FX International Payments
By Karen Lynch
Changes brought by digital trade represent a new chapter in an old story, according to the World Trade Organization (WTO). "Since the Industrial Revolution began over 200 years ago, economic development has progressively widened, deepened, and accelerated, thanks in no small part to the interplay of technological innovation and global integration," according the WTO's World Trade Report 2017: Trade, Technology, and Jobs.1
The difference today is the unprecedented scale, scope, and pace of change, the report said, citing advances such as artificial intelligence and robotics. Still, "technological revolutions often take a long time to have significant impacts. The maximum impact of steam power on British productivity growth was not felt until … nearly 100 years after James Watt's patent."2 While undoubtedly not 100 years, it will still take a while to witness the full impact of digital technologies on international trade, the report said.
"The rise of a world trading system, like so many other features of the modern world economy, began largely with the Industrial Revolution," according to the WTO. "The immense technological advances in transportation and communications that it unleashed – from steamships, railroads, and telegraphs to automobiles, airplanes, and the internet – steadily reduced the cost of moving goods, capital, technology, and people around the globe."3
Before steamships, for example, wind patterns determined trade routes and their efficiency, according to a paper by Luigi Pascali, an associate professor of economics at Pompeu Fabra University in Barcelona. In 1865 to 1870, steamships reduced shipping times by about half. Freight rates declined, and per capita international trade increased three-fold, he wrote.4
At first, steamships carried only high-value commodities, such as mail, according to the WTO. Over time, "incremental technological improvements [such as] screw propellers, the compound and turbine engine, improved hull design, and more efficient ports resulted in faster, bigger, and more fuel-efficient steamships, further driving down transport costs, and opening up transoceanic steamship trade to bulk commodities, as well as luxury goods."5
With the addition of better communications technologies for international trade, the WTO reported that transatlantic transport costs fell about 60 percent between 1870 and 1900. Meanwhile, world exports expanded by an average of 3.4 percent annually, outstripping average world GDP growth of 2.1 percent during the same period. These trends lasted until 1913, just before World War I.6
"Containerization is a really good case in point on world trade in general – of the importance of standards and of having a standard-sized container that everyone in the world can agree on," according to Ryan Petersen, chief executive officer of Flexport.com, an online freight forwarder.7
Before containers were standardized by the International Organization for Standardization (ISO) in 1961 (most commonly, at 20-foot and 40-foot lengths), goods in barrels, sacks, and wooden crates had to be loaded and unloaded individually from land transport to ship and back again in a slow, cumbersome process, according to research from the World Shipping Council.8 Gradually, the ISO standard enabled moving containers seamlessly among ships, trucks, and trains worldwide. "Implementing this idea led to a revolution in cargo transportation and international trade over the next 50 years," the council said.9 According to The Economist magazine, "Research suggests that the container has been more of a driver of globalization than all trade agreements in the past 50 years taken together."10
The implications of these and other technology milestones for digital trade are many. At the highest level, "understanding the future shaping factors of world trade begins with an understanding of the historical forces that created the global trading system we have today," according to the WTO.11
Each major technological development creates disruption as well as benefits. For example, dock workers of the late 20th century were impacted by the advent of containerization.12 Similarly, international trade and technology are often analyzed today in terms of their potential impact on employment around the world.
For small and midsize enterprises (SMEs) today, observers say that digital transformation brings significantly greater international trade opportunity – not unlike that which the SMEs of the 19th century may have found as a result of faster, cheaper steamship transport. Such dramatic change, however, can be a two-edged sword. "Digitalization offers new opportunities for SMEs to participate in the global economy, but SMEs are lagging behind in the digital transition and disruptive effects need to be considered."13
For governments dealing with disruption, "At each stage, continued economic advance has hinged on the ability of countries to adjust – to reconcile the tension between the opportunities presented by economic progress, on the one hand, and the challenge of helping people adapt to economic change and share in its benefits, on the other," according to the WTO.14
And notably, in some cases, digital trends are also exerting pressure on major technological breakthroughs of the past. For example, e-commerce shipments challenge the containerization model due to mounting volumes of smaller, time-sensitive packages and lower-value shipments.
All in all, though, "We are so lucky to be … able to harness the internet at this era of international trade," Flexport.com's Ryan said during a lecture at the University of California, Riverside. Looking at the past, he reflected, "how difficult it was to get around the planet, to do business, to make things happen – how dangerous and just downright hard it was, and the internet has made it so easy, in relative terms, to do export-import."
As the history of international trade enters a new chapter – digital trade – past breakthroughs such as the advent of steamships and the standardization of shipping containers are instructive. Some of the biggest lessons reflect the double-edged sword of technology transformation, bringing disruption as well as opportunity.
Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners
1. World Trade Report 2017: Trade, Technology, and Jobs, World Trade Organization; https://www.wto.org/english/res_e/booksp_e/world_trade_report17_e.pdf.
3. World Trade Report 2013: Factors Shaping the Future of World Trade, World Trade Organization; https://www.wto.org/english/res_e/publications_e/wtr13_e.htm
4. “The Wind of Change: Maritime Technology, Trade, and Economic Development,” American Economic Review;https://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.20140832
5. World Trade Report 2013: Factors Shaping the Future of World Trade, World Trade Organization; https://www.wto.org/english/res_e/publications_e/wtr13_e.htm
7. “A Brief History of International Trade,” University of California Riverside; https://www.youtube.com/watch?v=mwEB85eX4R4
8. “History of Containerization,” World Shipping Council; http://www.worldshipping.org/about-the-industry/history-of-containerization
10. “The Humble Hero,” The Economist; https://www.economist.com/news/finance-and-economics/21578041-containers-have-been-more-important-globalisation-freer-trade-humble
11. World Trade Report 2013: Factors Shaping the Future of World Trade, World Trade Organization; https://www.wto.org/english/res_e/publications_e/wtr13_e.htm
12. “A Brief History of International Trade,” University of California Riverside; https://www.youtube.com/watch?v=mwEB85eX4R4
13. “Meeting of the OECD Council at Ministerial Level,” Organization for Economic Co-operation and Development; https://www.oecd.org/mcm/documents/C-MIN-2017-8-EN.pdf
14. World Trade Report 2017: Trade, Technology, and Jobs, World Trade Organization; https://www.wto.org/english/res_e/booksp_e/world_trade_report17_e.pdf