The costs of international trade are decreasing continuously: between 1996 and 2014 they declined by 15 per cent, according to the World Trade Organization (WTO). In its latest report, the WTO predicts that new technologies will drive down these costs even faster in the future. The intergovernmental organisation expects the savings to fuel the growth of international trade, causing it to accelerate by an extra 1.8 to 2 per cent each year until 2030 – accumulating to more than 30 percentage points overall.
Three areas will see an especially large share of the increase: the service sector, small and medium enterprises (SMEs), and emerging markets. However, businesses can only benefit if they start using the appropriate technological tools effectively and adapt their strategies. The WTO has therefore dedicated its annual World Trade Report to the topic: “The future of world trade: How digital technologies are transforming global commerce” (PDF download).
Reducing transportation and storage costs
The report provides examples of the ways in which digital technologies can unlock savings:
- Artificial intelligence (AI) allows better route planning, autonomous driving and smart inventories.
- Blockchain solutions — which are systems of decentralised, digital transactions — can reduce time spent on customs compliance and logistics.
- The Internet of Things, a term describing intelligent networks of everyday objects, can help to improve operational efficiency through better preventative maintenance of machinery and products.
These technologies can, therefore, reduce transportation and storage costs, which represent a major share of overall trade costs.
Extending the range of tradable goods and services
Digital technologies can also significantly affect what goods and services are suitable for international trade in the first place. The WTO expects the importance of services to increase, predicting that their share will grow from 21 to 25 per cent by 2030. Promising areas include e-health, travel bookings and e-learning.
Some types of goods benefit from these trends, too. Trade in information technology products has already tripled in the past two decades, reaching $1.6 trillion in 2016. In addition, technology can help to simplify or automate import and export procedures, fostering trade in time-sensitive or highly regulated goods.
On the other hand, digital goods such as CDs and books have seen a steep decline from 2.7 per cent of total goods trade in 2000 to 0.8 per cent in 2016. “The trend is likely to continue with the advent of 3D printing technology”, the report explains. 3D printing “may to some extent reduce the need for outsourced assembly, the number of production steps and other factors related to global value chains”.
Technologies can level the playing field
According to the WTO, these changes will open new opportunities for developing countries and smaller firms. It estimates that developing countries’ share in global trade could grow from 46 per cent in 2015 to 57 per cent by 2030, but the extent of that share will depend on their ability to catch up in the adoption of digital technologies. The same is true for SMEs, which will become more competitive if the costs and friction in trade can be reduced.
The WTO emphasises that many of the benefits can only materialise if governments implement supporting policies, especially regarding the development of digital infrastructure, trade-friendly regulations, and adequate intellectual property protection. Companies themselves need to raise their efforts in areas such as data protection and cybersecurity – in addition to the adoption of new technologies such as AI or Blockchain.
If governments and businesses are up to these challenges, a variety of industries will profit. “Transport and logistics costs combined account for more than half of the variation in trade costs in agriculture and manufacturing, and for more than 40 per cent of the variation in trade costs in services”, the WTO reports. Thus, the application of artificial intelligence, the Internet of Things and Blockchain to reduce transport and logistics costs is likely to have a significant effect on the amount of global trade in the next ten to 15 years.
An Executive Summary of the Report is available here (PDF).