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Inefficient Policies Hurt Global Trade More than Tariffs

Inefficient Policies Hurt Global Trade More than Tariffs

Inefficient Policies Hurt Global Trade More than Tariffs
Image via Flickr by prayitno

According to a recent report by the World Economic Forum, global supply chain barriers found in administrative policies and government infrastructure have a greater impact on trade than tariffs and taxes. The research includes 18 case studies in various industries around the world and outlines several ways countries can work together to boost global GDP.

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The Effect of Import Tariffs

If every country eliminated import tariffs, global GDP would increase by 0.7% and world trade would jump by 10.1%. Mark Gottfredson, a Bain & Company consultant and report co-author, says, ““It is a misconception that tariffs are the most important financial barrier to trade.” Based on the case studies, if all countries reach a halfway benchmark toward best global practices, it could mean a 4.7% increase in GDP and a 14.5% increase in global trade. “Reducing supply chain barriers to trade could increase GDP up to six times more than removing tariffs,” says Gottfredson.

Common Supply Chain Barriers

Anything that hinders the supply chain process could be a barrier, from manufacturing and production to transport and distribution. According to the report, the most common barriers in the global supply chain are a result of outdated customs procedures, overly complex regulations, and similar administrative issues. “In some emerging markets, you need to pass by six different government agencies before you get the approval to move goods from one place to another,” says Gottfredson. In one case study, a US company faces delays on 30% of their chemical shipments because of poorly organized processes. Each late shipment costs the company $60,000 per day.

The Solution

“The lesson for companies is the importance of understanding supply chain barriers and how the associated costs and delays can erode other sourcing advantages,” says Gottfredson. Governments can do their part by placing more importance on factors that impact the supply chain. According to the report, “Governments (should) 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.”

Improving international trade policies and procedures benefits consumers, manufacturers, brands, and suppliers. “Lowering these barriers will reduce costs for businesses, and help generate more jobs and economic opportunities for people,” says World Bank International Trade Director, Bernard Hoekman. [/show_to]

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