Fri, Sep 18, 2020

Trade flows in the age of automation

Report by Jack Daly, Nick Brown

Related Experts: Bart Oosterveld, Ole Moehr,

Economy & Business Internet of Things Technology & Innovation United Kingdom United States and Canada

Trade Flows in the Age of Automation

Innovative digital technologies are poised to change the nature of services trade within global value chains in the decade following COVID-19. With trade in services growing 60 percent faster than that of goods, the impact of new digital technologies will be widespread.

As digital technologies increase the intensity of services in value chains across a broad range of industries, from automotive manufacturing to financial services, the primary sources of comparative advantage going forward will be innovation, intellectual property, and specialized skills.

This report analyzes four digital innovations that have the potential to disrupt global value chains: the Internet of Things (IoT); blockchain; artificial intelligence (AI); and advanced manufacturing. While advances in information and communication technology have largely worked in concert in the past to support the expansion and fragmentation of global value chains the impact of these innovative digital technologies are unlikely to be uniform. The report evaluates these new technologies in the context of financial, pharmaceutical, and automotive industries to arrive at three key takeaways. First, the private sector’s competitiveness will increasingly depend on an ability to collect, store, organize, and analyze data. Second, regional value chains will emerge as global trade orients more around regional poles. And third, big tech firms could disrupt global value chains, although it appears as likely that they will collaborate with existing firms in established markets. 

The World Trade Organization (WTO) forecasts that services will comprise one-third of all trade by 2040, up from 21 percent today and just 9 percent in 1970.

As global value chains become more knowledge- and services-intensive, advanced economies should be prime beneficiaries overall. The UK and the United States should be the leaders in adopting digital technologies and establishing global rules and standards to maximize their benefit. The report calls for strong multilateral cooperation to fully realize the potential of these digital technologies within global value chains.

Related experts

Bart Oosterveld

Senior Fellow, Global Business and Economics Program

GeoEconomics Center