Untethered trade

Something we don’t often recognize is how much the Internet has joined steamships, railroads, aircraft, trucks, and pipelines as a primary mode of transport. Indeed, for a steadily expanding range of digitized products and services, the Internet is now the preferred delivery mode.

Jock O’Connell, Beacon Economics’ International Trade Adviser, said this development raises some interesting but seldom examined issues.

“The emergence of a frictionless and essentially cost-free means of delivering goods and services worldwide forces economists to rethink some fundamental notions of how distance and time relate to the concept of comparative advantage,” he said. “For trade statisticians and ultimately for policymakers, the fact that the Internet is essentially free of customs posts greatly muddies the cross-border trade data that informs trade policy.”

According to O’Connell, trade statisticians worldwide have been struggling with uneven success to devise ways of quantifying trade in products that not only elude the customary mechanisms for monitoring trade but which frequently defy easy classification.

“A recording of Elgar’s Enigma Variations on a CD clearly qualifies as a good,” he said. “But the very same music downloaded from iTunes to a portable media player is widely regarded as a service. Similarly, what do we make of a software program written in California that is downloaded by an Austrian customer from a server located in Singapore?”

O’Connell maintains that unless the means are found to track the more “ethereal” forms of commerce taking place via the Internet and to produce accurate, detailed statistics on a timely basis, debates over the virtues of free trade and globalization could become even more untethered from any empirical grounding than they already are.

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