#TradeXpresso Lungo: the tech version

This is the last #TradeXpresso Lungo of 2021 and December is usually the time when we look back, before we think forward into the New Year. So, let’s try a quick 2021 retrospective. What were the highlights of the year? Surely, we all have our different answers. In my case, the year has been intellectually defined by a distinct awareness that we live (and trade) in technological times.

?2021 was the year of life-saving technological breakthroughs the whole world was waiting for. The European Commission had already approved the first COVID-19 vaccine a few months earlier. This a clear example of the positive interplay between trade, firm size and technological innovation. Thanks to BioNTech’s innovations in mRNA technology, the pharmaceutical giant Pfizer was able to produce COVID-19 vaccines that have saved the lives of millions of people. This is a well-known example but there are many others of innovative small- and medium-sized enterprises (SMEs) punching above their weight in the technological field. In particular, EU exporting SMEs are competitive in digitally intensive goods , where EU large?firms?do?not?seem?to?be?equally?successful. EU exporting SMEs are also well placed in terms of CO2 emissions, a good indirect indicators that, when engaging in trade and technology makes companies ready for the twin digital and green transition.

?As in 2021,I am sure trade and technology will continue to make headlines in 2022 around the world. Expect more disruptive tech headlines from the Silicon Valley, both from new unicorns and established tech players. Apple promised to produce cars. Google too. And Amazon. Now teleport yourself in space and time to Shanghai in April 2021 and you could admire Alpha S, a concept car that Huawei proudly presented at the auto show. But, when you come back to the future, you will see that things don’t always materialise as announced in the tech world.

One thing did materialise though in Shanghai in 2021: robotaxis . Which brings us to another hot topic for 2022: cybersecurity and semiconductors shortages affecting the automotive sector. While experts say that chips shortages may be a “demand-driven” and short-term problem, the jury is still out . In contrast, experts agree that cybersecurity has been a persistent problem and it's here to stay. The importance of cybersecurity is particularly true for connected cars that increasingly resemble “computers of wheels”. Already in 2010, the General Motors’ Volt car was dubbed as one of the most sophisticated IT products, with over 10 million lines of software code and its own IP address. Future autonomous and electric vehicles are the perfect example of the new Industry 4.0 reality of mode 5 software-driven products.

#TradeTech: where will the future lead us?

Source: For more details, see this ECIPE Policy Paper .

Industry 4.0 (or the 4th Industrial Revolution) refers to a whole range of new technologies (big data, AI, 3D printing, IoT, robotics, machine learning, etc.) that will affect both the manufacturing process and the type of functionalities that “smart” products will possess. Even products considered “simple” will continue to acquire in the near future smart functionalities. Wearable electronics (smart watches, hearables, skin patches, smart contact lenses, etc.) are becoming increasingly popular, with a total market worth nearly $80 billion in 2020, tripling in terms of annual revenue since 2014. Take textiles for instance. The textiles industry pulled up its smart socks and is already aiming high. High-tech , that is. ?Such service-intensive, innovative products are blurring the distinction not only between goods and services, but they also make the classification of “smart products” for customs purposes more difficult (e.g. textiles products vs. medical devices).

However, irrespective of what kind of socks you wear (classical winter pattern or connected ones), let us keep our feet on the ground and see how technology is reflected in yesterday’s trade statistics. Trade and technology are not easy to reconcile when it comes to detailed trade statistics. High tech is an elusive concept in trade flows. Several attempts were made, notably at aggregate level and based on intellectual property rights (IPRs), e.g. patents, as a proxy for technological content. A study found, for instance, that the top 10 IPR-intensive industries account for one third of EU technology-intensive exports. Such tech-intensive exports are heavily concentrated in the manufacturing sectors, in particular motor vehicles, pharmaceuticals and various types of advanced technology. However, as mentioned in previous editions of #TradeXpresso Lungo , even traditional products can be technology-intensive. Cocoa bean exports from Ivory Coast are using blockchain, as part of a pilot scheme. Farmers in Europe and all over the world are moving into precision agriculture . Not to mention "Finnish coffee" . Even gold and other precious minerals can benefit from new tech, like blockchain .

While the ultimate relationship between trade and technology at detailed product level is still to come, looking at import and export performance across all 8-digit EU customs codes for trade products (e.g. from live animals at the bottom, all the way to rocket science at the top) might shed some light on trade and technology patterns. When taking the pulse of EU trade across almost 10’000 data points, a few individual products stand out. On the import side, crude oils are the biggest single traded item. A second set of products traded both ways on a large scale are medical products: medicines, vaccines, testing and diagnostic kits, needles and catheters. Unsurprisingly, in COVID times, imports and exports along global supply chains of such life-saving products assumed critical importance.

Moving up our imperfect trade and technological ladder towards the top of the chart, we find a few products that are key for EU export performance. The EU automotive sector is generating a significant share of total EU exports, alongside specialised machinery and industrial equipment needed for telecom and semiconductor manufacturers. Europe is a net importer of mobile phones and laptops and a net exporter of air planes and turbojets.

Source: Author’s elaboration based on EU 2020 official trade statistics, 8 digits level.

Yet, even this most detailed “trade cardiogram” may only reveal the tip of the trade and technology iceberg. Many of the latest disruptive technologies tend to be of digital nature. This is where a similar assessment of trade in services would come in handy. However, despite major progress, services trade statistics are (still) lagging behind the technological curve. A sobering thought that brings me back to unicorns, those start-ups poised to revolutionise IoT, fintech, cybersecurity, medicine, 3D printing, AI, e-commerce, virtual reality, teleworking, and plenty other high-tech applications . I challenge you to find the 8-digit trade code for each of them. With or without dedicated customs codes, an unprecedented number of tech-savvy “SMEs on steroids” have become unicorns in 2021.

If unicorns are good predictors of disruptive technologies and future global trade trends, you may want to watch this space in 2022 as well.