Fueling the Ecommerce Boom in U.S.-UK Trade

November 2, 2017

Ecommerce is booming in the transatlantic market, growing some three times faster than overall trade. The United States and UK, along with China, are among the very largest ecommerce markets and also the most important cross-border ecommerce markets for each other: 70 percent of UK ecommerce shoppers use U.S. ecommerce sites, while 49 percent of Americans buy from UK sites. Behind these numbers are thousands of success stories: micro entrepreneurs and small businesses across America and the UK that have been discovered online by buyers across the Atlantic. With smart policies, the numbers of these transatlantic online exporters can grow into millions.

In the United States alone, total online transactions grew from $3 trillion in 2006 to over $6 trillion in 2013, equivalent to a third of the U.S. economy. The share of etail of all retail was 12 percent in 2016 in the U.S., and 14 percent in the UK. By 2020, the value of UK’s e-commerce is estimated to be £68 billion, up from £10 billion in 2013. The B2B (Business to Business where businesses sell to each other) ecommerce markets are estimated to be ten times greater than Business to Customer or B2C sales.

The ecommerce boom is not just making life easier for shoppers accustomed to driving to Walmart or wandering around Harrods. It is also transforming the players and possibilities in U.S. and UK’s foreign trade. Most strikingly, it is opening opportunities for small businesses to export, grow into multinational sellers, and craft their global supply chains. The difference between online and offline businesses’ odds to export are staggering:
 

• As many as 97 percent of American micro and small businesses that sell on eBay also export - and export on average to 17 markets, as opposed to the typical U.S. brick-and-mortar businesses of which fewer than 5 percent export, and those that export sells on average to one market, typically either Mexico or Canada.
• Of UK companies selling on eBay, 95 percent also export as opposed to the 12-20 percent of offline sellers, depending on estimate, that export. Online sellers export on average to 20 markets, first and foremost to the U.S..

Online sellers export more because the Internet obliterates geographic distance that for centuries has curtailed visibility, trust and trade between small buyers and sellers located far apart – such as by the width of the Atlantic Ocean. Rather than browsing products in the mall, shoppers can today use ecommerce platforms to access the worldwide smorgasbord of products and sellers – and use platforms’ star ratings systems and customer reviews to gain instant feel for the sellers’ trustworthiness and quality, aspects that in the offline economy tend to take much more research and iteration between the buyer and seller.

The ecommerce boom will be bolstered by what the U.S. and UK are leaders in – artificial intelligence. Already, robots are hard at work creating ever more perfect matches between a shopper and products, divining what a shopper needs before he himself does, and helping platforms lock in new clients and win back defectors, typically at higher rates and at vaster scale than brick and mortar stores.

But the ecommerce revolution will not translate into broad-based exports and thriving small businesses in America and UK without good public policy. The very good news is that at present, the UK is, with Australia and Italy, the location where American digitally intensive firms least often felt that they faced barriers to trade. In contrast, U.S businesses frequently lament EU (although the UK and Italy are current members of the EU) and China’s digital regulations as hampering trade.

Despite the positive news, challenges still hold back U.S. and UK companies from using ecommerce to grow their exports:
 

• Customs procedures. Few issues are as bewildering for small business exporters and importers as customs procedures. A 2010 U.S. International Trade Commission survey of 2,349 U.S. SMEs and 500 large firms, almost 50 percent of SMEs and 30 percent of large companies said customs procedures pose “a major burden”. A U.S. ITC survey of 3,466 companies in digitally-intensive industries, 48 percent of SMEs viewed customs requirements as an obstacle to their trade. In 2016, the United States gave the world’s exporters and all American importers a gift: it raised the U.S. de minimis – the maximum value of an import that is exempt from customs duties, taxes, and complicated rules of origin – from $200 to $800. The UK upon leaving the EU should be encouraged to do the same: after all, the EU’s customs de minimis is very low at €150. And couldn’t a future U.S-UK agreement include a bilateral, preferential de minimis of $1,000 – which would be pure free trade for U.S. and UK small business exporters and any companies from Nike to Burberry that sell low-value items.

• Taxation without representation. The UK should consider a different outcome to that of the EU which recently forces foreign businesses selling more than €10,000 annually to EU to pay a value-added tax or VAT – and not even qualify for EU’s prior €22 de minimis on sales taxes. UK’s threshold for requiring a business to register for VAT has been much higher, at £83,000 – and is better for consumers. It would in fact be better for the EU to increase its VAT de minimis, as the tax collection costs on low-value items tend to exceed the revenue collected. In the United States, state governments should temper their growing interest in taxing remote retailers. The U.S. and UK can lead a global effort against duties and taxes that strangle small business ecommerce before it can even begin.

• Carmaggedons. As ecommerce mushrooms and urbanization expands, more and more trade originates and arrives in congested cities. Soul crushing traffic jams also jam trade, in many countries probably more than customs do. Researchers at Texas A&M ‘s Transportation Institute tally the cost of time and fuel in American cities at 6.9 billion hours and 3.1 billion gallons of fuel in 2014, for a total cost of $160 billion – four times the levels of 1982. By 2020, delays will grow to 8.3 billion hours. In the U.K., 12 of every 100 deliveries are delivered twice (as no-one was at home to sign the first time around), adding congestion to the roads and costs for the shippers that cost £850 million per year. U.S. and UK urban planners and trade policymakers need to join forces to develop new technologies that reduce urban transport, from data-driven logistics to 3D printing which obviates physical shipments altogether.

• Digital and export skills. To make the most of ecommerce, small businesses need to master two things: how to do digital business, such as running geo-targeted ads and analyzing customer data; and how to export, such as deal with foreign product standards and trade finance providers. In the UK, exporters are held back by foreign exchange rate management challenges, and both exporters and companies trying to export struggle with finding customers and overseas marketing. Some U.S. small businesses meanwhile erroneously believe their products are not exportable, while especially traditional manufacturers worry about their digital know-how. Some efforts to bridge this include the U.S. Commerce Department’s new Ecommerce Innovation Lab to help online sellers export, and UK Trade and Investment’s E-Exporting Program that helps promotes brands and retailers such as British online superstars as Marks and Spencer and Karen Millen, by accessing access digital advisors available to meet with businesses and ongoing support and advice through an e-passport program.

Ecommerce is the 21st century’s equivalent of steam engines, railroads, and container ships – it powers more trade at lower cost. It is revolutionizing and increasing opportunities for small businesses to grow. The U.S. and UK are global leaders in ecommerce – but their policymakers need to catch up and shape customs, tax, export promotion policies and transport systems to fuel it.