The global competitive landscape for innovation leadership is evolving. Increasingly, countries with competitive innovation profiles are undertaking large-scale strategic planning and investment initiatives to pursue leadership in emerging technologies. Countries compete with the United States to secure capital and talent, gain an edge in the market for new products and services, and establish standards and rules of the road for emerging and strategic technologies.
Unfortunately, these efforts and commitments are not always pursued within the terms set by international trade agreements and standards. In fact, they often are accompanied by unfair trade and commercial practices — heavy-handed data localization requirements, intellectual property rights infringements, impediments to market access, etc. — that distort competition and create an uneven playing field for U.S. firms in innovation-intensive industries, including industries with serious implications for U.S. critical infrastructure and national security.
These imbalances and inequities cannot go unaddressed by the United States and its international partners. The opportunity to compete on a level playing field according to principles of fair and open market access not only positions U.S. firms and innovators to succeed in the global innovation economy but also promotes an open culture of innovation worldwide, to the benefit of all.
Innovative U.S. firms are leading and competing in global markets but face challenges stemming from unfair and market-distorting practices.
- International markets present opportunities for rapid expansion and valuable growth opportunities. In the mid-1990s, as much as 97 percent of all global venture capital investment flowed to the United States. By 2017, the U.S. share fell to 50 percent. And the domestic market for industrial robots accounted for just 11 percent of total global shipments in 2016.
- Data flows and digital trade play an increasingly critical role in driving global markets. In fact, global data flows contribute more to global gross domestic product (GDP) growth than trade in goods. Global internet traffic grew more than twenty-fold between 2007 and 2017 and is expected to more than triple between 2017 and 2022.
- Countries with high levels of digital trade restrictiveness account for a significant share of global GDP, limiting fair access to key markets. This restrictiveness is driven in part by increasing usage of data localization measures, which can raise the cost of hosting data by 30 percent to 60 percent for affected firms.
Digital Trade Restrictiveness by Country
Trade malpractice in international markets imposes high costs on U.S. firms, the economy and vital U.S. interests.
- The annual cost to the U.S. economy from counterfeit goods, pirated software and theft of trade secrets falls in the range of $225 billion to $600 billion.
- The theft of trade secrets alone is estimated to cost the U.S. economy $180 billion to $540 billion each year.
- In a survey of firms that do business in China, 94 percent said they had some level of concern about intellectual property rights protection enforcement.
- U.S. firms bore the brunt of 35 percent of losses from software piracy in 2015 — approximately $18 billion worth of losses.
International agreements and commitments are critical to establishing common standards and best practices for innovative technologies.
- Digital trade is an increasingly critical piece of trade agreements and other partnerships. Countries worldwide have more than 280 bilateral and regional trade agreements, but the United States is party to only 14.
- Worldwide, more than 80 jurisdictions have established technical standards for the information and communications technology sector that are at odds with global norms and standards.
Policy Recommendations
- Combat intellectual property theft. The United States should strengthen commitments, monitoring, enforcement and penalties surrounding domestic and international rules to protect intellectual property from theft, counterfeiting, forced transfer and infringement by working with international counterparts and foreign governments to:
- Uphold and reinforce norms of intellectual property protection. The United States and its international counterparts should expand enforcement capacity for intellectual property protection and promote its meaningful use.
- Eliminate technology transfer requirements, including compulsory licensing, and regulatory preferences for indigenous innovation. The United States and its international counterparts should seek a level playing field by eliminating these technology transfer requirements.
- Counter technology restrictions by partnering with like-minded countries and negotiating commitments. The federal government should work with like-minded countries through engagement and negotiations to counter technology restrictions, protectionist cybersecurity, data localization requirements, and requirements for businesses to transfer technology and intellectual property as a condition to access foreign markets.
- Lead in the development and enforcement of international commitments, standards, norms and best practices. The federal government and U.S. companies should lead in the development and enforcement of international commitments, standards, norms and best practices for the development and application of emerging technologies to create a stable and level playing field. Examples include cybersecurity, digital privacy, data flows, blockchain, internet of things, and energy and the environment.
- Strengthen participation in international standards setting. The federal government and U.S. companies should expand participation in international standards-setting bodies to prevent the development and adoption of discriminatory international and country-specific standards or commitments.
- Counter the use of foreign subsidies targeting innovative technologies. The United States and its international counterparts should create and strengthen domestic and international rules to discipline government provision of subsidies to domestic companies that distort competition.