A livestreamer introduces an export product over livestream platforms at the E Trade Exposition Trading Center in Zhengzhou, Henan Province, on Aug. 8, 2022. Photo: CFP 

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In the past decade or so, cross-border e-commerce has developed rapidly as a new mode of foreign trade. The import and export volume for cross-border e-commerce in China has continued to grow, accounting for nearly one-third of China’s total import and export volume. It has become an important force stabilizing foreign trade. Cross-border e-commerce features small amounts of single transactions with high frequency, fragmenting traditional foreign trade transactions. Meanwhile, it directly connects domestic producers and foreign end consumers, greatly shortening the transaction process and reducing transaction costs. It has exerted a fundamental impact on international trade. According to international trade theory, the results of trade are called trade benefits, cross-border e-commerce not only affects the total scale of trade benefits, but also changes the distribution of trade benefits among participating countries and shifts their distribution within a country. 

Reconfiguring trade benefits 

First, from a global perspective, cross-border e-commerce expands the scale of global trade benefits. On the supply side, trade benefits come from the specialized division of labor, production efficiency, and economies of scale. On the demand side, benefits come from the decreased markup of imported products and the increase in consumption utility due to diversification. From production perspectives, cross-border e-commerce has strengthened the division of labor in international trade based on comparative advantage with the help of the internet. By eliminating intermediate transaction links, trade costs fall, and products whose international competitiveness tends to decline under a country’s traditional trade model regain their competitiveness through cross-border e-commerce with a third-party trading platform. 

At the same time, the inter-temporal characteristics of the internet enable cross-border e-commerce to overcome the constraints of geographical distance, so that producers can truly sell all over the world, open international sales channels that cannot be explored by traditional means, easily shape international competitiveness, and obtain traffic and orders with the help of social media and other internet marketing models, thus bringing the country’s comparative advantage—based on factor endowments—into full play. Production and sales expansion promotes the specialized division of labor and effects from the economies of scale, further enhancing international trade interests. 

From the perspective of consumption, as cross-border logistics usually leave the country in the form of postal packages, the main categories for cross-border e-commerce are FMCG products, including 3C electronic products, textiles and garments, mother and baby products, makeup, and so on. Most of these products are daily necessities, and the diversified choices provided by cross-border e-commerce platforms have greatly improved consumers’ utility levels.

 

At the same time, the shopping experience of buying products from all over the world without leaving home is an experience that the traditional international trade model cannot provide. The cross-border e-commerce logistics innovation model, such as bonded preparation and overseas warehouses, adds localization characteristics to international trade, eliminates intermediate trade links, and offers lower retail prices to end consumers. All these have increased the utility level for consumers under cross-border e-commerce, further expanding the benefits of international trade. 

Second, cross-border e-commerce makes the distribution of trade benefits more balanced between import and export countries. The distribution of trade benefits between two countries depends on the bargaining power of exporters and importers, on the micro level. Since the reform and opening up, China’s processing trade model, which is based on labeling, has tilted the distribution of trade benefits to the importer. 

In contrast, under the new model of cross-border e-commerce, exporters can seize the dominant power in the distribution of trade benefits. To start with, domestic producers directly contact foreign consumers on cross-border e-commerce platforms by analyzing data such as browsing and purchasing habits, comments after receiving goods, and so forth. They can better interpret foreign consumers’ demand characteristics, transform and upgrade their products, and take the opportunity to further build their brands. 

Meanwhile, in the cross-border e-commerce supply chain, under traditional international trade, the subjects involved in the distribution of trade benefits are reduced from domestic producers, domestic exporters, foreign importers, foreign distributors, and foreign consumers, to domestic producers, third-party trading platforms, and foreign consumers. As a result, export prices for domestic producers go up, and purchase prices for foreign consumers go down. This price change effect is manifested at the macro level as an increase in the exporting country’s export prices and a decrease in import prices for the importing country, improving the terms of trade for both countries. If the size of trade benefits is certain, the change in equilibrium prices results in a more balanced distribution of trade benefits between the two countries. A more balanced distribution pattern of trade benefits helps reduce global trade friction and promotes the process of global economic integration. 

Next, from a domestic perspective, cross-border e-commerce makes the distribution of trade benefits within one country more inclusive. The distribution of trade benefits within the country mainly involves exporters and consumers of imported goods. In terms of exporters, sellers involved in cross-border e-commerce are mainly small and medium-sized enterprises, and even individuals. They would have difficulty crossing the threshold to become an exporter under the traditional trade model. According to the viewpoint of heterogeneous enterprise trade theory, enterprises which can become exporters are those with larger scale and higher productivity. 

