turing systems, and AI, that makes it possible to design and produce close to end users. First, economies of scale are less important, enabling extreme customization possible to suit consumer demand. Second, automation and machine learning, incorporating elements of AI, diminish the advantage of locations with low labor costs. And third, as noted previously, the technology facilitates the geopolitical climate of neo-nationalism and protectionism. The digital technology might be neutral to the necessity of distant or proximate production and trading, but the nature of trade can nevertheless be a significant matter.

Future of Free Trade

What does the analysis presented in this column lead us to think about the future of free trade? Given the potential of digital technology, one may remain optimistic. This optimism does not rest on digital technology’s capacity to override the shortcomings of politics; it comes from the potential to use digital technology to facilitate shifts in politics and consumer preferences.

Pessimists may focus on a possible future with more protectionist retaliations by other nations, just like in the 1930s. More tariffs on semiconductor and telecom equipment, for instance, would mean rising costs of producing ICT equipment, and a decline in global supply chains in that sector. Moreover, even as more and more of the economy becomes digital and less and less about physical trading of goods, ‘ virtual’ will remain connected to physical locations. Amazon’s acquisition of Whole Foods in 2017 attests to the importance of prime urban locations as delivery nodes. Even in a pure digital sphere, governments regulate data flows across national borders due to concerns over privacy and cyber security. So, free trade in digital products and services may be the ideal, but national governments remain vigilant about where and how data is held.

Some optimists may think that
in the struggle between the physical
world (with geopolitics pushing gov-
ernments away from openness) and
the digital world (fostering greater so-
cial integration and connectivity), the
digital would win out in the end. How-
ever, this rests on a somewhat false di-
chotomy, particularly if we focus on the
producer side to meet demand. In the
past, the digital technology revolution
was about enabling geographically
dispersed production networks. In the
future, digital technology can be about
enabling proximity to customers. Agil-
ity and local relevance stem from using
digital technology to realize greater in-
teraction, high customization, and re-
source saving.

Conclusion

Free trade as an ideal had important application to manufactured goods in the second half of the 20th century. Its incorporation into services is less clear. It may not spread beyond our current stage to other sectors, including intangibles such as services and products enabled by digital technologies. Significant segments of the global economy should lament the end of the golden era of global supply chains. The trigger for the beginning of the end may be the new enabling technologies of 3D printing, robots, and AI, as much as the geopolitics of today. Neo-nationalism and protectionism need not be the path of the future, and digital technologies may well transform the direction taken by world trade.

 

References

1. Chang, H-J. Kicking Away the Ladder: Development Strategy in Historical Perspective. Anthem Press, London, 2002.

2. Evenett, S. J. and Fritz, J. Brazen unilateralism: The U.S.-China tariff war in perspective. The 23rd Global Trade Alert Report. CEPR Press, London, U. K., 2018; http://www.globaltradealert.org

3. Rodrik, D. Straight Talk on Trade. Princeton University Press, Princeton, NJ, USA, and Oxford, U.K., 2018.

4. Sako, M. Driving power in global supply chains. Commun. ACM 54, 7 (July 2011), 23–25.

Mari Sako ( [e-mail]) is Professor of Management Studies at Saïd Business School, University of Oxford, U.K.

Copyright held by author.

Significant segments
of the global economy
should lament
the end of the golden
era of global
supply chains.

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