 2>the way the US views social media e commerce and

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<v Speaker 2>the way the Europeans look at it, which is much

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<v Speaker 2>more of a It needs oversight, otherwise it will erode

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<v Speaker 2>your democracy rather than build it up.

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<v Speaker 3>How has Europe been at enforcing these regulations.

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<v Speaker 2>They have targeted about twenty US companies. They've hit them

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<v Speaker 2>with fines over content that violated the European rules. Most

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<v Speaker 2>of those twenties have been the big tech companies based

0:13:42.360 --> 0:13:46.200
<v Speaker 2>in the US, companies like Meta Google. Those are the

0:13:46.200 --> 0:13:49.920
<v Speaker 2>ones that the Europeans really feel are crossing the line.

0:13:50.880 --> 0:13:54.320
<v Speaker 3>The EU brought its latest landmark case in December against

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<v Speaker 3>Elon Musk's X, issued a fine of one hundreds twenty

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<v Speaker 3>million euro to.

0:14:00.400 --> 0:14:02.400
<v Speaker 1>For breaching the Digital Services Act.

0:14:02.800 --> 0:14:05.480
<v Speaker 2>This is the first ever find under the DSA.

0:14:05.559 --> 0:14:09.080
<v Speaker 3>The DSA Digital Services Act is one of several European

0:14:09.080 --> 0:14:12.800
<v Speaker 3>regulations of big tech. The European Commission faulted X for

0:14:12.920 --> 0:14:16.760
<v Speaker 3>not being transparent enough on multiple counts, including how it

0:14:16.840 --> 0:14:19.560
<v Speaker 3>decides which accounts on the social media platform get a

0:14:19.680 --> 0:14:23.960
<v Speaker 3>verified check mark. Anyone can pay to obtain the verified status,

0:14:24.440 --> 0:14:28.400
<v Speaker 3>and X does not meaningfully verify who is behind it.

0:14:28.800 --> 0:14:31.600
<v Speaker 3>X appealed that decision about a month ago. Officials in

0:14:31.640 --> 0:14:35.840
<v Speaker 3>the US also objected. The US Trade representative Jamison Greer

0:14:36.160 --> 0:14:38.200
<v Speaker 3>called Europe's decision draconian.

0:14:38.520 --> 0:14:41.440
<v Speaker 1>This is the equivalent of California setting the emission rules

0:14:41.440 --> 0:14:43.240
<v Speaker 1>for cars for the whole country. Right for what they

0:14:43.280 --> 0:14:45.240
<v Speaker 1>do right, The EU was essentially trying to do it

0:14:46.320 --> 0:14:48.320
<v Speaker 1>for global digital operators, and it would be one thing

0:14:48.360 --> 0:14:48.960
<v Speaker 1>if they so.

0:14:49.280 --> 0:14:52.360
<v Speaker 2>President Trump has taken up their arguments to a large

0:14:52.400 --> 0:14:57.800
<v Speaker 2>extent and has threatened Europe more broadly, the European Union

0:14:58.160 --> 0:15:02.040
<v Speaker 2>with tariffs, even though the fines and the regulations and

0:15:02.560 --> 0:15:05.640
<v Speaker 2>the taxes may be done at the country level rather

0:15:05.680 --> 0:15:07.160
<v Speaker 2>than the European Union level.

0:15:07.400 --> 0:15:10.040
<v Speaker 3>Given what seems like the wideness of disagreement among the

0:15:10.160 --> 0:15:13.440
<v Speaker 3>US and Europe, what is this fight likely to be like?

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<v Speaker 2>It's hard to see how the two sides are fundamentally

0:15:16.640 --> 0:15:19.560
<v Speaker 2>going to get together and come out with some agreement.

0:15:20.320 --> 0:15:24.080
<v Speaker 2>The European Union is divided into twenty seven different countries.

0:15:24.360 --> 0:15:28.720
<v Speaker 2>They all set fiscal policy tax policy individually that's not

0:15:28.800 --> 0:15:32.640
<v Speaker 2>governed at the European Union level in Brussels, and so

0:15:32.800 --> 0:15:34.960
<v Speaker 2>it's hard to see how the EU is going to

0:15:35.000 --> 0:15:38.480
<v Speaker 2>come up with a unified approach that will satisfy the

0:15:38.480 --> 0:15:42.200
<v Speaker 2>demands from the US government at the moment. So it

0:15:42.360 --> 0:15:46.560
<v Speaker 2>seems like we're headed for some sort of showdown where

0:15:47.400 --> 0:15:51.080
<v Speaker 2>the US is putting all these demands on the Europeans

0:15:51.120 --> 0:15:54.120
<v Speaker 2>and the Europeans are saying this is a sovereignty issue

0:15:54.160 --> 0:15:57.200
<v Speaker 2>for US. This isn't up for discussion. It's not leverage

0:15:57.200 --> 0:16:00.080
<v Speaker 2>that we can use in a trade negotiation. This is

0:16:00.120 --> 0:16:03.800
<v Speaker 2>how we collect revenue to pay for our government. And

0:16:04.080 --> 0:16:08.600
<v Speaker 2>President Trump has often complained about the Europeans how big

0:16:08.680 --> 0:16:13.640
<v Speaker 2>the trade deficit is with the European Union economy broadly,

0:16:14.200 --> 0:16:18.360
<v Speaker 2>but the US has a surplus of services exports digital

0:16:18.400 --> 0:16:22.880
<v Speaker 2>services exports to the European Union, and so if you

0:16:22.920 --> 0:16:26.640
<v Speaker 2>separate the two, then the Europeans could make the same

0:16:26.720 --> 0:16:29.600
<v Speaker 2>case that, look, we have a big services deficit with

0:16:29.640 --> 0:16:31.840
<v Speaker 2>the US, and therefore we need to we need to

0:16:31.880 --> 0:16:34.880
<v Speaker 2>remedy the situation. So until the two sides can kind

0:16:34.880 --> 0:16:39.720
<v Speaker 2>of reconcile those two ways of looking at things, then

0:16:39.880 --> 0:16:42.240
<v Speaker 2>I think we're going to be at a stalemate at

0:16:42.240 --> 0:16:45.600
<v Speaker 2>the very least, and perhaps there could be some sort

0:16:45.640 --> 0:16:49.760
<v Speaker 2>of more offensive measures that both sides could launch at

0:16:49.800 --> 0:16:54.680
<v Speaker 2>each other. The services arena is really going to be

0:16:54.800 --> 0:16:58.280
<v Speaker 2>where the trade wars of the future are fought. It's

0:16:58.400 --> 0:17:01.440
<v Speaker 2>very hard to game out right now exactly what the

0:17:01.480 --> 0:17:04.000
<v Speaker 2>weapons are going to be, whether they would be tariffs

0:17:04.080 --> 0:17:07.280
<v Speaker 2>or taxes or regulation. But we're in the digital age,

0:17:07.320 --> 0:17:09.600
<v Speaker 2>and the trade wars of the future are going to

0:17:09.640 --> 0:17:11.440
<v Speaker 2>be waged in the digital arena.

0:17:16.240 --> 0:17:18.600
<v Speaker 3>This is the Big Take from Bloomberg News. I'm David Gura.

0:17:18.840 --> 0:17:21.320
<v Speaker 3>The show is hosted by me, Sarah Holder, and wanha.

0:17:21.800 --> 0:17:25.000
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<v Speaker 3>Julia Press, Tracy Samuelson, Naomi Shaven, Alex Segurra, Julia Weaver,

0:17:33.800 --> 0:17:37.120
<v Speaker 3>Young Young and Taka Yauzawa. There's much more on Bloomberg

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