Lower tariffs are often hailed as a way of improving gross domestic product but when it comes to the global GDP, a recent survey suggests the best tactic would be improving global supply chain processes.
The World Economic Forum’s report found that eliminating supply chain barriers would result in a 4.7 percent increase in global GDP, according to a recent ThomasNet.com article. That would translate into an additional $2.6 million in added trade revenue worldwide, the report found.
By comparison, eliminating all tariffs would increase global GDP by $0.4 trillion, the report found.
While this news may not shock supply chain managers who deal with these issues on a regular basis, it’s apparently big news to economists, who have long seen tariffs as the key lever for stimulating economic trade. In fact, 87.5 percent of American economists support the elimination of all US tariffs and other trade barriers.
But the WEF points out that lowering tariffs tends to simply reallocate resources within an economy. Improving supply chains, however, actually makes it possible to recover resources that would otherwise be wasted.
What kind of supply chain changes would be required to see this economic trade jump? The article names 3 specific areas highlighted by the WEF:
1. Regulatory standards within and between countries. The lack of standards significantly adds to the cost of operating in foreign markets, the WFF found. Some are more onerous than others, of course, which is why the WEF is recommending government remove the most harmful trade barriers for their industries.
2. Improving infrastructure and services, from roads to rails and seas to air. Poorly maintained highways, limited rail systems and choke points all add unnecessary costs and time to the delivery of supplies and products.
3. Finally, shift from paper-based documentation to electronic formats. Again, this will not surprise supply chain managers, who often face delays and problems when business partners and suppliers rely on paper for invoicing and other documentation.
“Digitizing supply-chain processes consistently across borders and company boundaries will reduce costs and errors and speed up the movement of goods everywhere,” the ThomasNet.com article notes. “The WEF’s analysis finds, for example, that adopting electronic documentation in the air cargo industry could yield $12 billion in annual savings and prevent 70 to 80 percent of paperwork-related delays.”