Tech Frets About Trump Commerce Department’s Digital Stance

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By Michaela Ross

Dec. 9 — President-elect Donald Trump’s choice of billionaire steel, coal and manufacturing mogul Wilbur Ross to lead the U.S. Department of Commerce has left the tech industry questioning the fate of programs aimed at boosting digital trade.

Tech industry analysts, and groups such as ACT | The App Association and the Semiconductor Industry Association, which represents companies such as Qualcomm Inc. and Intel Corp., hope Trump will continue several of President Barack Obama’s digital initiatives aimed at boosting U.S. competitiveness and fill Commerce’s ranks with staffers well-versed in technology.

Trump didn’t outline a tech agenda during his presidential campaign. He has focused his trade rhetoric on the U.S. manufacture of goods. But digitally-deliverable services are also important to the U.S. economy. In 2014, those services—$400 billion worth—accounted for more than half of all U.S. services exports and a sixth of all U.S. goods and services exports, Commerce data shows.

Ross and Trump’s opposition to the Trans-Pacific Partnership trade pact and their support for using tariffs to police Chinese trade activity have set off alarms. Although the tech industry has struggled with trade-related issues like China’s weak intellectual property protections, new tariffs could drive up the cost of their hardware operations abroad. The TPP trade deal also included digital trade provisions that the industry saw as way to boost growth in foreign markets.

The industry is also hoping for appointees with more extensive knowledge of tech issues be nominated for other Commerce posts.

“There are a whole series of issues that affect tech and not only Ross, but some of the other people going in, are really pretty old industry,” James Bessen, a technology and patent-focused economist at Boston University School of Law, referring to the Trump administration, told Bloomberg BNA.

Some are even hoping for an expansion of Obama’s policies. Fadi Chehade, former CEO of the Internet Corporation for Assigned Names and Numbers, the California nonprofit that manages internet functions and operational protocols, has called on Trump to create a new office modeled on the U.S. Trade Representative—a U.S. Digital Representative—to provide global digital policy advice.

A spokesperson for Ross declined to comment via email. Trump’s transition team did not respond to an emailed request for comment.

Obama v. Trump

Commerce Secretary Penny Pritzker made a digital trade economic agenda a focal point of her three-year tenure in the Obama administration.

Pritzker named a Digital Economy Board of Advisors led by Commerce’s first-ever director of digital economy, Alan Davidson, who was also appointed under Obama, to advise the department on policy matters. The board includes a dozen leaders from industry and academia, including the CEOs of Alphabet Inc.'s Google’s YouTube, and General Electric Co.'s GE Digital.

“It’s critical that the Trump administration build on the previous administration’s digital economy initiatives,” Nigel Cory, trade policy analyst at the Information Technology & Innovation Foundation, or ITIF, a nonprofit technology think tank, told Bloomberg BNA.

So far, Trump’s transition teams have a small but potentially influential tech presence. Venture capitalist and Facebook Inc. board member Peter Thiel, one of Trump’s few prominent Silicon Valley campaign supporters, could arguably influence appointments during the transition. IBM Corp. CEO Ginni Rometty has been appointed to the newly-formed President’s Strategic and Policy Forum that will begin meeting with Trump in February to share viewpoints on economic growth, job creation and productivity.

Others, though, don’t want Trump to get too cozy with tech.

The conservative National Legal and Policy Center warned Trump in a Dec. 7 letter to be skeptical about the tech industry’s “self-serving” requests.

The NLPC criticized the Obama administration’s close ties with tech giants, particularly Google; called Silicon Valley’s contribution to U.S. jobs “disappointing” given its revenue growth under Obama; and warned that development of robotics and artificial intelligence threatens job growth.

“Given that job creation and economic investment in America’s future are a top priority for your administration, we implore you not to make the same mistake as your predecessor: Wealth creation alone does not necessarily translate to job creation,” the group said.

Spooked by Tariffs

Trump’s and Ross’ opposition to the TPP has stoked tech-sector worries. The pair have zeroed in on the deal’s impact on traditional nuts-and-bolts manufacturing for criticism, but the agreement also contained data transfer and intellectual property provisions that the industry saw as valuable for boosting innovation and e-commerce abroad.

As for China, Trump has suggested a 45 percent tariff on Chinese imports as a way of punishing China for currency manipulation, among other issues. Ross, in a Sept. 29 paper analyzing Trump’s economic plan, also supported using tariffs to enforce or police trade agreements against China.

Ross is “very critical of China generally, so any company that has a lot of business ties there, as far as sourcing or manufacturing, would need to be very careful about that,” Caitlin Webber, a Bloomberg Intelligence government analyst, told Bloomberg BNA.

The U.S. imports more technology hardware, including smartphones, from China than anywhere else in the world, Webber said. She estimated that a tariff on Chinese imports could raise the cost of a smartphone in the U.S. by $83 per phone, impacting companies like Apple Inc. and ZTE Corp.

