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Digital Trade Has Far-Reaching Effects on U.S. and Global Economies, ITC Finds

Monday, September 15, 2014
Sandler, Travis & Rosenberg Trade Report

An International Trade Commission report released Sept. 11 finds that digital trade has far-reaching effects on the U.S. economy that have fundamentally transformed many aspects of the ways businesses operate and interact with one another. This report provides information on the value of U.S. digital trade and its potential growth, provides insight into the broader linkages and contributions of digital trade to the U.S. economy, examines the effects of notable barriers and impediments to digital trade, and presents case studies that examine the importance of digital trade to selected U.S. industries.

Highlights of the report’s findings include the following.

Economic Contribution. The combined effects of enhanced productivity and lower international trade costs in digitally intensive industries due to digital trade likely resulted in an estimated $517.1 billion to $710.7 billion increase (a 3.4 percent to 4.8 percent increase) in U.S. gross domestic product. U.S. real wages were likely higher by 4.5 percent to 5.0 percent, and the effect on U.S. total employment ranged from no change to an increase of 2.4 million full-time equivalents, depending on how workers and employers responded to rising wages. If the effects of enhanced productivity and lower trade costs in non-digitally intensive sectors were also quantified, the economy-wide estimates would likely be larger.

Most Online Purchases Delivered Physically. U.S. digitally intensive firms sold $935.2 billion in products and services and purchased $471.4 billion in products and services over the Internet. However, only about 31 percent of these online sales and 11 percent of these online purchases consisted of products and services delivered over the Internet; the rest were delivered physically or in person.

SMEs. Online sales by digitally intensive small and medium-sized enterprises were $227.1 billion, about 25 percent of total online sales, and online purchases by SMEs were $162.2 billion, about 33 percent of total online purchases. Sales and purchases by both SMEs and large firms are more likely to have been delivered physically or in person than digitally delivered.

Importance to Productivity. A survey showed that losing access to the Internet would reduce productivity by 15 percent or more for more than 40 percent of firms in digitally intensive industries. Business-to-business communications ranked as the largest contributor to the productivity benefits of the Internet, and selling online products or services was tied with ordering online products or services as the second-largest.

Imports and Exports. Online international trade is a relatively small component of U.S. exports and imports of both digitally and physically delivered products and services. Digitally intensive firms exported $222.9 billion and imported $106.2 billion in products and services ordered online in 2012.

Barriers to Digital Trade. Localization requirements, market access limits, data privacy and protection requirements, intellectual property rights infringement, uncertain legal liability rules, and customs measures in other countries present obstacles to international digital trade by U.S. digitally intensive firms. According to survey results, the removal of foreign barriers to digital trade would boost U.S. sales abroad, although not all sectors would benefit equally.

The removal of foreign barriers to digital trade in digitally intensive industries would likely result in an estimated $16.7 billion to $41.4 billion increase (a 0.1 percent to 0.3 percent increase) in U.S. GDP. U.S. real wages would likely be 0.7 percent to 1.4 percent higher, and the effect on U.S. total employment would range from no change to an increase of 0.4 million FTEs.

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