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December 10, 2019

An Internet Trade War

Jason Miller

Many people across the globe like cheap DVDs. They also like cheap streaming services in their native languages. Some nations are just now starting to embrace the internet as a means of driving business and national commerce despite limited access to it. It seems a shame such advances in trade should abruptly end.

Emma Farge of the Reuters News Service reported last Friday that the 20-year global moratorium on imposing tariffs on digital trade could end this coming year. The main culprits in this proposed reversal of precedent from 1998 might surprise you. India and South Africa are clamoring for a piece of an estimated 255 billion dollar pie.

The World Trade Organization (WTO) membership has routinely approved a traditional ban on import duties on what experts defined as "electronic transmissions". These defined electronic transmissions are digital products that require a simple download in order to complete the final purchase transaction.

As more physical books and films are converted into digital downloads, the idea of international tariffs on such purchases becomes a very lucrative suggestion for some cash strapped countries. Some governments see opportunities. Some companies see only overhead cost increases.

Over the last 20 years, increases in the number of global companies whose business models focus on downloaded e-commerce has created a market for instant digital purchases. As the business market expands, governments tend to do what governments do best. Governments try and tax it to get a cut.

The sad part about India and South Africa's proposed tariffs on digital markets is that such actions open up a Pandora’s box of unintended consequences. Such is the case with most government intervention into anything related to business. Economists often warn of stagnant growth and lackluster innovation in high taxed market segments.

The geographic location of an initiated tariff seems irrelevant when global trade is concerned. When one government issues a tariff somewhere on a product, most other governments follow in rapid succession with a tariffs of their own. It's the latest rage in global trade.

Reuters reported that India and South Africa cited the potential of 3D printing to manufacture products as one of the reasons to consider the tariffs. Both India and South Africa have enjoyed the vast benefits of a historically free trade. Many countries have been chastised for years by American business for being idle while foreign companies steal American intellectual property.

Yet, as many of the proposed tariff cost increases come to fruition; many costs are going to be passed on to the consumers in India and South Africa.

An artificial government price increase on digital transmissions will only mean that yet another aspect of business will be unaffordable for some aspiring entrepreneurs.

In a world business climate flush with both public and private sector corruption, one could only hope for a voice of reason to be found in the tariff wilderness shouting of the benefits that many small businesses across the globe have been able to capitalize on from tariff free electronic transmissions.

Many consumers and entrepreneurs are going to feel these tariffs in their wallet. Even more can ill afford the price increase to their private budgets. Everyone can agree that some free trade makes sense if keeping the trade free is mutually beneficial.

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