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Manufacturing & The Economy

Why Improving Supply Chains Helps Trade More Than Eliminating Tariffs

The benefits of improved global trade facilitation far exceed those available from further tariff reduction, according to a new study from the World Economic Forum. Estimates suggest that an ambitious (but still incomplete) improvement in two key components of supply chain barriers, border administration and transport and communications infrastructure, with all countries raising their performance halfway to global best practice, would lead to an increase of approximately $2.6 trillion (4.7%) in global GDP and $1.6 trillion (14.5%) in global exports. By contrast, the gains available from complete worldwide tariff elimination amount to no more than $400 billion (0.7%) in global GDP and $1.1 trillion (10.1%) in global exports.

Even a more modest improvement in trade facilitation, in which all countries raised their performance halfway to regional best practice, would lead to increases of $1.5 trillion (2.6%) in global GDP and $1.0 trillion (9.4%) in global exports. This is considered a more modest scenario for two reasons. First, it may be difficult for countries to achieve the improvements in border administration and infrastructure envisioned in the ambitious scenario, so it is of interest to show the gains that may be achievable with a less ambitious effort. Second, the improvements in a regional best practice scenario are uneven, since the best practice is different in every region. Thus, the modest scenario reflects a case in which some countries’ efforts in trade facilitation lag behind their neighbors more than would be expected given their current performance.

These estimates are illustrative rather than precise and are meant to provide only a broad indication of the potential impact of the policies being modeled.

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