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Issue Brief

November 23, 2021

Competing data governance models threaten the free flow of information and hamper world trade

By Hung Tran

Introduction

As data becomes one of the most valuable resources in the world and the volume of global digital trade reaches $6 trillion, policymakers around the world are crafting data governance frameworks. The US, EU, and China have all introduced separate data governance frameworks.

The three frameworks

The EU framework is comprehensive and puts a strong emphasis on the protection of personal data both from the government and private companies. It also establishes that EU citizens’ data can be transferred only to countries with an adequate privacy protection regime (adequacy to be determined by the European Commission). Meanwhile, the Chinese framework asserts that citizens’ personal data should be under the authority of the government for national security and economic development purposes and restricts data flows.

The US model lands in between the EU and Chinese frameworks but closer to the EU one. The US insists on the free flow of data domestically and internationally but has no comprehensive federal law for data protection, although certain federal and state laws protect citizens’ data from the government but not private companies. Thus, while the US and EU are not fully aligned on the freedom of data transfers, they agree on the significance of ensuring the security of citizens’ data. By contrast, the Chinese model gives broad authority to the government to access citizens’ data collected by private companies and strictly controls the flow of data.

With no universal data governance model in sight, third countries have to choose between the Chinese and Western frameworks. Notably, more countries are introducing data localization requirements by either claiming data sovereignty or insisting that data can be transferred only among countries with adequate privacy protection. Thus, despite US support for guaranteeing the free flow of data, more countries are adopting the Chinese model.

The three challenges

The recent data localization trend will have serious implications for the world economy. First, different regulatory regimes will serve as non-tariff barriers to trade in data services, telecom, and cloud services. Second, they will restrict the free flow of information and limit the innovation and growth driven by cross-border scientific research collaboration. Finally, barriers in the global flow of data will restrict global trade, economic growth, and deepen the world’s polarization into competing systems.

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