The world may have hit 'peak trade,' according to an expert who pointed to robotics, digitization and localization as major game-changers for the sprawling supply chains that have defined globalization.
Paul Donovan, global chief economist at UBS Wealth Management, said Wednesday that President Donald Trump's recently announced trade tariffs are not to blame.
"I don't think that the modest taxes imposed by Trump are a driver of peak trade, at this stage. Trade protectionism — mainly non-tariff barriers to trade — have been rising for some years," he told CNBC.
Rather, Donovan said, the peak trade argument is based on "a reversal of the structural way in which globalization took place in recent years."
Globalization as we know it has meant long cross-border supply chains, where many different countries and entities would take part in the production or processing of goods. The resulting value of trade rose for each country as a proportion of gross domestic product (GDP). Trade to GDP, therefore, rose as supply chains lengthened.
"What is now happening is that robotics and digitization mean we can produce efficiently, locally," Donovan said. As an example, he compared the purchase of a compact disc — whose components, intellectual property and packaging would come from different places — a decade ago to downloading music now, which requires only one transaction of intellectual property. This reduces the ratio of trade to GDP.
This is how supply chains will continue to adapt, the economist said. Many in the business community have lauded these jumps, looking forward to increased automation, digitization, and implementation of technologies like blockchain to facilitate and enhance global commerce and trade finance.
"Robotics, digitization and localization mean that trade wars today are fighting battles from the past," Donovan said. "I think global trade in goods (not services) revert to something like the old 'imperial model' of importing raw materials and then processing close to the consumer."