Supply chain barriers are far more serious threats to world trade than tariff barriers, according to a report released last week by the World Economic Forum
The report, Enabling Trade Valuing Growth Opportunities
, found that reducing supply chain barriers to trade could increase global GDP up to six-times higher than removing tariffs. The report offered that supply chain barriers have been under-managed by both countries and companies.
“If every country improved just two key supply chain barriers – border administration and transport and communications infrastructure and related services – even halfway to the world’s best practices, global GDP could increase by $ 2.6 trillion (4.7 percent) and exports by $1.6 trillion (14.5 percent),” the report said. “For comparison, completely eliminating tariffs could increase global GDP by $0.4 trillion (0.7 percent) and exports by $1.1 trillion (10.1 percent).”
The report, released in conjunction with WEF’s annual pow-wow of global economic heavy-hitters in Davos, Switzerland, figures those estimates only scratch the surface.
“The estimates of the impact of barrier reduction are conservative; they reflect improvements in only two of four major supply chain categories,” the report said. “Why is lowering barriers so effective? The reason is that it eliminates resource waste, whereas abolishing tariffs mainly reallocates resources. Moreover, the gains from reducing barriers are more evenly distributed among nations than the gains from eliminating tariffs. Of course, reducing supply chain barriers requires investment, while tariff reductions require only the stroke of a pen.”
The 52-page report gives a list of recommended strategies for countries and companies to pursue, and includes 18 case studies, as well as implications by nation and industry.
One case study explains how Madagascar struggles to compete in apparel production despite some inherent advantages (like low-cost labor and nearby sources of high-quality cotton) because its poor transportation infrastructure hinders its ability to gets goods to market in a timely fashion. In a market where time sensitivity is key, the supply chain barriers have hurt. - Eric Johnson