New Tariffs And Social Media Drive Trade Strategy

These are not your grandfather's trade wars.

Nations and trading blocs are adopting new tools to improve their positions when it comes to trade negotiations. New digital tariffs and social media pressure are two of the latest ways that the US, Europe and China have approached their trade conflicts.

US-China technology competition is taking an economic toll. The International Monetary Fund estimates that technology fragmentation could lead to losses of around 5% of GDP for many countries, significantly more than the estimated costs of trade tariffs imposed by these nations. The global impact of the tariffs between the US and China alone is estimated at about 0.4% of global GDP.

Major American tech companies, such as Google and Facebook, face proposed digital taxes in several countries on the income the companies generate in those countries. Although the US and the Organization for Economic Cooperation and Development promote a single international digital-services tax, several countries have already imposed or threatened to impose such a tax unilaterally.

While the Biden administration tries to limit the use of tariffs as a tool for its trade policy, it is willing take action in response to anticompetitive measures. Current targets include Austria, Britain, India, Italy, Spain and Turkey, following a tariff threat against $1.3 billion of French luxury-goods imports in response to France’s reimplementation of its 3% digital-services tax at the end of 2020.

Services tax is just one of several new tech tools aimed at modifying trade practices and political actions. Recently, China put media pressure on Swedish-headquartered clothing retailer H&M following the company’s decision to stop buying cotton from China’s Xinjiang autonomous region due to alleged human rights abuses. Chinese e-commerce platforms and marketplaces removed H&M items, resulting in significant negative impact on the company’s revenue in China.

Nike, the US athletic-apparel company, expressed similar concerns and experienced similar boycott calls. Since some of these political and corporate actions are transatlantic by nature, several other European companies, such as Adidas and Zara, saw their stock prices decline due to similar fears.