For small firms in the app economy, business has always been global. Software developers, brand strategists, app makers, and other tech-focused small businesses sell products and services all over the world. Due to their inherently global nature, small companies competing in digital markets like ACT | The App Association members need strong protection through digital trade policies.

Each year, digitally delivered services account for more than 10 percent of all global trade, amounting to $4.25 trillion annually. Digitally delivered services trade grew 9 percent in 2023, outpacing all other sectors of global trade. The United States exports $649 billion in digitally delivered services, making it the largest exporter and 50 percent larger than the next largest exporter (the United Kingdom, with $438 billion).

Throughout the last years of the Biden Administration, key protections for digital trade fell by the wayside as the U.S. Trade Representative attempted to re-orient their policies to reflect issues Congress had been considering. Those priorities include:

  • Protection for cross-border data flows, which are essential to support commerce, medical testing, and more;
  • Opposition to forced data localization mandates, which require small businesses to spend significant resources to store and process data in any country where they have customers;
  • Protection against foreign government demands for source code, which expose businesses to risk of intellectual property theft and unfairly obstruct their entry into new markets; and
  • Opposition to foreign regulatory regimes that unduly discriminate against American digital products and services, including digital trade tariffs and regulatory frameworks like Europe’s Digital Markets Act (DMA) and its progeny around the world.

These underlying principles have made American businesses the most successful in the world at exporting digital services. Strong support for free digital trade is a winning proposition for American businesses and should be a focus for the new U.S. Trade Representative.

Cross-Border Data Flows and Data Localization

For app developers whose products are available for download worldwide from the major app stores or the internet, much of their business comes from spontaneous downloads by people who have a need the app fills. If the developer acquires a single user in a country with a data localization requirement, they may need to pay for separate storage and processing of that data in the country, while ensuring that any data pertaining to the single user stays within that country’s borders. Requiring this level of data management adds an unnecessary layer of complexity along with increased compliance costs. Congress must continue its support of American small businesses by opposing data localization requirements and supporting cross-border data flows.

Many businesses rely on cross-border data flows, and not just those in technology industries. These entities are often clients and customers of App Association members. Small manufacturers and even retailers need to send data from their customers’ location to their warehouses during an online order, and small businesses of all kinds rely on cross-border exchange to reach their customers. Forcing businesses to store data inside the borders of a country where they conduct business but not where they are physically located has enormous overhead costs that disproportionately harm our members.

Digital Trade Tariffs and Taxes

The United States has the most successful digital export industry in the world. Digital trade tariffs are inherently anti-American. The digital services sector generates $2.3 billion in revenue annually and supports thousands of U.S. jobs. App Association members and other small businesses need protection from e-commerce tariffs to continue to do business. E-commerce tariffs are trade barriers that give preferential treatment to the narrow set of companies whose digital supply chains stop at national borders. American businesses need the e-commerce tariff moratorium, and the Trump Administration should support it at the next World Trade Organization Ministerial Conference.

For small businesses that rely on licensing of data or user contributions, digital services taxes (DSTs) could represent a huge portion of their operating expenses. In Canada, for example, the recently finalized DST charges a 3 percent tax on revenues related to digital services and the sale or licensing of user data. Canada’s DST could cost U.S. exporters and the U.S. tax base up to $2.3 billion annually and directly result in the loss of thousands of full-time jobs. DSTs attempt to target large tech companies but will almost certainly sweep in small tech as well. We urge Congress to support the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework to address this taxation.

Intellectual Property and Source Code Protection

App makers depend on intellectual property (IP) protection for their success. Some governments have proposed or implemented policies that make legal market entry contingent upon the transfer of proprietary source code.  For app developers and technology companies, the transfer of source code presents an untenable risk of theft and piracy. The infringement and theft of IP jeopardizes the success of App Association members and hurts the billions of consumers who rely on their app-based products and services. IP violations lead to customer data loss, interruption of service, revenue loss, and reputational damage – each alone is a potential “end-of-life” occurrence for a small app development company. Strong and fair protection of intellectual property for copyrights, patents, trademarks, and trade secrets is essential to their businesses.

Emerging Technologies, Competition, and Consumer Protection

Various policymakers, including key U.S. trading partners, are considering or enacting policies to address nascent and emerging markets to address undemonstrated harms. Some of these regulations, such as the EU’s DMA, are already threatening the functionality of digital platforms that have been instrumental in enabling countless small businesses to thrive by minimizing overhead costs, expanding consumer access, lowering barriers to entry, and reinforcing intellectual property protections. Further regulatory interventions into even newer and developing critical and emerging technology markets—like AI—stand to have the same impact, which harms both the United States and its trading partners. It is important that trade policies reinforce the need for any regulatory requirements to scale to the known or reasonably foreseeable harms and that such harms are established and widespread.

What’s Next

The Trump Administration must assertively engage in multilateral and bilateral fora to deter adoption of policies that impede digital trade and promote policies that support global digital market access. Specifically, United States Trade Representative Jamieson Greer should affirm that the United States once again supports the four digital trade pillars in these fora. Free digital trade ensures the United States will maintain and advance its global leadership, keeping us safe, secure, and prosperous.