America’s new trade agreements need to match the potential of the on-going, quiet revolution in global production and trade. 

 

Kati Suominen, Ideas Lab, 4 October 2013

 

As Congress starts to consider the trade promotion authority (TPA) needed for approving new trade deals, America’s trade policy is at a turning point. The United States is striking historic “mega-regional” agreements with Europe and Asia-Pacific nations that will set the standards for international trade for years to come. Yet these historic deals can be quickly outdated by the on-going, technology-driven revolution in global production and trade. The United States stands to benefit most from the technological shifts – as long as we get our trade deals right.

 

The world economy is at its third inflection point since the World War II. The post-war global economic system turned on vertically organized companies: making a product, from design to production, marketing, branding, and sales, took place within the same firm. Home to leading corporations, U.S., Europe, and Japan powered global manufacturing and trade, importing raw materials and exporting products – mostly to each other.

 

The second post-war economic system was the Factory World, aka Flat World. Breaking out in the 1990s with liberalized trade regimes and reduced shipping and communications costs, this system was about unbundling of production – outsourcing of production and even services to low-cost locations, and sourcing components around the world. World trade in parts skyrocketed; companies from Dell to Apple became built on the global supply chain. The victors were countries with cheap labor and their eager sponsors – Western shoppers enjoying cheaper computers, clothes, cars, and call center services.

 

We are now verging on the third post-war economic system. In this system, the world economy goes to heaven: supply chains are placed on the cloud. No more is transport of components needed – 3D printers will print parts right where they are assembled into final products. Also obsolete is low-cost labor across oceans – cars and gadgets can now be assembled in a Kansas City factory with robots using the industrial internet to confer with each other and the odd iPad-carrying human manager. And no more do economies of scale separate winners from losers: the new economy is run by agile micro-assemblers custom-making goods for local consumers in real time.

 

This is an ultimate unbundling of production – hyper-localized, ultra-customized micro-manufacturing. This is Kindleization of goods: you no longer need to wait for the physical product (say, a can opener) to ship, let alone drive to Walmart to get it – just hit “print” on your 3D printer and the object materializes. Your costs: software, product design, and IP, plus the one-time fee for the hardware (printer). No shipping costs, no tariffs, no customs, no delays. The neighborhood laptop maker looking for parts also forgoes these hassles. As does your car repair shop – she’ll just print the replacement parts for your Lexus.

 

This world is arriving in your home office soon: 3D printers go for as little as $1,299. The global 3D printing market will triple to $5.2 billion by 2020; global industrial robot-system market will double to $41 billion.

 

Skeptics point out that most 3D printed products take hours to make and the raw material expenses quickly turn the ROI negative. But change comes fast – just compare the iPhone to your 1995 car phone.

 

In this world of incredibly shrinking supply chains, new winners will be declared. Consumers gain in customization, speed, and price. Leading manufacturers are freed from the heartburn of global logistics, defects made in China, and just-in-time inventory management, becoming services firms brimming with product designers and software engineers. Online retailers turn into marketplaces for printable goods and assemblers of products to those not into DIY assembly. Individual designers, collaborative online product development, local micro-assemblies will mushroom. Chronically ill will be cured: the new technologies enable the production of human organs.

 

An unsuspecting winner: the newly logged-ons – the five billion to-be Internet users in the planet’s far corners, and those that hand them a printer to buy printable goods.

This new, new world economy is the stuff of high-tech, wealthy economies with broad-based access to the Web, 3D printers, and robotics, and low hurdles to starting a business. With enviably low electricity prices, America is especially well-positioned. But new technologies can also fuel entrepreneurship in emerging markets. A small, creative firm in Rio can design and assemble customized goods for the massive local market – or simply assemble goods from American designs. Or make custom designs for a Madison Avenue shopper armed with a 3D printer.

 

Transforming Global Trade

 

The new technologies will transform global trade. The world’s product space will explode – yet with parts and components traded on the cloud, little physical movement needs to take place. Shipping and logistics companies lose out. Final goods trade too will drop when 3D printers graduate to producing complex turn-key products. But with printable parts and turnkey robots, shipments of even such sophisticated goods as cars and airplanes can decline to nations capable of local assembly, or with an open door policy to foreign assemblers.

 

Mecca of technology and innovation, America has a major offensive trade interest in this new, new world economy – specifically to export product designs and sophisticated manufactured goods. The Obama administration has linked its advanced manufacturing drive to its export promotion initiative.

 

Yet this world has a dark side – the specter of rampant property rights violations and patent infringements. Why couldn’t a company around the world simply replicate designs Made in USA? Meanwhile, hapless garage entrepreneurs designing products in America could inadvertently violate foreign corporate copyrights.

 

Here is where the new trade deals can make a difference. Positively, there is a growing discussion on trade policies fitting for e-commerce, the fuel of consumer-driven trade. However, trade negotiators need to leap farther into the future of global production, and craft highly sophisticated, even futuristic rules on IP, software piracy, copyright, trade secrets, export licenses, patent and trademarks, and dispute settlement.

 

Balance must be struck. Creative juices, whether of a corporate giant or garage entrepreneur, must flow unfettered from fears of mass piracy. Yet Americans of all walks of life need to be empowered to develop and sell new products without undue legal reprimands, at home or abroad.

 

The worst outcome of all would be for governments to crack down on online trade, including of designs and parts.

 

We are in for a YouTube for goods – amid the many flops, there will be brilliant breakthroughs and global cross-pollination. Americans will make many of the new, new things.  Our trade agenda must be just as ingenious.

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