As old order crumbles, digital trade grows

The U.S. and China in November agreed on a three-month truce in their ongoing trade war. That was good news for all who aim for growth through trade. As the end of the truce nears, the best next step is for them to agree on a more structural update to the rules-based international order. If they succeed, both can thrive in the digital age.

For 250 years, trade and globalization were mostly about shipping physical goods − and so was economic dominance. Sailing ships carrying spices across empires prefigured the manufacturing value chains we know today. But globalization's future will be in the realms of knowledge, information and technology.

A 2016 McKinsey study found e-commerce already accounts for 12 percent of international trade, and predicted a fivefold increase in data flows by 2022. Meanwhile, millions of services are delivered digitally, and these, too, increasingly take place across borders. More, but different, globalization is on its way, and will require an update to the international framework governing trade.

No country can close itself off from trends, and the digital world presents new dangers. Even war now has a cyber dimension. States, organizations and individuals can wreak havoc in previously unimaginable ways. To keep massive quantities of data moving as seamlessly as shipping containers requires internationally accepted rules.

So, what should the United States and China discuss next time they meet? Today's trade dispute, though being fought over goods, could form the basis of a new international settlement in the digital areas of globalization. It could focus on rules surrounding technology trade and cooperation rather than traditional trade.

The world's leading economies could collaborate on an international framework that puts digital, cyber, artificial intelligence and intellectual property innovations at its core. It should aim to create a global environment that is safe, allows rule-abiding countries to pursue their interests and ensures we can prosper for generations to come.

Establishing such a framework could lead to another era of unprecedented growth and peace, but it has to be done right. When things go wrong in a highly connected world, the threats originate in unexpected places and move in unexpected directions. Hacking elections, incitement to violence in online hate groups and cyberattacks by foreign agents have all caused much harm already. There is surely more mischief to come.

Whatever happens, the institutions governing the digital era won't be led by a single guarantor, such as the United States in its current role. Other emerging and established powers will claim places at the table, and so will other nonstate actors such as businesses, technology leaders and nongovernmental organizations. Every contributor will also share in maintaining accountability.

Still, the United States is the country that has pulled the alarm bell. This gives it an advantage over rising powers in shaping what comes next. The old order that the United States founded and maintained appears to be crumbling, but if America leverages its first-mover advantage in negotiations, then the United States could come out of the current dispute with a rules-based order for fair competition in a global economy where bits matter more than bricks.

Klaus Schwab is founder and executive chairman of the World Economic Forum.

 

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