Sep 01, 2016 - 9:30am

China’s Decision to Purge Foreign Tech Sector Could Cost It $3 Trillion

Former Director, Communications and Strategy


Phones in a smartphone factory in Dongguan, China.

For the better part of three decades, the global connection of the information and communications technology (ICT) sector has had a huge hand in the expansive growth of the world economy. But a new report released today by the U.S. Chamber of Commerce leading up to the G20 Summit examines a number of factors that are now threatening to slow or even reverse that trend and cost countries trillions of dollars.

The U.S. Chamber conducted a comprehensive examination of ICT laws and policies around the world.  As the report documents, many governments are pursuing laws, regulations, and policies--justified on national security grounds--that may impact the free flow of trade and investment in ICT.  The report specifically examined China, Russia, India, Brazil, several European nations, and the EU itself, as well as the United States.  The report also addresses the potential economic and security costs of restricting such trade and investment. 

A growing number of the measures documented in the report have the effect of advancing protectionist objectives in the name of national security.  These laws and regulations are creating a competitive advantage for “indigenous” companies in the ICT sector, while pushing out “foreign” competition. The report identifies the costs of such rules, not only to the ICT sector, but to the countries themselves. The report provides a series of recommendations to assist all governments around the world in balancing their national security and economic interests and enable the free flow of ICT products, services and data.

“Today’s digital economy demands a free flow of data and ideas to make modern commerce and trade possible,” said Myron Brilliant, executive vice president and head of International Affairs for the U.S. Chamber. “From banking to e-commerce to managing a global supply chain, nearly everything requires complex transactions cutting across hardware and software platforms, industries, and jurisdictions.”

In examining the potential long-term impact on a nation’s GDP, the report uses a case study on China to find the hard numbers looming behind a decision to add barriers to trade and investment in the ICT sector.

“Even in the most conservative scenario, with no productivity shock and high substitutability of domestic output for foreign products, China faces a 1.77% loss in GDP,” the report says, which based on 2016 GDP amounts to about $200 billion. But those numbers become more remarkable when played out over the course of a decade.

“Assuming an optimistic GDP growth path to 2025 annual 1.77% erosion of output values would leave China’s economy almost $3 trillion smaller than under business as usual without ICT deglobalization,” the report continues. “And of course, it may turn out that excluding foreign ICT products has no real value to national security in 2025, only a cost for consumers and workers with foregone job opportunities.”

While acknowledging that every country has a right to decide how much welfare to sacrifice in pursuit of national security, the report compels governments to ask one key question: How do you avoid isolating your economy from the benefits of a global ICT supply chain while also protecting national security? The U.S. Chamber offers governments the following principles in their security-related regulation of the ICT industry:

  1. Embrace a Globalized ICT Sector. National policy approaches to the ICT sector should take into account that the ICT industry is diverse and dynamic, and based on a global supply chain.
  2. Promote Market Competition. Government policies should encourage both domestic and cross-border competition in ICT product and service markets, as this leads to the most secure solutions.
  3. Promote Transparency. The laws and regulations enacted to govern companies in pursuit of national security should be transparent. This will ensure that such laws accomplish their stated purpose.
  4. Allow Commercial Procurers to Set Requirements. While governments can set broad policies and encourage open and transparent business practices, businesses should set their own requirements for the equipment and software they purchase.

Policymakers across the globe have a difficult tightrope to walk in their efforts to balance national security and the proven vast economic benefit of a globalized ICT sector. With the G20 Summit coming up, the U.S. Chamber is encouraging government leaders to address the issues raised in this report in a broader effort to embrace the goals of this G20 meeting: to promote an “innovative, invigorated, interconnected, and inclusive world economy.”

About the Author

About the Author

Chris Hoyler
Former Director, Communications and Strategy

Chris Hoyler is a former director of Communications and Strategy at the U.S. Chamber.