Global trade in the age of 4IR

Export performance of not only China but also of Vietnam has been a role model for many developing countries aiming for growth in export. Virtually every developing country has been focusing on export, which is contributing to the growth of global trade. Often the growth of the export volume of a country is linked to economic growth indicators. To repeat the China model of development, these countries are pursuing export-driven growth. They have been focussing on large infrastructure projects and special economic zones to scale up their success in immediate past export numbers. Inputs from all across the world are being imported to those facilities; upon processing with imported capital machinery, finished products are being shipped to virtually every corners of the world-thereby contributing to import, export and trade.

Technologies like job division and specialisation, telephone and internet, and containerships have contributed to the establishment of large manufacturing facilities in countries with a large pool of labour, consequentially contributing to export and global trade. But in the age of the fourth industrial revolution, will we observe increased global trade? Or, will further progression of technology contribute to smaller production plants thus lowering export and global trade? In the age of fourth industrial revolution (4IR), should developing countries take into consideration the likely slowdown of export opportunity in designing their development model? Following are some likely consequences that global trade may face due to 4IR.

4IR IS LOWERING THE COST OF AUTOMATION AND RECONFIGURATION: 4IR technology requires high software content. The development of software-centric 4IR innovations in the form of robotics, automation, and intelligent machines require high investment, and also high-end human capital as well as research facilities. Once these innovations are ready for deployment, the cost of replication becomes very low, as the cost of copying software is virtually zero. Moreover, both the cost and lead-time of reconfiguration for supporting small batch production is also rapidly falling. Digital twins of both the software-intensive production plants and the products to be produced are under development. Instead of shutting down the plants for reconfiguration for weeks or months to prepare the production machinery for manufacturing different models of a product, digital twin approach is often performing the same reconfiguration in a day or so. The reconfiguration in the digital space which is lowering both the cost and time is eroding the advantage of human worker-centric flexible production plants.

4IR IS RAPIDLY REDUCING LABOUR CONTENT LEADING TO RE-SHORING: Increasing level of low-cost automation has been lowering the demand of labour content in production. Due to the high flexibility of software-intensive production plants requiring far less time than before for retooling and reconfiguration, the demand for human labour even in small batch production is losing the comparative advantage to technology. As a result, as opposed to off-shoring, a reverse trend is surfacing. For example, Casio Computer company is taking its Thailand operation of watch assembling back home; Honda Motor will shift production of its mainstay Super Cub motorcycle from China to its Kumamoto Factory; Canon will be building a new digital camera plant in Miyazaki Prefecture to bring back production from Asian locations; Pioneer has moved production of car navigation systems destined for the Japanese market from a Thai plant to Aomori Prefecture. In many of these production plants with 4IR technology stack, the labour requirement has fallen as much as 75 per cent. As opposed to requiring four workers in offshore plants, only one person is needed in planned onshore operations.

4IR WILL DECREASE CONSUMPTION: The United Nations' International Labour Organisation has revealed that "more than half of workers in Cambodia, Indonesia, Thailand, Vietnam, and the Philippines - at least 137 million people - risk losing their jobs to automation in the next two decades". It's being predicted that the rise of robots in manufacturing in Southeast Asia is likely to fuel modern slavery as workers who end up unemployed due to automation face abuses competing for a shrinking pool of low-paid jobs in a "race to the bottom". As a result, income erosion will also lead to lower consumption, consequentially weakening global trade. In macroeconomic terms, 4IR poses the risk of wealth accumulation in fewer hands having a lower marginal propensity to consume, keeping overall growth rates subdued.

3D PRINTING AFFECTING LABOR MIGRATION AND GLOBALISATION OF MANUFACTURING: In the 4IR technology stack, 3D printing is an important process. This technology is moving from concept demonstration to commercial production, having potential transformational implications.  Some of the propositions around 3D printing technology changing global trade are (1) Regional convergence of production and consumption; (2) Shortening global value chains; (3) Reducing international trade in final products and intermediate products; (4) Increasing international trade in raw materials; and (5) Increasing foreign direct investment. The emergence of 3D printing technology innovations in the construction industry is raising the question about the future of migrant labour demand in the middle-eastern countries-posing a threat to remittance income affecting consumption in some South Asian countries. Although the demand for 3D printing in certain industries such as aerospace has been rapidly increasing, the implication of the importance of 3D printers for world trade is still negligible. The future of global trade against the background of the growing importance of 3D printing technology is associated with a high degree of uncertainty-likely lowering trade between the east and the west. It could take decades before the effects on international trade become a reality.

At a macro level, the unfolding of 4IR reducing the labour demand, taking back manufacturing to doorsteps of consumption, lowering income and consumption in low-income countries, and reducing the attractiveness of mass production, could slow down international trade in tangible goods. As a result, the export-led growth model may start to lose momentum. As opposed to internal trade, domestic consumption could be the driver of growth. Growing Economic Nationalism is also worsening the 4IR implication on international trade, most importantly on the traditional growth model for uplifting countries. The natural tendency of 4IR appears to be not only disruptive but it is structurally polarising and destabilising development models in an exponential manner. By default and without active re-shaping, it exacerbates inequalities and concentrates economic surplus in fewer hands-slowing down trade and blocking the uplifting of the bottom of the pyramid. On the backdrop of growing unfolding implications of 4IR on global trade coupled with economic nationalism, the world faces a massive leadership and coordination challenge for turning technology as a blessing as opposed to curse to the human race.

M Rokonuzzaman Ph.D is academic and researcher on technology, innovation and policy.

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