Policymakers should not assume that MSME firms will always stay MSMEs. Yet frameworks in many economies seem designed to trap smaller firms into a set category and entrench them into a “small” mindset. There will always be MSME firms. They form the backbone of most economies, as much as 97 percent of companies across Asia, employing the overwhelming share of workers. The goal of MSME policies should be enabling the current crop of smaller firms to grow, allowing firms in the “medium” category to reach large scale in relatively short order, while encouraging new entrants to the MSME ranks. Trade policy is one tool to help MSMEs grow. In most economies, the domestic market alone can be too small or even too competitive for success. E-commerce and digital technology, however, have allowed MSMEs to reach regional or global audiences.
Companies have forgotten how much the global trade regime matters to daily firm operations. If it did, in fact, collapse, the result would be a disaster. The global trade rules are like air. They have existed for so long that companies and consumers take them for granted. They don’t even notice them any longer. But, like air, if it suddenly went away, firms and consumers would discover to their great dismay that they actually like and need air (or the global trade system) very, very much. Why do firms need the WTO? Start with the obvious issues. Right now, 164 countries are constrained in what they can do with tariffs rates. Up until this past year, WTO members did not just randomly hike tariffs overnight. Keeping tariffs consistent has allowed firms and customers to have stability and reduce risk.
When passed, the European Union (EU) Goods Package, as the legislation is called, will have ramifications to e-commerce that are at least as significant than the move by some countries to reduce or eliminate de minimis thresholds. Small and Medium Enterprises (SMEs) who sell online into the EU will be the most severely affected. The added administration and compliance requirements could cost businesses as much as €2,500 annually. This amount could equal the annual margins of some smaller firms that sell online today. Firms from Asia are especially at risk.
Reprint: The 61% pro-Brexit vote in Sunderland is what happens when cities fail to recognise the ways in which the global economy has changed, and when they fail to connect the dots between the global economy and individual livelihoods at home. Though proud residents might like to spin a narrative of independence, the reality is that workers here are literally standing on the front lines of an interconnected global economy. Ask those in Sunderland, however, and you would think Brexit was far less important than Britain losing to Iceland in the Euro Cup. The New York Times carried an article featuring a variety of perspectives from Sunderland, summarised best, perhaps, by Ken Walker, a retired construction worker. “I don’t have any money in the stock market,” Mr. Walker, 59, said as he drank a pint of beer in a pub. “So what’s it to me?”
Arbitrary or capricious rule changes are a significant danger for foreign firms looking to diversify out of China into other markets in Asia. It certainly does no good to open a new warehouse or building, only to have a regulatory change that renders it unusable or be saddled with new requirements on staffing that drive costs into the red. Most of the markets in the region that are currently expecting to capitalize on the trade war struggle with at least some—and usually all—of these problems. An honest assessment of market conditions in hopeful “winners” could bring about some necessary changes. There is certainly an opportunity for many markets to capture new gains from trade in areas that have not been “in play” for years. But absent some significant improvements in the ease of doing business in a remarkably short period of time, many of the locations that expect a windfall from relocations are likely to be bitterly disappointed.