By Tien Tzuo, CEO of Zuora, originally published in Fortune.
For all of Donald Trump’s gripes around large trade deals, such as the Trans-Pacific Partnership (TPP) and North American Free Trade Agreement (NAFTA), it’s worth taking a closer look at a trend that is often overlooked: global trade is falling.
Since 2012, trade in goods and services have grown at less than half the rate of the previous 30 years. The volume of global trade was flat in the first quarter of 2016, then fell by 0.8% in the second quarter.
What’s more, the value of U.S. imports and exports fell by more than $200 billion last year, all by its own. And according to The New York Times, during the first nine months of 2016, trade in this country fell by an additional $470 billion.
This is the first time since World War II that U.S. trade with other nations has declined during a period of economic growth, leading many to wonder what’s going on.
There are various factors at play, including softer global growth; weak investments in infrastructure that once made trade easier and less costly for countries; rising costs in China and elsewhere; increased manufacturing at home.
But I also think a broader trend is happening. The world is moving away from physical goods in favor of digitally-supported services.
I call this the “subscription economy,” where trade between countries no longer means the the purchase and sale of physical goods, but rather transactions involve monthly subscriptions to digital commodities, such as on-demand transportation, video and music streams, cloud computing and storage, etc.
This is a growing segment of the economy, but we don’t hear much about that from government trade agencies, as we have seen with Trump, who has taken pride for getting US automakers to keep manufacturing jobs in the US.
What’s more, U.S. trade policy, as it is practiced today, hasn’t changed for hundreds of years. It’s essentially based around the transfer of physical things. They’re still fixated on packaged goods and cargo ships.
Since 2012, sales growth in the Subscription Economy is growing nine times the rate of S&P 500 sales revenue, and four times the rate of US retail sales, according to a revenue analysis of more than 300 companies that my company conducted between January 2012 to September 2016.
In the years ahead, this is a trend Trump’s administration should watch, particularly if he wants to create durable jobs that can survive automation and globalization. Sure, governments will always be haggling over coffee and oranges, but these days the real comparative values that countries are looking to gain from one another are not related to physical goods. Rather, they reside in innovation, intellectual property, talent and business models.
With global trade at a virtual standstill, it would be wise for the Trump administration to start updating trade policies to clear the path for growth in this segment of the global economy, constructively building guidelines to help this increasingly important sector of the global economy.
Information, capital and talent flow freely across sovereign borders, and our country’s economic policies need to address this new reality. It’s time to move forward.
Tien Tzuo is CEO of Zuora, an enterprise software company that designs and sells SaaS applications for companies with a subscription business model.