Illustration: Gabriella Turrisi/Axios
The Republican sweep of Washington could inject new life and aggression into digital trade.
Why it matters: U.S. companies are looking for leadership on forging new trade ties and fending off foreign taxes.
President-elect Trump's transition team has been fielding digital economy recommendations.
- The U.S.-Mexico-Canada Agreement and the U.S.-Japan Digital Trade Agreement are viewed by industry as the gold standard.
- The deals prohibit restrictions on cross-border data flows, data localization requirements, and mandates to share source code or algorithms to gain market access.
Flashback: U.S. Trade Representative Katherine Tai last year dropped Trump-era digital trade demands for free cross-border data flows at the World Trade Organization to allow for greater regulation of Big Tech.
- Dozens of lawmakers from both sides of the aisle denounced the move, saying it would cede leverage to China to write the rules of the road.
The other side: Progressives like Sen. Elizabeth Warren said walking away from the WTO demands was necessary to stop Big Tech from using trade deals to avoid regulation.
- Those voices will be largely silenced in a Republican Washington laser-focused on deregulation and countering China.
On the AI factor, China is the world's second largest digital economy with vast amounts of data that could train AI algorithms. The U.S. wants to break down Beijing's barriers, like data localization requirements and restrictions on digital imports.
- "AI is what underpins our status as the global technology leader," said Consumer Technology Association international trade VP Ed Brzytwa, adding trade deals should secure the free flow of data that predicates AI advancement.
- Export controls on emerging tech like AI are also picking up steam on the Hill and industry is looking for a surgical approach that protects national security but doesn't inhibit market access.
What they're saying: Digital Trade Caucus Co-Chair Darin LaHood told Axios that in the coming year he wants to work with Trump and lawmakers to counter digital services taxes (DSTs) and restrictive regimes like China.
- Co-Chair Suzan DelBene agreed that Washington has a new opportunity to push back against digital trade restrictions, but added Congress must protect USMCA's digital trade progress and "highlight the harm of across-the-board tariffs."
- DelBene introduced legislation to restrict the president from issuing sweeping tariffs as Trump has already begun making threats.
USMCA renegotiations are scheduled for 2026, and groups like TechNet say they want to expand and strengthen the digital trade provisions to address DSTs.
- They also want to ensure enforcement mechanisms are robust enough to deter violations.
- Canada's 3% DST hit U.S. companies like Meta and Netflix the hardest because they are among the largest in the world and generate hundreds of billions of dollars in revenue. Industry groups contend that the tax undermines USMCA's intent.
- The Trump administration is no stranger to trade wars and may very well retaliate, as some lawmakers and industry groups want. New USMCA provisions could provide the basis for harsher retaliation.
- Trump's promised new tariffs appear to violate USMCA terms, which exempt many imports from tariffs, signaling he may not care to wait for an official renegotiation on the Hill to start taking action.
What we're watching: Who Trump picks to be his USTR will be critical. His former one, Robert Lighthizer, advises the transition team and recently lost out on the Treasury secretary nomination he was reportedly angling for.
- Lighthizer led the U.S. through Trump's trade wars and brokered the NAFTA renegotiation first with Canada and Mexico, then on Capitol Hill.
- We're also watching a potential "brain drain" on key committees, as one industry source put it.
- House Ways and Means trade subcommittee Ranking Member Earl Blumenauer and Senate Finance trade subcommittee Chair Tom Carper are retiring.
