Beyond the USA Freedom Act: How U.S. Surveillance Still Subverts U.S. Competitiveness

Almost two years ago, ITIF described how revelations about pervasive digital surveillance by the U.S. intelligence community could severely harm the competitiveness of the United States if foreign customers turned away from U.S.-made technology and services. Since then, U.S. policymakers have failed to take sufficient action to address these surveillance concerns; in some cases, they have even fanned the flames of discontent by championing weak information security practices. In addition, other countries have used anger over U.S. government surveillance as a cover for implementing a new wave of protectionist policies specifically targeting information technology. The combined result is a set of policies both at home and abroad that sacrifices robust competitiveness of the U.S. tech sector for vague and unconvincing promises of improved national security.

ITIF estimated in 2013 that even a modest drop in the expected foreign market share for cloud computing stemming from concerns about U.S. surveillance could cost the United States between $21.5 billion and $35 billion by 2016. Since then, it has become clear that the U.S. tech industry as a whole, not just the cloud computing sector, has under-performed as a result of the Snowden revelations. Therefore, the economic impact of U.S. surveillance practices will likely far exceed ITIF’s initial $35 billion estimate. This report catalogues a wide range of specific examples of the economic harm that has been done to U.S. businesses. In short, foreign customers are shunning U.S. companies. The policy implication of this is clear: Now that Congress has reformed how the National Security Agency (NSA) collects bulk domestic phone records and allowed private firms—rather than the government—to collect and store approved data, it is time to address other controversial digital surveillance activities by the U.S. intelligence community.

The U.S. government’s failure to reform many of the NSA’s surveillance programs has damaged the competitiveness of the U.S. tech sector and cost it a portion of the global market share. This includes programs such as PRISM—the controversial program authorized by the FISA Amendments Act, which allows for warrantless access to private-user data on popular online services both in the United States and abroad—and Bullrun—the NSA’s program to undermine encryption standards both at home and abroad. Foreign companies have seized on these controversial policies to convince their customers that keeping data at home is safer than sending it abroad, and foreign governments have pointed to U.S. surveillance as justification for protectionist policies that require data to be kept within their national borders. In the most extreme cases, such as in China, foreign governments are using fear of digital surveillance to force companies to surrender valuable intellectual property, such as source code.

In the short term, U.S. companies lose out on contracts, and over the long term, other countries create protectionist policies that lock U.S. businesses out of foreign markets. This not only hurts U.S. technology companies, but costs American jobs and weakens the U.S. trade balance. To reverse this trend, ITIF recommends that policymakers:

• Increase transparency about U.S. surveillance activities both at home and abroad.
• Strengthen information security by opposing any government efforts to introduce backdoors in software or weaken encryption.
• Strengthen U.S. mutual legal assistance treaties (MLATs).
• Work to establish international legal standards for government access to data.
• Complete trade agreements like the Trans Pacific Partnership that ban digital protectionism, and pressure nations that seek to erect protectionist barriers to abandon those efforts.