Your Streaming Subscription Could Be the Next Trade Battlefield

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1:45David Gura:Podcasts. Radio. News. So far, President Trump has waged a pretty conventional trade war.

1:53Brendan Murray:Since the start of his second term, President Trump's push to reshape global trade has been chaotic. The president's announced big tariff deals he said would bring in trillions of dollars. And he's had to deal with a major setback. The Supreme Court has struck down President Trump's tariffs, dealing a huge blow to his economic agenda. Brendan Murray is Bloomberg's global trade editor, and he calls this a pretty conventional trade war because of what Trump has targeted.

2:19David Gura:He has put tariffs on physical goods that we use in our everyday life that he thinks should be made in the U.S. rather than abroad.

2:26Brendan Murray:Goods like cars and pharmaceuticals. But the president's trade war is about to get a lot less conventional.

2:32David Gura:So there's a whole nother section of trade economists would refer to as services trade. These are banking services, consulting services, legal services and the like. But there's this growing subset known as digital services that count as trade that is the fastest growing part of trade overall.

2:51Brendan Murray: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 percent of global trade. And last year, the value of global exports of services delivered digitally increased to more than$4.5 trillion. That's a number Bretton 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 U.S. 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 U.S., including Alphabet and Apple and X.

3:36David Gura: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.

3:50Brendan Murray:That battle is getting started on a couple fronts. We have a new Section 301 investigation. 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. This Section 301 authority will allow the U.S.

4:08David Gura: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.

4:17Brendan Murray: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.

4:26David Gura:So some of them will go along, but others may see it as an opportunity to hit back with some protectionism of their own.

4:39Brendan Murray:I'm David Gurra, 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 e-book, and the operations of U.S. tech giants.

5:00Brendan Murray:For the last three decades, the world's major economies have decided, without a lot of fanfare, not to put tariffs on e-commerce.

5:08David Gura: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.

5:17Brendan Murray: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.

5:30David Gura:That moratorium has been renewed every two years, basically with a few headlines. The idea was that if e-commerce reaches poor countries, rich countries, we all benefit from the proliferation of e-commerce.

5:44Brendan Murray: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.

5:52David Gura: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.

6:08Brendan Murray:Representatives of the WTO's 166 member countries will debate it when they gather in Cameroon later this month.

6:15David Gura: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 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.

7:11David Gura: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 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.

7:37Brendan Murray:What the U.S. wants is to make that moratorium on duties on digital services permanent. But Brendan says that will be a tough sell to other countries.

7:46David Gura: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 to change that to 20%. And the ebook 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.

8:39David Gura:And some of these trade deals that President Trump has signed with these countries have a provision in them that says you must support a permanent moratorium on electronic transmissions.

8:51Brendan Murray: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? How big a deal would it be if we saw that moratorium end?

9:03David Gura: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 the 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.

9:51David Gura: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 U.S., countries like India. So we'll see how willing those countries are to go along with the U.S.

10:09Brendan Murray:Brendan, does the rise of AI can change the conversation at the WTO about digital services or maybe add to its urgency?

10:15David Gura: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.

11:02David Gura: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 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.

11:45David Gura:The rubber meets the soil, in effect.

11:47Brendan Murray:I was going to just try to accomplish something like that.

12:44Brendan Murray:We'll be right back. and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash podcast. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., member FINRA, and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Generated assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or advice. Complete disclosures available at public.com slash disclosures. Sometimes all we want is more of the same, like another round of golf played from a channel with 24-7 coverage, Another look at the garden and the deer as they pick their way through it.

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