Ross’ approach to trade deals involving the digital industry may not end up reflecting industry’s worst fears. The chief executive officer at WL Ross & Co. LLC, a private equity firm, Ross also directed Rothschild Inc., where he developed a reputation for restructuring failing businesses in the telecommunications, textiles, steel and coal industries.

“We’re seeing Trump move toward business leaders with business experience, and now we’ll see how that experience translates to wielding the levers of government,” Morgan Reed, executive director of ACT | The App Association, told Bloomberg BNA.

Also in his Sept. 29 paper, Ross advocated for two issues many in tech would support: trade enforcement against China for IP theft and forced technology transfers, where companies are forced to hand over their technology or research to the government to gain access to the Chinese market

F. Brett Berlin, founder of technology consulting firm Berlin Consulting Associates, Inc. and a George Mason University computer science professor, said Ross’ investment background may give him an edge in dealing with technology issues, given the increased role technology has played in the banking and financial services sectors.

“There’s no area that is more critically dependent on leading-edge digital thinking, digital economy, cybersecurity and big data” than finance, Berlin told Bloomberg BNA. “That impacts every bit of what they’re doing.”

Tech Wish List

In the tech industry’s Nov. 29 letter to Trump and Vice President-elect Mike Pence, 17 groups, including Information Technology Industry Council (ITI) and the Internet Association, representing companies like Amazon.com Inc. and Microsoft Corp., outlined their hopes that certain Obama-era programs at different departments, including Commerce, would continue.

“In pursuing its mission of encouraging investment and job creation in the United States, it is essential that the Department of Commerce not separate economic issues from digital issues, particularly given the reality that this agency deals with concerns related to trade promotion and market access, privacy and data protection, cyber-security, the promotion of advanced manufacturing, and intellectual property protection,” the groups said in a non-public appendix to the letter and obtained by Bloomberg BNA.

Among the programs the groups want to see continued are a digital attache program, launched this year and later expanded due to its popularity with industry. The program trains trade specialists at a dozen U.S. embassies to promote tech policy and help U.S. companies navigate local data transfer, intellectual property and encryption laws, among other business obstacles. Another favorite is the Digital Economy Leadership Team (DELT), launched in 2015 to promote patent legislation and cybersecurity and support efforts such as the EU-U.S. Privacy Shield, which allows companies to transfer and process data from the EU to the U.S.

Such programs have aimed to foster policies that the tech industry says are crucial for job growth and innovation. Allowing companies to transfer data across borders freely and not be required, for instance, to process data on local servers, a practice known as data localization, is crucial to the development of cloud computing, data analytics and the growth of artificial intelligence and connected devices, also known as the internet of things. Although Commerce’s digital trade initiatives are popular with U.S. tech companies, the companies have still struggled against data localization and other trade-resistant policies in China, Russia, India, Indonesia and the EU, among other regions.

The U.S. semiconductor industry, meanwhile, would like to see a continuation of Obama and Pritzker initiatives aimed at more rapidly developing the industry and defending it from Chinese state-sponsored attempts to bulk up its own industry, a spokesperson from the Semiconductor Industry Association told Bloomberg BNA. A large component of U.S. tech trade, semiconductors are the third highest export by sales in the U.S., following airplanes and automobiles, according to association data.

Advocates Wanted

Craig Albright, the vice president of legislative strategy at BSA | The Software Alliance, said it is “essential” to have tech advocates in Commerce because the industry is facing complex issues.

“Understanding how these data issues create jobs here in the U.S. is something we want them to take very seriously,” Albright told Bloomberg BNA, referring to Commerce.

Tech interests are also following who will lead the International Trade Administration, which works with data protection regulation issues like the Privacy Shield, and the Patent and Trademark Office, both housed within Commerce. Many of the largest patent holders in the U.S. are tech companies, the Nov. 29 letter said.

“The PTO is very important to us,” Albright told Bloomberg BNA, adding that software companies invested $52 billion in research and development in 2012, the latest year data is available. “Copyrights and patents and trademarks are all very important for that economic growth to continue.”

At the PTO, the tech industry also relies on programs like the IP attache program—expanded under Pritzker—to help them navigate foreign patent systems or defend their research in countries like China, where IP theft is common. The global value of counterfeit and pirated products could be as much as $1.8 trillion annually, International Chamber of Commerce data show.

Other Commerce offices also have a tech-heavy focus that could benefit from tech-savvy appointees, analysts said. Among those are: the National Institute of Standards and Technology, which has set an industry-wide best practices framework for cybersecurity; the National Telecommunications and Information Administration, which oversees internet governance issues worldwide; and the Bureau of Industry and Security, which promotes U.S. strategic tech leadership and effective export controls.

At the end of the day, the tech industry hopes Trump will view it as an ally on delivering on two big campaign promises: creating U.S. jobs and building infrastructure.

“President-elect Trump wants to create jobs,” Reed told Bloomberg BNA.. “And that’s great with us, because that’s what we’re doing.”

To contact the reporter on this story: Michaela Ross in Washington at mross@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

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