December 19, 2019

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A New Narrative on Trade

December 19, 2019

 In Washington and on campaign trails, trade and technology are evil twins spreading worry and anxiety. Trade is in a state of war, big tech is ending our privacy, and AI overlords are stealing our jobs. Yet behind the cacophony of tweets on tariffs and techlashes is important policy progress on the most dynamic area of trade – digital trade. And on the ground floor of commerce, technologies such as ecommerce, next generation payments, blockchain, AI, additive manufacturing, and 5G are revolutionizing how companies make, move and market goods and services – and fundamentally reshaping how we think about globalization and its benefits. In my new book Revolutionizing World Trade, I show how a new narrative on trade is emerging – one that businesses already live and more governments must champion.

 

Let’s start with the good news. On October 7, as the U.S. and China readied to restart their agonized trade talks, U.S. Trade Representative announced the signing of the U.S.-Japan Digital Trade Agreement that echoes the digital trade chapter of the United States-Mexico-Canada Agreement (USMCA) signed almost a year ago. The deals commit partners to free flow of data across borders; bar tariffs on digital content crossing borders, such as  videos, music and software; and ensure online platforms are not liable for content their users post, a long-standing U.S. policy that has propelled the American online economy.

 

The spirit of America’s two digital deals contrasts with the European Union’s stringent data privacy and online liability rules, waves of data localization policies around the world, and the proliferation of the so-called Netflix taxes levied on digital sales by such governments national capitals in Europe to Southeast Asia, U.S. states, and Canadian and Argentine provinces.

 

The U.S. digital deals are also in sync with the ongoing technological revolution in world trade. During the next minute, 17,200 parcels are being ordered and delivered across the largest markets in Europe, 380 people will buy a smart phone with which they connect to the global online shopping mall; 190 new users will register on Alibaba to browse and buy products; eBay and Amazon sellers will collectively gross almost $485,000; and $5.5 million of digital business, engineering, legal, financial and other services are sold across borders, $887,215 of them sold by American businesses.

 

This is globalization in the 21st century. It is not driven by giant corporate supply chains but by online platforms such as Amazon, Alibaba, eBay, Mercado Libre, and Jumia that connect hundreds of millions of shoppers and small businesses from around the world to transact with each other, often across borders. While fewer than a quarter of manufactures in just about any country exported in the analog era, some 99 percent of developing country platform sellers export, typically to more than 10 markets. U.S. eBay sellers, many of them microfirms and people cleaning their closets, on average export to 17 global markets, growing their sales and spreading out their risk. The results are  exactly what governments want: small businesses with new customers, more exports, faster productivity growth, and new, well-paying jobs. 

 

The next wave of globalization is not directed by brick-and-mortar retail chains but by billions of smartphone-wielding consumers and small businesses – a growing share of them rural poor and remote firms using the Internet to access first-world goods and services. In China, rural netizens are expanding their online purchases at a far faster pace than their urban peers, precisely to access the basket of products mall-going urbanites enjoy; in Rwanda, smartphone users articulate their aches and pains to  Babylon, the London-based AI-powered app doctor diagnosing patients within minutes; in Afghanistan, apps are teaching girls to read and write in private, causing Bill Gates advocate smartphones as the next global classroom. Access to the global smorgasbord of goods and apps boosts companies’ competitiveness and consumer welfare – much like access to a wider variety of products through traditional trade has done.

 

Technology is transforming the content of trade. The next era of globalization is not measured by trade in physical products as much as by cross-border flows of bits and bytes of digital services, media content, and designs. Part of goods trade may vanish altogether. As 3D printing and robotics advance and Millennials demand more personalized products, it becomes entirely possible to run a cost-competitive manufacturing business without importing a thing and with production volumes that are 98 percent lower than traditional supply chains. Products can be made on-demand near end-consumers, with materials waste, transport costs, and inventory costs next to zero. To skeptics of such “markets of one”, mass-production too is transforming: brands such as Chanel and IKEA are mass-3D printing mascara brushes and quirky home decor, and Volkswagen engineers see in new metal 3D printers a future of mass-produced car parts. Access to low-cost suppliers and low-wage labor no longer dictate the geography of production; the geography of consumption does. ING forecasts a quarter of world’s trade might vanish by 2060 or sooner as a result.

 

The fog of trade wars aside, technologies are upgrading the cockpits of companies and CEOs’ visibility into world markets. Real-time data and advanced analytics on weather over the Pacific, oil inventories in Central Asia, social media sentiment on an app in Australia, political risk in the Gulf, and prices of peanuts in African markets enable businesses to forecast shocks, optimize operations, and anticipate demand patterns – and perhaps at last kill the bullwhip effect where changes in consumer whims reverberate all the way to raw material purchases, traditionally resulting in millions in obsolete inventories.

 

The biggest impact of technology on trade yet is the makeover of the creaky global trade ecosystem that rivals America’s pre-electronic records healthcare ecosystem in the amount of paper, slack, and duplication of efforts. The paperwork and manual processes in moving a container from country A to country B among shipping lines, freight forwarders, terminal operators, ports, banks, and government agencies are endless, placing a 20-30 percent surcharge on the $20 trillion of trade transactions crisscrossing the planet each year. Now Fortune 500s and startups championing the internet of things, blockchain and AI have descended on trade, synchronizing payments, paperwork, and processes among the many players to the movement of a shipment end-to-end. Enlightened customs in Korea, Singapore, Chile, Thailand, Japan, Mexico, Peru and many others are shedding paper and piloting blockchain and AI to accelerate border clearance.

 

The global trade ecosystem is verging on the Holy Grail, integration of the logistical, informational and financial supply chains undergirding trade transactions. The cost-savings will be huge, in the trillions.

 

Within reach is a world where ordering a quarter container of computers from around the world to land on your drone helipad is as simple as buying a latte from neighborhood Starbucks. Businesses and many governments are already living this new narrative on trade, amplified by America’s digital trade deals. With more governments adopting policies that enable a free flow of goods, services, data, content, ideas on the Internet and on online platforms, 22nd century historians may yet look back on our era not as one of tariff wars and balkanization of the global digital economy, but as the most inclusive, dynamic, and prosperous wave of globalization yet. Which side of history will you be on?

 

 

This article originally appeared in Stanford University Press Blog: https://stanfordpress.typepad.com/blog/2019/11/a-new-narrative-on-trade.html#more

 

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