Reducing supply chain barriers could increase global GDP and world trade much more than reducing all import tariffs, according to a new report released by the World Economic Forum in collaboration with Bain & Company and the World Bank.
"Enabling Trade: Valuing Growth Opportunities" finds that if all countries reduce supply chain barriers halfway to global best practice, global GDP could increase by 4.7% and world trade by 14.5%, far outweighing the benefits from the elimination of all import tariffs.
In comparison, completely eliminating tariffs could increase global GDP by 0.7% and world trade by 10.1%. Even a less ambitious set of reforms that moves countries halfway to regional best practice could increase global GDP by 2.6% and world trade by 9.4%.
Economic gains from reducing supply chain barriers are also more evenly distributed across countries than the gains associated with tariff elimination. Regions that stand to benefit in particular under these scenarios are sub-Saharan Africa and South East Asia.
Such large increases in GDP would be associated with positive effects on unemployment, potentially adding millions of jobs to the global workforce.
According to the report, lowering supply chain barriers is effective because it eliminates resource waste and reduces costs to trading firms and, by extension, lowers prices to consumers and businesses.
Supply chain barriers can result from inefficient customs and administrative procedures, complex regulation and weaknesses in infrastructure services, among many others.
The supply chain is the network of activities involved in producing and getting a product to consumers, and spans the manufacturing process as well as transport and distribution services.
The report recommends that governments create a focal point to coordinate and oversee all regulation that directly impacts supply chains; that public-private partnerships be established to undertake regular data collection, monitoring and analysis of factors affecting supply chain performance; and that governments pursue a more holistic, supply-chain-centred approach towards international trade negotiations to ensure that trade agreements have greater relevance for international business and do more to benefit consumers and households.
“Supply chain barriers are more significant impediments to trade than import tariffs,” says Bernard Hoekman, Director of the World Bank’s International Trade Department, who is also the Chair of the Forum’s Global Agenda Council on Logistics & Supply Chains. “Lowering these barriers will reduce costs for businesses, and help generate more jobs and economic opportunities for people.”