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Marketplace Morning Report
Last Ditch Effort: The Panama Canal and Peak Trade

Digital trade is booming

Tracey Samuelson Jun 27, 2016
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Cross-border bandwidth is 45 times larger than in 2005, according to McKinsey & Company.
verkeorg/Flickr

Adam Wexler walks into a storeroom filled floor to ceiling with neatly shelved used and vintage stereo systems.

“We have turntables, tube amplifiers, CD players,” he said, scanning the shelves. Wexler uses eBay to sell these stereos around the world. About one-third of his sales are international, many of them to Asia. “They have a voracious appetite for collectible American hi-fi equipment,” he said.

Wexler operates out of an old brick warehouse on the water in a part of Brooklyn with a long history in shipping. There’s still a container terminal nearby. But selling on eBay, Wexler ships one sale at a time, through FedEx and the postal system.

According to eBay, of its sellers in the United States with sales of more than $10,000 a year, 97 percent of them export — a type of digitally facilitated trade. A recent report by the McKinsey Global Institute estimated that roughly 12 percent of the global goods trade is conducted via international e-commerce. “Trade is no longer coming only in big boat loads and cargo container ships, but it’s coming in individual packages going through the mail service,” said Susan Lund, an economist and partner at McKinsey & Company. “This is very difficult to track.” 

Lund said the other piece of this growing segment is trade of digital goods and services — for example downloading a book or a movie or making a phone call on Skype. It’s also hard to measure, but McKinsey found cross-border bandwidth is 45 times larger than in 2005. It also calculated that the flow of data across borders contributes more to global GDP than trade in physical goods. 

“That’s quite astonishing when you think that global trade and goods has evolved over hundreds of years and cross-border data flows didn’t exist barely 20 years ago,” Lund said.

Even more difficult to capture are seemly free transactions, such as those that occur on social media, but Lund said countries around the world, including the United States, are rethinking how “to keep track these small bits of trade that add up to big numbers.”

“You don’t have to travel to France for [a] meeting or the world football championships, [which] you can watch online.  That’s an example of digital trade,” explained Susan Ariel Aaronson, a research professor at George Washington University. “It’s encouraging growth in new areas. It’s stimulating productivity. But it’s also going to be incredibly challenging to traditional industries and for governments to regulate.”

Take 3-D printing, for example. Download a design file and anyone, anywhere, has the potential be their own manufacturer.  

No inspections, no cargo ships, no ports, no canals required. 

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