President Trump’s clumsy and crude attempts to level the playing field on global trade are flawed on a myriad of levels. His economic assessment that tariffs can be used as a tool to reduce the US trade deficit is without merit, with one exception. If you reduce the structural growth rates of an economy by enough, imports of all goods will slow significantly and the deficit will fall. Trade surpluses are common for economies that are in recession. Maybe this is the strategy.
While it is easy to dismiss that the announcement of tariffs on steel and aluminium imports as nothing more than pandering to his populist base, President Trump has held anti-globalist views since the 1980’s. With a focus on old economy inputs, it is pretty clear that this flawed economic thinking has not evolved since then. National security doesn’t revolve around steel and aluminium. As the Russian involvement in the 2016 US Presidential election has shown, servers are the new aircraft carriers and data are the missiles. Unfortunately, the US administration does not understand this and could not see that the true trade war began months ago. It was started in Brussels and came in the form of the General Data Protection Regulations or GDPR.
Like most European regulation, it comes with the best of intentions and is widely supported amongst the individuals it is designed to protect. In this article from the Financial Times on February 21st, it outlines in succinct detail, the problem that many of us fear; that demographically targeted advertising is simply going too far and that we have crossed this line between convenience and the likes of Facebook and Google knowing too much. And there is nothing we can do about it.
“People do not always understand the full information of what the company can see about them,” said Angel Cuevas, a professor at the University of Madrid who was prompted to analyse the data after he was shown ads for hostels targeted at gay men. “If they did, they might feel differently about allowing it.”
I have written at length about the regulatory push back that is coming against Big Tech and I believe that the defining agenda of the 2020 US Presidential campaign will be a backlash against technology companies that many can agree, have not shown adequate responsibility regarding how much they influence our daily lives. Advocates for GDPR will say that these data protections go a long way to solving these concerns. For the sake of this article, I would argue that these are designed to reduce the dominance of US technology behemoths such as Google and Facebook. With 63% of US market share in digital ads and comparable numbers around the globe, GDPR is a direct attempt to ease concerns over this duopoly. How are these not the equivalent of steel tariffs?
While Brussels may have been more sophisticated in its execution, the results remain the same. GDPR will increase the cost of doing business for US technology companies in Europe. While European companies are also affected, Google and Facebook are the true targets of these measures and will be disproportionally harmed. Isn’t that the quintessential definition of a tariff? To use regulation and artificial barriers to level the playing field? While there is no natural domestic heir to replace Google or Facebook, these measures will structurally harm their business models in Europe. These pressures will eventually, start to hurt profits, especially if more broadly adopted. While US regulation could and probably will come, at the moment, GDPR should be viewed as a sophisticated trade barrier. Wilbur Ross and Peter Navarro don’t see this. If they did, there attempts to level the playing field might be a little less crass.
I continue to struggle with Facebook but I am rapidly coming to the conclusion that we are reaching peak valuation.