Christopher Smart

As traditional global trade in goods and services has leveled off, cross-border data flows continue to expand rapidly and the challenges of developing policies that protect privacy, security, and innovation are growing more complex by the day. Cheap storage, mobile connectivity, and sophisticated analytics mean airlines can predict engine trouble, factories can slash operating costs, and drivers who allow their cars to be monitored can buy cheaper insurance. But all this requires data that moves easily and seamlessly across borders and so far the United States and Europe have only managed a fragile regime to protect transatlantic data flows for a narrow range of commercial purposes.

How will they regulate the proliferation of data in finance, health care, and industrial operations? How will they support innovation while protecting privacy and national security? How will voters or companies become involved in shaping these new rules? If Washington and Brussels can’t agree, there’s little hope the rest of the world will either.

As Chinese financial markets grow larger and more integrated, volatility will no longer be contained to the accounts of niche emerging markets investors. Rapidly expanding financial flows to and from China, even in the context of capital controls, mean that shocks from Chinese markets will increasingly reverberate globally. U.S. and European regulators still struggle to establish coordinating mechanisms to manage bank failures and market turmoil on both sides of the Atlantic, but they have only the dimmest understanding of China’s largest financial institutions and Western exposures to a sharp Chinese downturn.

What can Western regulators do to improve transparency into China’s banking and insurance giants? In the next crisis, will Chinese officials engage openly with foreign counterparts to restore confidence in markets or will they revert to comfortable habits of pretending the problem will go away?

Global bond markets are the ultimate arbiters of sensible economic policy. To the extent that voters push government officials toward self-defeating, protectionist policies, investors should ask for a higher return. Emerging markets like Brazil and South Africa learned the hard way that borrowing internationally requires them to maintain a certain economic orthodoxy that doesn’t always win votes. During the European financial crisis, bond spreads forced political leaders to make deeply unpopular decisions to save the euro.

What signs are visible in today’s markets to suggest discomfort with populist forces or worries about new challenges to trade rules? Will votes for Brexit and Donald Trump ultimately lead to higher borrowing costs?  How should multinational companies whose business models depend on long supply chains and frictionless border crossings adjust?