World Economic Forum
This report examines supply chain barriers to international trade and concludes that they are far more significant impediments to trade than tariffs. In fact, reducing supply chain barriers could increase world GDP over six times more than removing all tariffs.
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The report combines empirical macroeconomic analysis with a series of in-depth case studies on individual companies and industries. This ground-level understanding informs a general set of lessons relevant to governments and companies as they attempt to promote trade and economic growth. The authors of the report offer specific policy recommendations with the lessons in mind.
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%) and exports by $1.6 trillion (14.5%). For comparison, completely eliminating tariffs could increase global GDP by US$ 0.4 trillion (0.7%) and exports by US$ 1.1 trillion (10.1%). The estimates of the impact of barrier reduction are conservative; they reflect improvements in only two of four major supply chain categories.
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.
Given the significance of supply chain barriers, the international community should actively manage supply chain costs, particularly since tariff discussions have stalled. Governments need tailored strategies to address these barriers, but certain general policy recommendations should inform their strategies:
- Create a national mechanism to set policy priorities for improving supply chain efficiency based on objective performance data and feedback loops between government and firms.
- Create a focal point within government with a mandate to coordinate and oversee all regulation that directly affects supply chain efficiency.
- Ensure that the interests of small- and medium-sized enterprises (SMEs) are represented in the policy prioritization process and that solutions are designed to address specific constraints that impact SMEs disproportionately.
- Whether through multilateral or regional agreements, governments should agree to pursue a whole of the supply chain approach to negotiating barrier removal.
- Launch a global effort to pursue conversion of manual and paper-based documentation to electronic systems, using globally agreed data formats.