U.S. startups need trade agency to address digital barriers in upcoming annual report
By Joy Yang, Policy Fellow, Engine
Stakeholders across the economy — including startups — are telling the U.S. trade chief about harmful trade barriers, but it’s unclear if the agency will do anything to address them.
In October, the Office of the United States Trade Representative (USTR) received dozens of comments from stakeholders about foreign trade barriers as they prepare a statutorily-required annual report called the National Trade Estimate Report on Foreign Trade Barriers (NTE). Engine’s comments highlighted the value of digital trade for startups and barriers like data localization, digital taxes, and discriminatory regulation that stand in the way of startup success. Despite receiving many of these complaints in 2023, USTR failed to enumerate many of these barriers, signaling they don’t intend to address them in its most recent report. The incoming administration should not continue this approach. Instead, for the upcoming report, USTR should fully enumerate and seek to address digital trade barriers to ensure startups can thrive in the global market.
Unfortunately, USTR deprioritizing digital trade issues in the NTE was not as surprising as it was disappointing. Since October 2023, USTR has been tending away from digital trade leadership. That month, the agency walked back key positions at the World Trade Organization opposing data localization, forced source code disclosure, and discriminatory regulations. Shortly thereafter, the trade portion was dropped from negotiations with Indo-Pacific countries.
Startups have pushed back by reminding U.S. policymakers how much fairness on the global stage means to their market opportunities. Several dozen founders penned an open letter urging U.S. trade policymakers to reassert leadership on digital trade. Dr. Olivia Walch, founder and CEO of the startup Arcascope testified before a key congressional committee calling for “strong leadership on digital trade” to help startups “do what we do best — build — and compete on a global stage.”
Cross-border data flows are essential for digital trade, making it critical for USTR to address barriers to data flows like data localization requirements. Countries that impose such rules generally require companies to store [a copy of] citizens’ data within their borders, often under the guise of enhancing privacy or cybersecurity. The rules have been shown that they fail to better privacy, but they do create a trade barrier. As Dr. Walch explained in her testimony, the costs of creating duplicate infrastructure to meet localization requirements would compel them to abandon or avoid certain markets. That has practical consequences for startups, because, as she put it, “no one wants to use a jet lag tool that works when you take off from Dulles but doesn’t when you land in Delhi.”
The regulatory environment in other countries can also create barriers to reaching new markets, and USTR should work to smooth those barriers. For example, the European Union has created new frameworks for data protection, content moderation, AI, and more over the past several years that create heightened costs and barriers to serving EU users. The regulatory environment has even led some of the largest companies like OpenAI and Meta to delay rollout of new AI models in the bloc. If industry leaders cannot operate within these regulations, then startups stand no chance. Different rules about the same issue lead to duplicate costs for companies, stifling innovation, and disincentivizing startups from global growth.
It remains clear that digital trade barriers represent a significant threat to the competitiveness of U.S. startups in global markets. The 2025 NTE report must fully enumerate these barriers and advocate for policy changes that foster a fairer, more open global digital economy. Startups drive innovation, and if the USTR doesn’t act, U.S. startups risk falling behind in the global digital economy.
Engine is a non-profit technology policy, research, and advocacy organization that bridges the gap between policymakers and startups. Engine works with government and a community of thousands of high-technology, growth-oriented startups across the nation to support the development of technology entrepreneurship through economic research, policy analysis, and advocacy on local and national issues.
