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 ( mari.sako@sbs.ox.ac.uk) 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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