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Key Takeaways

Data flow restrictions make data less safe and secure. Requiring storage of data in a single location makes them more vulnerable to natural disasters, hacking, and illegal surveillance.

Barriers to data flows reduce GDP and cause the prices of tech services to go up significantly by limiting economies of scale. They often serve as market barriers that prevent U.S. companies from even entering a market.

These laws undermine innovation and the ability of local populations to access valuable services. Restricting services that rely on data flows negatively impacts the welfare of citizens.

Data Flow Restrictions

  • Limit the movement of information across the internet
  • Force companies to manage, store, or otherwise process data locally
  • Link market access or commercial benefits to investment or use of local infrastructure.

Data flow restriction laws look like:

  • Local infrastructure requirements for data processing
  • Domestic staffing and equipment requirements
  • Local data retention requirements

Requirements that force U.S. companies to store or process data locally hurt U.S. businesses and threaten the open nature of the internet. U.S. trade policy should prioritize securing agreements that prevent restrictions on the movement of information across borders.

Individual countries have established local infrastructure requirements for cloud data processing and new local data retention requirements for internet services. Cross-border, global exchange of information – without censorship, content-based regulation, or filtering mandates – facilitates commerce and promotes economic inclusiveness. The internet ecosystem flourishes when users and content creators are empowered through an open architecture that promotes the free exchange of ideas and information. Internet services instantaneously connect users to goods and services, facilitate social interactions, and drive economic activity across borders. 

Countries that enact data flow restrictions see a decrease in GDP of
0.7%1.7%
Data localization measures raise the cost of hosting data by
30%60%

Consequently, support for the free flow of information is vital to eliminate trade barriers that restrict commerce or prevent U.S.-based internet services from operating in a foreign jurisdiction. Unfortunately, data localization mandates and other limits on data transfers are increasingly restricting U.S. services from accessing overseas markets. Foreign governments frequently cite concerns about security, privacy, and law enforcement access to justify localization measures. However, as the U.S. responds to these measures, it is critical to convey that data localization requirements typically increase data security risks and costs – as well as privacy risks – by requiring storage of data in a single centralized location that is more vulnerable to natural disasters, intrusion, and surveillance. In practice, the primary impact of a data localization measure is not to safeguard data but instead to wall off local markets from U.S. competition, while hurting local businesses as well.

> 50% Of All U.S. Services Exports

Digital trade represents over half (55 percent) of all U.S. services exports.

~ $8T Exhanged Through Global E-Commerce Annually

Nearly $8 trillion is exchanged through global e-commerce annually.1

Growth Since 2005: 45 Fold Cross Border Data Flows

Cross-border data flows have grown 45-fold since 2005 and are projected to grow another nine times in the next 5 years.2

  1. https://www.mckinsey.com/industries/high-tech/our-insights/internet-matt
  2. https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/digital-globalization-the-new-era-of-global-flows

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