However, in the digital economy, the path for enterprises entering the international market has undergone fundamental changes, and a large number of small, medium, and micro enterprises have successfully entered the international market through cross-border e-commerce platforms, changing the long-standing pattern that large enterprises dominate international trade and divide the benefits of trade. This allows small, medium, and micro enterprises to also share the “dividends” of international trade. The benefits of universal access to the supply side will be realized in due time. 

From the demand side, goods imported by traditional methods are often scarce. The high prices and scarcity often make imported goods an ineffective choice for low- and middle-income groups. Under cross-border e-commerce, the reduction of transaction links makes the prices of imported goods acceptable to ordinary consumers, and the diverse long-chain products prompt e-commerce to produce an economy of scope effect. Consumers can always find products that maximize consumption utility through the internet, and many imported goods become effective choices for ordinary consumers. 

Unleashing potential 

While cross-border e-commerce reconfigures the benefits of international trade, its dependence on the internet may lead to further exacerbation of the North-South trade imbalance. The development of cross-border e-commerce relies on the internet’s infrastructure, which further marginalizes “small countries” in international trade, thus exacerbating the risk of reverse globalization. Countries who are “small” in international trade have a low level of trade participation and receive fewer trade benefits. 

At the same time, these “small countries” tend to be relatively backward in terms of economic development and internet infrastructure, and their participation in the new business model of cross-border e-commerce is even lower. Cross-border e-commerce will automatically exclude these “small countries” in the redistribution of trade benefits. Therefore, a problem which may result as global trade benefits expand, is that the trade benefits for those countries with high internet penetration and more developed economies will also expand, but the trade benefits for those countries with low internet penetration and less developed economies will further contract, and the North-South trade imbalance will increase. 

The digital divide has a negative impact on global trade and economic integration. The redistribution of trade benefits by cross-border e-commerce has amplified this negative impact, making it difficult to achieve real universal trade benefits in the short term. At present, the main destinations for China’s cross-border e-commerce exports are still North America, the European Union, ASEAN, and other traditional export markets, and we have not opened new, large-scale export markets despite the help of the internet. The traditional trade model and the new business model for cross-border e-commerce are superimposed, and the trade volume between China and these main markets has further expanded. Therefore, in the context of the digital economy, it is important to instill confidence in globalization among the “small” countries that have been increasingly marginalized from trade, which also provides opportunities for global investment development. Globalization can only be promoted by increasing investment in internet infrastructure in low-income countries, establishing a sound credit system for enterprises and consumers, and truly achieving a balanced distribution of trade benefits. 

The virtual nature of cross-border e-commerce may lead to a very fragile chain of reinforced comparative advantages. From a traditional perspective, a country’s comparative advantage is built on the basis of factor endowments and productivity, and once it is established, the comparative advantage provides a strong foundation which will be maintained for a considerable period of time. 

Currently, the adoption of appropriate paths to strengthen the existing comparative advantage is the key to the sustainable and healthy development of cross-border e-commerce. This year’s massive Amazon block against Chinese merchants involved more than 600 brands and 50,000 stores, mainly on the grounds of improper use of reviews. In the e-commerce model, methods like “brush” reviews and marketing “best sellers” can create a momentary dividend, but once there is an incident similar to Amazon’s block, then the enhanced comparative advantage will be difficult to maintain. 

Cross-border e-commerce is mainly about small and medium-sized enterprises. Against such a backdrop, it may be very difficult to cultivate international competitiveness through technological breakthroughs. The current problem, then, is how to improve the international competitiveness of products at the existing level of productivity. Internationally aligned and effective internet marketing becomes a viable option. 

First, we should build an internet brand. We should make full use of new media such as mainstream foreign websites, social media, and live streaming to build internet brands and improve product competitiveness and added value. Second, we should cultivate cross-border e-commerce operational professionals. Cross-border e-commerce operation requires compound knowledge of international trade, e-commerce, and internet technology. Colleges and universities should adjust the existing training structure and programs for relevant professionals, and the government should provide relevant training and resource supplies for cross-border e-commerce practitioners to improve their skills in store design, search engine optimization, and traffic attraction, and further enhance the professionalism and quality of services for foreign comprehensive services and agency operations enterprises. Although most cross-border e-merchants cannot break through the constraints of product technology in the short-term, shaping international competitiveness by improving operational capabilities and accumulating human capital is a sustainable and alternative choice. 

Li Jianping is an associate professor from the School of Economics at Shandong Normal University. 

 

 

Edited by WENG RONG