The digital economy is the key driver of growth and innovation. For a variety of reasons, including strong software capabilities, deep entrepreneurial ecosystems such as in Silicon Valley, and a large national market, U.S. firms once led in the digital economy. And because digital industries, especially information (including search engines and social networking) and e-commerce, are characterized by scale and network effects, U.S. firms were able to capitalize on early leads to be the most competitive in the global market.
And because of that initial lead, coupled with continued investment of tens of billions of dollars a year in research and development (R&D), U.S. digital industry firms hold significant market share in virtually every nation in the world, except one: China. Indeed, as the Information Technology and Information Foundation (ITIF) noted:
China made arguably the most important digital strategy decision in the history of the IT industry. It decided it would not let the giant U.S. dot-coms—especially Google, Facebook, and Amazon—just set up shop and dominate the Chinese market the way they were doing in so many other nations. Instead, it significantly limited the role of or banned U.S. firms, creating time for its own firms—especially Baidu, Alibaba, and Tencent (often called BAT)—to build similar services, or at least initially copies of U.S. services.1
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