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Where Next for Trade?

Published: Tuesday, 01 August 2017 01:00

Category: The Pamphleteers

Global Trade is now growing more slowly than economic growth, reversing a long-term trend. The UK Trade Secretary, Liam Fox, recently argued that the UK post Brexit can champion Free Trade and fight the rising tide of protectionism. In a recent speech, he described a “post geography world”. Michael Mainelli in his post has looked at some of the paradoxes around the productivity puzzle.

I would argue that we are faced with a similar challenge in measuring Trade flows. What we measure may not be capturing all that is happening. At the same time, companies’ response to climate change, reducing their carbon footprints over time and developments in Information Technology already have and look likely to have a significant impact in shaping the future of trade.

I would like to explore here a few of the trends that need to be understood to test if the old relationship between trade flows and economic growth can or will continue into the foreseeable future.

First is the impact of digitisation. A few years ago, music and film was traded on a physical disc. When these crossed national boundaries, tax could be collected and trade measured relatively easily. Now much music, TV and Film is sold on a download or streaming basis across national boundaries. The new business models include subscriptions or advertising backed access. 10 years ago if I imported say 10 CDs and 2 DVDs a month, it would be easy to count the trade. Now, what is it that can be counted? Recorded Music, TV and Film was sold as a product, but is now increasingly sold as a service. Whereas 10 years ago I would have known where my “content” was coming from, today I really have no idea. Personally, I am probably consuming more music and video than I did 10 years ago, but is that captured in the statistics?

Although, not exclusively confined to the digital world, developments in the treatment of Intellectual property are also impacting on the world of commerce. The IPR involved in my disc transferred with the transfer of the physical good. Today, a multinational may have a subsidiary, registered in Luxembourg for instance, which holds the IPR for Europe and licenses that to different countries. The flow of income from IPR can more readily be separated from the physical good sold. For example, Starbucks is one organisation that has taken this approach.

Greetings cards are another example. The Jacqui Lawson ecard website provides a wide variety of customisable cards for a wide variety of occasions. The business model is a subscription service. Sending an ecard to my daughter in Shanghai is more reliable than the physical mail service and quicker. I probably send more cards than I did 10 years ago, but buy far fewer stamps. Similarly, I took over 3000 digital photos last year, but only printed a dozen or so.

The complex supply chains of many industries stretch across many countries. After the floods in Thailand in 2011, the computer and auto supply chains were disrupted globally for some months.

One organisation I was working with at the time was considering how to reduce its carbon footprint over time. One of their scenarios suggested that their supply chains needed to be more resilient to climate change and used the Thai floods to rethink their approach to offshoring, bringing more production both home and to neighbouring economies.

As I understand it, there would appear to be no change to economic activity, but this would be measured as less trade.

Developments in 3D printing also create the potential to change the flow of trade in the manufacturing sector. Let me describe one possible cameo.

In 2030, you go to a car showroom where you are able to customise a car and then experience your customised car in virtual reality to ensure that you are happy with what you are about to order. Car components are then sourced and instead of being made in a large factory are delivered to a local plant. Batteries and raw materials are delivered, but the chassis is 3D printed and the car assembled close to the point of purchase. Instead of trade in finished products, what could happen is an increase on logistics investment in components and distributed production. Again, the design and software to drive the robotics could be centralised while supporting local manufacture.

Friends closer to the sector than I believe that this is technically and economically feasible in the early years of the 2020s. This customisation and tailoring of products may well spread to many sectors. In health, 3D printing of knee caps, hip replacements, teeth and even skin are at varying stages of development. One example I saw as a proof of concept was bespoke tableware, matching colour and design to a buyer’s desires.

Trade in services may also be impacted by these trends. For example, I have spoken at a number of Conferences in different countries, from my home or office, via video link. On one occasion, I spoke in two different continents on the same day 6 time zones apart. Of course, this means that I didn’t use either a hotel or an airline on that occasion. I will confess that if the Conference is in a nice location, I still prefer to travel, but the flexibility is very useful at times.

At one Conference, a doctor spoke of how he had developed a range of internet enabled medical instruments and was using them for remote consultations. He described a lecture tour of Japan where he was still able to run his California Clinic.

With these and many other possibilities already impacting on commerce and likely to grow over the coming decades, it would be very surprising if these changes did not impact on trade measurement.

I am not denying that there is a growing conflict between free trade and protectionism globally. However, I would caution that with the changes in business models, accounting for IPR, digitisation and climate change amelioration now under way to assume that all the relative decline in global trade is down to protectionism is worth questioning.

 

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