2. Policy wise people of each country will enjoy their own privacy and security. Their security won't have to rely on the US senate approval.
3. OS build by each country will work like virtual regional borders for their people. It will be the responsibility of the developers of respective countries on how they manage the security and privacy of their own OS. So, their would be a competitive advantage for public in general.
4. Economically, a lot of required technical work will create more job opportunities. Governments and local businesses will get to bite the share of big, centralized companies.
By "privacy" you mean that only their own government and the foreign intelligence services they have agreement with will be privy to their communications?
It may not affect the authoritarian regimes much, but will significantly empower netizens of the well developed democracies.