Cross-border digital trade promises considerable growth for US businesses and the economy as a whole, but is currently hampered by foreign barriers.
In 2014, the United States International Trade Commission (“the Commission”) investigates the contribution of domestic commercial and international trade conducted over the internet - termed “digital trade” - to the US economy. The Commission proposes a number of barriers to digital trade that currently hamper US connectivity to global markets. The report focuses on those sectors particularly reliant on digital trade (“digitally intensive industries”) including content, digital communications, finance, manufacturing, retail and wholesale trade, amongst others.
“Higher productivity in certain digitally intensive industries due to the Internet increases output in these industries while lowering costs of producers and therefore prices to consumers.“
Digital trade is found to bring major benefits to the US economy through enhancing productivity and reducing the cost of trading internationally. Digital trade facilitates easier communication, faster business transactions, greater access to information, and more opportunities for SMEs. The Commission measures digital trade to have increased US GDP by between 3.4% and 4.8% in 2011, or $517 to $711 billion. It increased US real wages by up to 5% and US total employment by up to 2.4 million full-time equivalent jobs. Costs incurred and time taken in finding employment have fallen owing to the movement of job search online. It is estimated that the US unemployment rate was 0.3 percentage points lower in 2012 relative to what it would have been if Internet usage rates remained at their 2006 level.
Digital trade also produces encouraging results for US businesses, particularly in terms of productivity. The Commission’s survey findings suggest that losing access to the Internet would reduce productivity by at least 15% for more than 40% of digitally intensive firms. It is reported that the Internet is used most frequently by firms for internal communication and ordering products. US firms sold $935 billion and purchased $472 billion in products and services over the Internet in 2012. 31% of these online sales and 11% of these online purchases were delivered directly over the Internet. SMEs also participate considerably in these online transactions, with approximately 25% of total online sales and 33% of online purchases being made by these enterprises. Finally, in 2012 US firms exported $223 billion and imported $106 billion in products and services ordered online.
The Commission posits a number of barriers that currently inhibit digital trade and as a result hinder US access to foreign markets. These barriers include localization requirements, market access limits, data privacy and protection requirements, intellectual property rights infringement, uncertain legal liability rules, censorship and customer measures in other countries. Such barriers are particularly prevalent in Nigeria, Algeria and China. It is suggested that removal of these foreign barriers could improve US international sales, though firms in content, digital communications, retail and other services sectors are expected to benefit more than others.
Removal of foreign trade barriers has the potential to bring wide benefits to the US economy. For instance, this was estimated to grow US GDP by between 0.1% and 0.3%, the equivalent of between $16.7 billion and $41.4 billion in 2011. Benefits to employment included an increase in real wages by up to 1.4% and in total employment by up to 0.4 million full-time jobs. In light of this, the Commission suggests that foreign trade barriers are substantially stunting US digital trade. Individual businesses agreed that removal of these barrier would positively affect their sales, particularly for large firms in the wholesale trade and digital communications sectors which could grow sales by as much as 15%.