One of the pillars of the global economy fell a few weeks ago, and practically nobody noticed. The 14th ministerial conference of the World Trade Organization ended its meeting in Cameroon last month declaring that, for the first time since in almost three decades, it had failed to reach consensus on a moratorium prohibiting customs duties on e-commerce.
It is worth noting exactly how long this agreement has lasted. It was in May 1998 that countries first decided that the cross-border “production, distribution, marketing, sale or delivery of goods and services by electronic means” would not be tariffed the way goods are. Back then, Netflix Inc. was a scrappy start-up, less than a year old, that mailed DVDs to you. Alphabet Inc.’s Google didn’t even exist. Nobody had any conception of what a cross-border digital transaction was, or how you might tariff it.
Thanks to the moratorium, that’s still true. In fact, one of the reasons given by Brazil, which argued against its extension, was that countries needed to actually explore what they had given up. After all, exports of digitally delivered services were valued at almost $5 trillion in 2024; that’s more than half of total services exports.
Are there billions in tariff revenue just lying around to be picked up by impecunious or debt-strapped governments in poorer countries? Would taking a cut from Netflix in California every time a teenager in Nairobi watches an episode of Squid Game perhaps make a difference to Kenya’s straitened finances?
Some have thrown around big numbers for this possibility: One research paper from the UN Conference on Trade and Development estimated that developing nations have foregone $10 billion of revenue.
But others disagree. Analysis by the Organization for Economic Co-operation and Development insists that the additional take from digital tariffs might be only 0.1% of total current government revenue. Even that might vanish when other forms of tax are accounted for, such as a value-added tax on electronic services.
One reason nobody knows how much money governments might raise from such taxes is because they aren’t certain what these duties might look like. And that is, in turn, because nobody is quite sure exactly what counts as cross-border digital services. Multiple jurisdictions have different definitions. All we know is that none of them are currently tariffed. Goods delivered through foreign e-commerce platforms might be; but anything delivered digitally — software, movies, algorithms — isn’t.
That comfortable state might have continued forever — which would, certainly, benefit consumers and small businesses everywhere, many of whom depend upon cheap services electronically provided by foreign companies — if not for two facts.
First, very few people are making money in the global economy today, but Big Tech certainly is, and no government in the world would pass up a shot at a slice of that.
And second, the entire world is looking for ways to push back against President Donald Trump. The administration’s trade-policy rampage over the past year has woken countries up to the need to find some sort of leverage against Trump — and, ideally, some way to inflict pain on the American companies he cares most about.
Brazil, which led opposition to the US position, gave two reasons for its intransigence. They claimed to be upset that Washington was arguing against duties on e-commerce while simultaneously refusing to open discussions on other issues such as agriculture subsidies. But they also pointed out that nobody knew where the tech was going. Suppose AI hollows out entire industrial sectors over the next five years; shouldn’t governments be allowed then to tariff foreign algorithms?
The comfortable assumption that underlies Big Tech’s view of the world is that no government other than America’s exists, and that nobody else will try to tax, tariff or bully them. But the bigger they get — and the harder the White House tries to protect them — the more attractive they are as a target. Both in and of themselves, and also as a bargaining chip to be used against Trump.
Of course, the first country that tries will likely be hit by the full force of Trump’s ire. And many are in trade agreements that have provisions against e-commerce tariffs anyway. Still, if a weapon is available, someone is going to try to use it.
The European Union has stayed on America’s side in this battle. But that’s probably because of the bloc’s innate conservatism. At some point Brussels — which has constantly tried to find ways to tax American tech giants — will realize they’ve been handed another lever. And if Europe acts, the rest of the world will follow.
The internet has been tariff-free for decades. If that changes, it’s because the world has decided it can’t allow the US to run its digital empire forever.
Source Name : Economic Times