David Gura (2:36)

It also includes social media, digital advertising, and Streaming. Brendan says cross border sales of digital services are growing twice as fast as more traditional goods. He says they now make up about 15% of global trade. And last year the value of global exports of services delivered digitally in increased to more than $4.5 trillion. That's a number Brennan says will continue to rise as AI becomes more prevalent. So far, digital services have not been covered by traditional trade rules and regulations, and the US has tried to keep it that way. It's pushed back on countries that have threatened to impose taxes and tariffs on digital services from tech companies that are based in the US Including Alphabet and Apple and X.

Brendan Murray (3:21)

There are discussions and disagreements about whether those services, those things that we buy and sell on our phones and our laptops, will become the next frontier of the trade wars that President Trump is waging around the world.

David Gura (3:35)

That battle is getting started on a couple fronts.

Advertisement Voice (3:38)

We have a new Section 301 investigation.

David Gura (3:41)

This week, Trump and his trade team started to lay the groundwork for a new tariff regime, one that could penalize countries that tax U.S. digital services.

Brendan Murray (3:50)

This Section 301 authority will allow the U.S. trade Representative to impose tariffs not just on goods, but also go after services and investment that it feels are being treated unfairly in foreign markets.

David Gura (4:02)

And in less than two weeks, the World Trade Organization will hold its next meeting where global leaders will have the chance to turn the tables on Trump's efforts.

Brendan Murray (4:12)

So some of them will go along, but others may see it as an opportunity to hit back with some protectionism of their own.

David Gura (4:24)

I'm David Gura and this is the big take from Bloomberg News today on the show. The next front in President Trump's trade war is online. A looming battle over digital services could put the president on the defensive, what it could mean for the price of an ebook and the operations of US Tech giants. For the last three decades, the world's major economies have decided without a lot of fanfare not to put tariffs on e commerce.

Brendan Murray (4:53)

We didn't know back in 1998 that these kinds of services were going to dominate our lives, but now they are, and the WTO is trying to deal with it.

David Gura (5:02)

Bloomberg's Brendan Murray says that ever since, the World Trade Organization has been kicking the question of digital services tariffs down the road, using something called the moratorium on customs duties on electronic transmission.

Brendan Murray (5:15)

That moratorium has been renewed every two years, basically with few headlines. The idea was that if E commerce reaches poor countries, rich countries, we all benefit from the proliferation of E commerce.

David Gura (5:29)

But as digital services become a bigger and more lucrative part of the global economy and our daily lives. The future of that moratorium is up in the air.

Brendan Murray (5:38)

At the last meeting two years ago, the agreement was, we'll extend it one more time, but then it expires. So the agreement that the members of the World Trade Organization came to was that this was going to sunset, period.

David Gura (5:53)

Representatives of the WTO's 166 member countries will debate it when they gather in Cameroon later this month.

Brendan Murray (6:00)

How do we factor in that all of these goods and services are increasingly moving across borders invisibly on subsea cables? And there's no customs checkpoint on the subsea cable that connects the European Union and the United States. What they're trying to do at the WTO is figure out a way to head off these kinds of disputes, to measure digital trade and to come to some consensus as to how countries should treat it. It as a subset of trade. It used to be a company would have a physical presence in the market that it operated in. But that doesn't have to be the case anymore. I have a Venmo account on my phone, and Venmo is based in New York City and I'm based in the uk, and I can send birthday gifts to my nieces and nephews through Venmo. I don't need a Bank of America branch here in the UK to make a transaction like that anymore. So if you are one of these companies and you are trying to operate in, in a country like France or Spain that have these digital services taxes on the revenue, then it gets very difficult to apply the same business model in one country as opposed to other countries where the rules and regulations and taxes may not be existent at all.

David Gura (7:22)

What the US wants is to make that moratorium on duties on digital services permanent. But Brennan says that will be a tough sell to other countries.

Brendan Murray (7:31)

There are countries like Indonesia, like India, like Brazil, like South Africa, that see this as a way to raise a lot of money. And they see the big US tech companies making a lot of money in their countries. And Indonesia actually has a tariff line in its customs code for digital transactions. It's currently zero. But all they have to do is change that to 20%. And the E book that you download in Bali just became 20% more expensive. But recently, as the US administrations, from Biden through Trump, have become more protectionist in the way they approach the US's trade balance with the world, those countries on the receiving ends of those digital services imports are saying, hey, you can't be protectionist with your imports. And free traders with Your exports. And some of these trade deals the President Trump has signed with, these countries have a provision in them that says you must support a permanent moratorium on electronic transmissions.

