Challenges and opportunities for digital trade in turbulent times

Amar Breckenridge was an expert panellist at Tech UK’s annual trade conference, ‘Future-Proofing UK Tech: Growth and Resilience in an Uncertain World’ discussing  ‘Accelerating growth through trade and international cooperation’.   

Amar described the challenges faced by digital sectors  - and businesses involved in trade generally – as coming under the headings of “fragmentation” and “flux”.  In current times we associate fragmentation with the repeated threat of tariffs by the United States, or the rapid proliferation of restrictive trade measures in the last few years on the grounds of geopolitics and economic security. But this hides the fact that there have been trends towards fragmentation over a much longer period that are both less visible and have also been directly relevant to digital sectors. The OECD in 2022 reported for example a 20% increase in its measure of digital trade restrictiveness since 2014. Data localisation has been an important driver of this, and Frontier research in 2022 highlighted the substantial costs that might arise from these measures (of around 3-8% of trade for some advanced countries).  

Amar pointed out that what was new is that the fragmentation was compounded by much more deep-seated uncertainty – hence the “flux”. Whereas even in the recent past, there were efforts to contain protectionist sentiment by channelling them into processes that could set an upper bound on how bad things could get, we seem to be moving away from that now. The new US administration in particular seems to have made unpredictability the organising principle of its trade policy.   

Amar also pointed out that while there were challenges, there were also significant opportunities for digital trade. 

Take tariffs for instance. US tariffs increase the price of goods in the US relative to that of services, which leads to higher imports by the US of services. For a country like the UK, which alone of G-20 economies has an export structure dominated by services – and heavily digitalised ones at that – this presents export opportunities that in turn mitigate the economic impact of tariffs. One way of managing the effects of tariffs is therefore to develop an enabling framework that strengthens trade in digital services. 

More broadly, trade trends over the last decade or so show a relative cooling of good trade growth, with digital services trade set to be the main driver of trade. This is partly a reflection of automation, which has led to a reshoring of some manufacturing opportunities, while increasing demand for services inputs, notably intermediate services.   

Finally tariffs are an example of trade costs. One way of dealing with them is to address other costs relating to connectivity, linguistic barriers, administrative formalities and so forth. Here digital technologies have has an important role to play in reducing these costs.