Digital trade linked to 3-4% boost in U.S. GDP

USITC report finds foreign barriers stymie further opportunities in digitally sensitive industries.

By Eric Johnson |Friday, September 12, 2014

Digital trade is responsible for an estimated 3.4 percent to 4.8 percent boost in U.S. GDP, according to a new report released Thursday by the U.S. International Trade Commission.
The report, Digital Trade in the U.S. and Global Economies, Part 2, is the follow up to a report released by USITC in July 2013 — both were conducted at the request of the U.S. Senate Committee on Finance.
The most recent report concludes that domestic commerce and international trade conducted via the Internet 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,” the USITC said.
Part 2 provides information on the value of U.S. digital trade and the potential growth of this trade, as well as insight into the broader linkages and contributions of digital trade to the U.S. economy. The report includes a survey of U.S. firms in industries particularly involved in digital trade (so-called digitally intensive firms); 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.
Among the findings in the report are that 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 in U.S. GDP in 2012.
U.S. real wages were likely higher by 4.5 percent to 5 percent, and the effect on U.S. total employment ranged from no change to an increase of 2.4 million full-time equivalents (FTEs), 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.
The most recent report also found that 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. Most products and services firms sold or purchased online in 2012 were delivered physically or in person — not digitally.
The Commission's survey of U.S. digitally intensive firms found that internal communications and online ordering of products and services are the leading ways firms use the Internet.
Critically, the survey estimates 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; selling online products or services was tied with ordering online products or services as the second largest.
Meanwhile, 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. Most exports and imports ordered online are delivered physically or in person — not digitally.
The report also found that 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.