David Gura (8:36)

I'm lingering on something you just said, which is, if you took a trip and downloaded an E book that could be subject to attacks, can you play that out a bit more like, how big a deal would it be if we saw that moratorium end?

Brendan Murray (8:48)

Well, this is the real difficulty in how do you identify that book that you just downloaded? Where did it cross from an Amazon hub where it exists to the beach where? You want to read the book? The digital services trade globally is about $5 trillion. And so we're talking about a lot of money and a lot of potential for countries, particularly developing countries see dollar signs, and many of them have budgetary problems, fiscal deficits that they need to address. And so this is one of the main ways that they would look to do that. So the US Has a lot of work to do to convince countries to agree to either extend the moratorium or push it aside completely. And the US has not made a lot of friends over the last year or so in the world of trade. They've applied tariffs to a lot of countries that would sit on the other side of the US Countries like India. So we'll see how willing those countries are to go along with the U.S.

David Gura (9:54)

brendan, does the rise of AI change the conversation at the WTO about digital services or maybe add to its urgency?

Brendan Murray (10:01)

Well, the big issue for the WTO when it comes to digital services and AI is what they call data sovereignty. All of those data centers that we see being built, from the UK to the US to pretty much every major economy are seeing this huge boom in data centers. The question becomes, whose data is that? Let's just say, for example, you have a large tractor manufacturing company that's based in Ohio, and that tractor company sells its products all over the world. And that tractor company has data embedded in those pieces of machinery that collect all sorts of information, from soil moisture to the temperature outside. So if that tractor is sold in Brazil and it's beaming its data into a data center in Brazil, whose data is that? Is that the American company's data or is it the Brazilian government's data? It becomes very valuable to know how well Brazilian farmers crops are going to be that year. So that would be important information that could be sold to another company, a fertilizer company. This is where the rubber meets the road with the data. Sovereignty issue is everything we we use nowadays. Modern electronics are just collecting all sorts of data and where that data is physically located is becoming a big source of debate.

David Gura (11:30)

The rubber meets the soil in effect.

Brendan Murray (11:32)

Exactly. I was going to. I was trying to come up with something like that.

David Gura (11:36)

When we come back the years long clash between the US and Europe on taxing and regulating big tech and how Meta, Alphabet and X have been caught in the middle.

Brendan Murray (11:46)

Foreign

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The EU has gone after some of the biggest US Tech giants, taking aim

Advertisement Voice (14:03)

at hate speech, disinformation and other harmful content online.

David Gura (14:07)

European Union have fined Apple the equivalent of about $2 billion. The court dismissed an appeal from Google over a $2.8 billion fine against the

Brendan Murray (14:15)

company by the European.

David Gura (14:16)

As big US tech companies have become global giants, EU regulators have brought some high profile actions against them.

Brendan Murray (14:23)

The US would say, you're over regulating our companies. And the Europeans would say, well, we want to protect our citizens and our businesses against harmful practices.

David Gura (14:32)

Bloomberg's trade editor Brendan Murray says what these cases expose is a philosophical divide between Europe and the United States.

Brendan Murray (14:39)

And this is where the real flare ups are starting to happen. They're sort of smaller brush fires at the moment, but this is where digital services could become a much more volatile place for trade wars to erupt.

David Gura (14:53)

He says the tensions over digital services are deeply rooted in what he calls competing models, different views of what the Internet was and what it could become.

Brendan Murray (15:02)

The Internet was going to democratize the world. If you believed some officials back in the early 2000s that this was going to bring China into the fold, out from behind its sort of protected economy. But what we've really ended up with is three basic models of the Internet.

David Gura (15:22)

The first is the US model, this

Brendan Murray (15:25)

one that the US espouses, the Trump administration, the Biden administration to a lesser degree, that says it should be for free speech, free commerce, and unimpeded by government regulations for the most part.

David Gura (15:37)

Second, Brendan says, is the European model, which is more regulated.

Brendan Murray (15:42)

Europeans are concerned about safety, particularly among young people. They're concerned about anti competitive practices and they're also concerned about privacy protections, much more so than the US model.

