With all the talk in the media of trade wars and wall-building, you could be forgiven for feeling that economic globalisation has hit a potential turning point.
But what about digital globalisation? Surely conventional tools of protectionism (tariffs, quotas, border checks etc.) cannot keep up with the speed and pervasiveness of global digital communication today?
Not so fast. Conventional tools offer little to governments here, but that doesn't mean that they don't feel compelled to protect their citizens from foreign risks and influence emanating from the digital world, and new laws letting them do exactly that are starting to pop up.
How do you stop one of your companies falling victim to a foreign cyber attack? How do you ensure a foreign firm doesn't lose the personal data of millions of your citizens? You can start by restricting where data on your companies and citizens can be held and how it can be legally transmitted, and you can restrict all of those activities to within your national borders.
China has already required a version of this in its 2016 Cybersecurity Law. The EU's General Data Protection Regulation is less restrictive, but still requires cross-border data sharing to be done under a framework of adequacy agreements and safeguards. India is also introducing a law that takes it down a similar path.
While governments protecting their citizens from risks isn't a bad thing, the proliferation of restrictions on the cross-border movement of data threatens to harm the emergence of a global digital economy, potentially foregoing many of the benefits countries and their citizens stand to reap from it. The risks here are as relevant for financial markets as for any other industry.
The reasons behind digital protectionism are multifaceted, but trust is central to it. We've written before about how growing gaps in the regulation that countries apply weakens regulatory trust and cooperation by making one country's authorities suspect that firms or activities in another country are riskier than in theirs. The regulation of cybersecurity, to take one example of growing importance, is highly uneven across borders, and based on very few detailed international standards.
Changing this will be complex and difficult, but international bodies such as the G7, the ECB and Financial Stability Board have started to take on the challenge.
Whether this process of regulatory convergence will be fast or effective enough to stave off digital protectionism will be an important question for the financial sector, and the rest of the economy, for many years to come.
Scott Martin and Quentin Mosseray