As I discussed last week, global economic growth is at risk from the US government’s imposition of tariffs on trade with China. But the focus on physical trade in goods is also missing an important point: the future, and the present, for some countries, is more about data flows than physical products.
Unlocking the benefits of data
The UK is among those countries that have a surplus in trade in services and is a prominent exporter of digitised services. Other advanced economies could also benefit as the world population grows amidst this boom in digital services given their expertise in legal, financial, pension and insurance services. But developing countries that are focussing on tradeable services and becoming hubs for communication and business services will also gain, as well all of the millions of small businesses and individuals that can use digital tools in a connected and wired world.
Digital is not just video streaming, social media, Skype etc. Data is of itself valuable. The way its use and analysis can make communications, transportation, health, farming and other industries perform even better is only starting to be realised. The next generation of technological advances will require the review of vast quantities of data to unlock their full benefits. The imminent arrival of quantum computers makes that inevitable.
IMF data suggest that up to half of all services activity is underpinned by digital technology. According to data from Cisco, the amount of cross border bandwidth grew 90-fold between 2005 and 2016. It is expected to grow 13-fold by 2023. The current focus and discussions seem increasingly to be about the past, meanwhile the digital revolution gathers pace.
The start of something extraordinary
The world economy could get a considerable boost and avoid some of the issues generated by a focus on goods, by putting in place appropriate policies for tomorrow, today. Encouragingly, some progress has been made. The Trans-Pacific Partnership – which, since the US pulled out, now consists of 11 countries – has an agreement to guarantee the free flow of data across borders for services providers and investors. It’s just the start.
Production could shift closer to home in some cases; customised consumer products are coming. Productivity will get a boost and so will the pace of growth, just in time to help fund ideas and cut costs with new technologies to combat climate change. Reductions in tariffs – currently between 30 and 50% – will give a huge boost to global services trade. Imagine the lift given to world wealth creation if they were to cut levels prevailing for visible goods of around 3%?