More than one U.S. presidential election has been won or lost on the issue of global trade. In 1888, the Republican candidate Benjamin Harrison ran on a protectionist platform against President Grover Cleveland. The GOP won that election on a promise of high tariffs designed to protect American industry and guarantee high wages and economic growth. Right up until the 1930s, the Republicans campaigned against the threat of free trade to American jobs.
Donald Trump might represent a departure from more modern Republican orthodoxy on international trade, but he also signals a return to the older protectionist streak that ran through the party of Abraham Lincoln for a century. Today, protectionism is back.
A retreat from free trade
The world seems to be contracting from its embrace of free trade. The election of Donald Trump effectively killed the Trans-Pacific Partnership, an agreement five years in the making between 12 Pacific Rim nations that would have better enabled the free flow of data across borders and “eliminated tens of thousands of foreign tariffs added onto American-made products” according to FedEx President Michael L. Ducker.
Just weeks ago, CETA—the Comprehensive Economic and Trade Agreement between the European Union and Canada—was nearly scuppered by Wallonian farmers who wanted to protect their local industry. The Transatlantic Trade and Investment Partnership (TTIP) was declared dead in the water just hours after the election. NAFTA now looks set to be renegotiated, and of course Brexit was one of the biggest rejections of free trade in history.
Perhaps in a more perfect world, the pace of international regulations would keep up with global trade. Companies could rely on a single set of rules and regulations that encompassed their entire supply chain. Today, however, the tariff is making a comeback, and businesses of every shape and size will have to prepare for complex compliance regimes in this new protectionist era.
While this retreat may be cyclical, our modern era of global free trade deals has reached its nadir. It may be decades before we see the likes of TPP or TTIP attempted again. Nevertheless, globalization is as much a natural phenomenon now as the weather. Supply chains are international. Manufactured goods and consumer services operate far beyond borders, as does data, the lifeblood of the digital economy.
Regulating a connected world
Despite the new protectionist tendencies that are taking hold in world capitals, global regulation is knitting financial centers together like never before. Free trade agreements aren’t just nice things to have, they are the celestial navigation systems that lets the global economy function.
Data in particular is a hugely valuable commodity in the global economy, and one of the hardest things to regulate. Digital information doesn’t sit stacked in a warehouse, it flows around the world turning the cogs of servers and start-ups. So, to properly protect it, everyone needs to play by the same set of rules.
The European Union seems ready to make sure that it sets the rules to play by when it comes to data. Earlier this year, the European Union agreed on a massive shake-up of data protection regulations that will become legally binding on every member state (including the United Kingdom) in 2018. Known as GDPR, it obliges companies to offer much stricter data protection policies, seek more consent from customers before they can be marketed to, enable people to request access to data held on them, and generally ensure companies protect their user data from interference from non-European Union entities.
Furthermore, GDPR will apply to any organization in the world that does business in the European Union. Companies based outside the European Union must also appoint a local representative inside the bloc, and anyone who breaches GDPR will be liable to a fine of up to €20 million (U.S.$21.12M), or 4 percent of annual global turnover, whichever is greater, and wherever they are based.
Today’s world is becoming ever more globalized and nationalized. For business, questions about managing supply chains, how to protect and regulate data, and who gets to do it, will dominate the compliance agenda for years to come.
New rules, new risks
It’s not just data transfers that are in the spotlight. In the United Kingdom, a new Criminal Finances Bill which seeks to crack down on international tax evasion schemes, will criminalize corporations that facilitate offshore tax havens, no matter where in the world they are located. In an era where profits are counted in more than one currency, moving money around the world in an effort to save on tax bills just got far riskier.
The European Union has taken on the tech giants who have been shifting money in and out of tax havens, landing Apple, Amazon, and Starbucks with multibillion-dollar euro tax bills and forcing them to change their practices. The CEO of Google said recently that multinationals are crying out for a simpler tax system that takes account of the fact they operate in hundreds of countries.
Even massive NSA surveillance exposed by Edward Snowden got slapped down by European authorities. In 2015 the European Union Court of Justice threatened the $250 billion transatlantic trade in digital services, saying EU citizens’ data did not have enough protection from U.S. government surveillance. Authorities scrambled to replace the long-established ‘safe harbor’ scheme with a stronger and more robust privacy shield to better protect personal information.
Perhaps in a more perfect world, the pace of international regulations would keep up with global trade. Companies could rely on a single set of rules and regulations that encompassed their entire supply chain. Today, however, the tariff is making a comeback, and businesses of every shape and size will have to prepare for complex compliance regimes in this new protectionist era.
Nick Henderson is a business policy expert and consultant on international compliance issues. He is the Director of Course Development at VinciWorks, the world’s leading provider of online compliance solutions.
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