David Gura (15:55)

And the third model is what Brendan calls the pure authoritarian model.

Brendan Murray (15:59)

The Chinese, the Russians, and to some extent we've seen it with the situation in Iran where some protests start to happen and the Internet goes off. So we basically have these three competing models and one of them is going to rule out at some point. And at the moment the battle is really between the US and the European models. It all goes down to free speech. Free speech is in the US Constitution and there are very few limits on free speech speech. Those same kinds of freedoms are not embedded in the European democracies. There are restrictions on hate speech. And so there's just a fundamental difference between the way the US views social media, e commerce and the way the Europeans look at it, which is much more of a it needs oversight, otherwise it will erode your democracy rather than build it up.

David Gura (16:55)

How has Europe been at enforcing these regulations?

Brendan Murray (16:58)

They have targeted about 20 US companies. They've hit them with fines over content that violated the European rules. Most of those 20s have been the big tech companies based in the U.S. companies like Meta, Google. Those are the ones that the Europeans really feel are crossing the line.

David Gura (17:19)

The EU brought its latest landmark case in December against Elon Musk's ex issued a fine of 120,000 doll million euro to X for breaching the Digital Services Act. This is the first ever fine under the dsa. The DSA Digital Services act is one of several European regulations of big tech. The European Commission faulted X for not being transparent enough on multiple counts, including how it decides which accounts on the social media platform get a verified check mark. Anyone can pay to obtain the verified status, and X does not meaningfully verify who is behind it. X appealed that decision about a month ago. Officials in the US Also objected. The US Trade representative, Jameson Greer, called Europe's decision draconian. This is the equivalent of California setting

Brendan Murray (18:09)

the emissions rules for cars for the whole country, right? For what they do. Right.

David Gura (18:12)

The EU is essentially trying to do

Brendan Murray (18:14)

it for global digital operators, and it would be one thing if they had. So President Trump has taken up their arguments to a large extent and has threatened Europe more broadly, the European Union with tariffs, even though the fines and the regulations and the taxes may be done at the country level rather than the European Union level.

David Gura (18:36)

Given what seems like the wideness of disagreement among the US And Europe, what is this fight likely to be like?

Brendan Murray (18:42)

It's hard to see how the two sides are fundamentally going to get together and come out with some agreement. The European Union is divided into 27 different countries. They all set fiscal policy, tax policy individually. That's not governed at the European Union level in Brussels. And so it's hard to see how the EU is going to come up with a unified approach that will satisfy the demands from the US Government at the moment. So it seems like we're headed for some sort of showdown where the US Is putting all these demands on the Europeans and the Europeans are saying this is a sovereign issue for us. This isn't up for discussion. It's not leverage that we can use in a trade negotiation. This is how we collect revenue to pay for our government. And President Trump has often complained about the Europeans, how big the trade deficit is with the European Union economy broadly. But the US Has a surplus of services exports, digital services exports to the European Union. And so if you separate the two, then the Europeans could make the same case that, look, we have a big services deficit with the US and therefore we need to remedy the situation. So until the two sides can kind of reconcile those two ways of looking at things, then I think we're going to be at a stalemate at the very least, and perhaps there could be some sort of more offensive measures that both sides could launch at each other. The services arena is really going to be where the trade wars of the future are fought. It's very hard to game out right now exactly what the weapons are going to be, whether they would be tariffs or taxes or regulation. But we're in the digital age and the trade wars of the future are going to be waged in the digital arena.

David Gura (20:45)

This is the big take from Bloomberg News. I'm David Gura. The show is hosted by me, Sarah Holder and Won Ha. The show is made by Aaron Edwards, David Fox, Jeff Grocott, Eleanor Harrison Dengate, Paddy Hirsch, Rachel Lewis Christie, Katie McMurran, Naomi Ng, Julia Press, Tracey Samuelson, Naomi Shaven, Alex Segura, Julia Weaver, Yang Yang and Taka Yasuzawa. There's Much more on Bloomberg.com, get unlimited access to all of our coverage at a special rate for listeners@Bloomberg.com podcastoffice. Thanks for listening. We'll be back on Monday. Friends like these the Murder of Skylar Nese is now streaming on Hulu and Hulu on Disney 91 1.

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