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How the internet has completely altered global trade

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China and Nigeria are leading the world in selling online freelance services

As the global tariff wars continue, something is missing from the discussion: the nature of trade has changed radically writes Danielle Goldfarb.

Trade is no longer just about businesses selling final products that are shipped across borders. For example, I can go to an online platform and sell programming services on a freelance basis to a business anywhere in the world. I can buy and sell products online globally. Products are no longer made from one location but require services and inputs from many locations.

This is what global trade looks like today. Yet most trade statistics, research, public discourse, and many policy actions are out of step with these changes.

Failing to capture trade as it exists in reality matters. If we leave out or understate entire categories of traded activity, we will instead focus attention only on the categories of trade that are measured, neglecting the true barriers to global trade and improved living standards. We will fail to anticipate or even recognize inflection points that signal dramatic change.

Here are three significant ways in which global trade has changed that are not well reflected in most trade measures or discussions.

We now sell “intangibles” globally. The widespread use of the Internet has fundamentally altered global trade. With the ability to digitize information it is now both possible and attractive to sell many intangibles and services globally. These types of activities are all around us. Examples include online banking, selling graphic design services globally via online platforms, or selling data or predictive analytics. At RIWI, for example, we collect unique, predictive data in all regions and countries of the world, and simultaneously “export” these real-time datafeeds to global clients via the cloud. Our head office is in Toronto. But nothing crosses a physical border where it can get counted by a customs official, or charged a tariff.

Anyone can be a global “producer”. Any person can now sell freelance graphic design services via an online platform, or export “hotel services” by renting out their place via Airbnb. While governments do measure trade in services, these measures do not include services or products sold via online platforms via individuals or microbusinesses. For a true signal of how significant hotel services exports are and how quickly they are growing, you need to ask not only hotel owners, but the individuals who are Airbnb hosts. When we measured online-based ‘gig’ work such as Airbnb hosting in a recent RIWI study, we find that this type of activity is much more common and important to people’s livelihoods than reflected in traditional employment or trade measures. Of the 54,000 Internet users we randomly engaged from November 2018-February 2019 in 40-plus countries, just under one in six rely on income from Airbnb and Uber-type activities as their main way of earning money.

Asia and Africa are at the centre of changes to global trade. China, other parts of Asia, and increasingly African countries are now leading in many of the newer types of trade. In our data, for example, China and Nigeria are leading the world in selling online freelance services (see chart). This is a truly global marketplace that was previously only local or confined to a particular region. Most of the attempts to measure freelance online trade or gig economy activities have focused on what’s happening within Europe or within the U.S.

The fallout from the escalating China-U.S. trade war also illustrates the myriad and deep connections between China and the world. European and U.S. companies rely on China as a key part of their supply chain, a growing list of global companies now depend on Chinese consumers for dramatic sales growth across almost every sector, and universities in Europe, the US, Canada, and Australia depend on Chinese students as a huge revenue source, among other examples. Most trade attention historically has been on manufactured exports from China, but as China transforms rapidly, it is increasingly these technology and services trade links that we need to better understand and measure.

Internet trade is way ahead of research

There are many other ways in which trade measures, research and policy discussions have not caught up with the changing nature of trade. Amazon or other e-commerce purchases are not included in most national trade measures, for one. For another, many high value services such as data analytics are embedded in products or even agriculture — but we still measure these as product exports. And while some trade is in final products, much trade is in imported inputs where tariffs can potentially penalize one product many times.

The problem will become more acute: the data gaps between reality and existing measures will widen as global Internet penetration continues to rise and many new actors can potentially become traders of both products and services.

We shouldn’t abandon our existing economic measures of exports and imports. But we do need to recognize that existing data fails to give us the full picture and may give us noisy readings of true economic behaviour. In order to understand the trajectory of any industry, economy, or of global trade, we need to complement existing measures with a suite of innovative new data approaches that capture the changing nature of trade in real-time. And we need a global approach, since the Internet has made many things that were previously local now global.

Fortunately, some governments, international organizations, and researchers are trying new ways to measure some of these changes. And there are a range of innovative new data approaches that, when adopted rigorously, can help us get clean signals on these trends. Two new approaches to measure online freelance services trade, for example, include the Oxford Internet Institute’s Online Labour Index, and RIWI’s global indicator of online-facilitated ‘gig’ work.

The changing nature of trade is visible all around us but the measures we count on to make decisions don’t necessarily reflect these changes. We need to measure trade as it truly is today, or risk misreading the future.

Danielle Goldfarb © RiwiDanielle Goldfarb is Head of Global Research at RIWI, a global data collection and predictive analytics company.

One Comment

  1. Very true, and domestically we have the same issue within the UK, an enormous hidden economy of micro traders. We sell against such micro-traders who auction goods in closed Facebook groups, and goods are delivered and payment made in ways that fall under the Radar of HMRC.

    Any distortions in trade are quickly amplified, are small micro importers declaring the correct value for goods imports, or identifying the correct products to receive the correct tariff rates? I don’t think so.

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