Innovation sinks trade

Automation and additive manufacturing change production processes and the relative importance of inputs, and may reduce goods trade

The diffusion of automation and artificial intelligence technologies suggests that multiple industries will experience a profound shift in the importance of capital versus labour (McKinsey Global Institute 2017). The growing adoption of automation and AI in manufacturing makes labour costs less important and other factors – such as proximity to consumer markets, access to resources, workforce skills, and infrastructure quality – more important.

As a result, we can already see a trend towards moving production closer to end consumer markets, such as the US and the EU. Today, only 18% of goods trade is from a low-wage to a high-wage country, and that share is shrinking in the most labour-intensive industries, such as textiles and apparel. Both Adidas and Nike, for instance, have designed new lines of athletic shoes that make them amenable to full automation of the production process – and they have opened those new factories in Germany and the US (Adidas) and Mexico (Nike).

In addition to affecting the trade in manufactured goods, automation will influence trade in services. Many call centre and help desk services are already ‘staffed’ by virtual agents, which are adding natural language processing abilities and beginning to handle a wider range of tasks. This is leading some companies to automate customer support and back-office services rather than offshoring them. This trend could reduce the $160 billion global market for business process outsourcing, now one of the most heavily traded service sectors.

Additive manufacturing (3D printing) could also influence future trade flows. Most experts believe it will not replace mass production over the next decade; its cost, speed, and quality are still limitations. But it is gaining traction for prototypes, replacement parts, toys, shoes, and medical devices. Since 3D-printed goods can be produced near the point of use, they would eliminate the need for international shipping (although they may increase data flows as design files are transmitted). While this could reduce trade in some individual products substantially, the drop is unlikely to amount to more than a few percentage points across all manufactured goods by 2030. In some cases, additive manufacturing could even spur trade by enabling customisation.

Overall, we estimate that automation, AI, and additive manufacturing could collectively reduce global goods trade by up to 10% by 2030, as compared to the baseline, or $4 trillion in annual trade flows. However, this reflects only the direct impact of these technologies on enabling production closer to end consumers in advanced economies. It is also possible that these technologies could lead to nearshoring and regionalisation of trade instead of reshoring in advanced economies, impacting both modes of transportation (e.g. overland and air cargo replacing container shipping) and trade corridors. We already see that intra-regional trade has grown faster than inter-regional trade since 2013, a trend seen worldwide but particularly notable as regional value chains are developed in Asia and in the EU28 (McKinsey Global Institute 2019).