The spread of digital technologies is transforming all types of global flows – those of goods, services, money, and people – and this transformation is only in its earliest stages. Already, more and more of people across the globe engage in instantaneous cross-border exchanges of digital goods, from books and music to design files that enable 3-D printing of physical objects. As the infrastructure that supports the Internet expands, barriers of distance and cost that once seemed insurmountable have begun to fall away.

Digital trade represents an important, albeit hard-to measure, component of these global flows. As it grows, develops, and assumes new forms, it is both facilitating globalisation and transforming it. Digitisation lowers marginal production and distribution costs, while broadening access to global commerce. The cost of participating in trade is reduced not just for large companies, but also for individuals, small firms, and entrepreneurs. This is already spurring innovations in business models and spawning the emergence of micro-multinationals, micro-work, and microsupply chains that are able to tap into global opportunities.

The Internet of Things (IoT) – the ability to monitor and manage objects in the physical world electronically – will enhance and accelerate these developments. Digitisation has already had a significant impact on trade by transforming logistics and supply chains; companies can readily track and collect information about a product, place, time, or transaction using sensors or other digital “wrappers,” to improve their operating efficiency and reduce costs. This process, too, is at an early stage, and we believe that its impact could be considerable over the next decade. Manufacturers and oil and gas companies, among others, have already begun to see the initial payoff from IoT technologies in their operations. From monitoring machines on the factory floor to tracking the progress of ships at sea or parcels being shipped across frontiers, digital technologies are helping companies get far more out of their physical assets.

The digitisation of global flows has been a key contributor to the explosive growth of cross-border data flows. Crossborder Internet traffic has increased 500-fold since 2000 – and with conservative assumptions will expand another eightfold by 2025. Together, these transformations will have broad implications for the future of globalisation. They will impact companies large and small, in emerging economies as well as in developed ones. Governments will be challenged to adapt their regulatory and taxation systems to deal with this upsurge in digitisation and digital trade. Policymakers will need to address sensitive issues around data security, privacy, and Internet governance. Trade agreements must be updated to reflect the new realities of global commerce and expanded to address new forms of cross-border commerce and customs procedures.

This paper examines three ways this transformation process is taking place: through cross-border flows of purely digital goods; by using “digital wrappers” to enable physical flows of goods – an essential component of the “Internet of Things”; and through the creation of online platforms for production, exchange, and consumption.

Large and small companies, as well as individual entrepreneurs and consumers, in both developed economies and the emerging world will be increasingly affected by these developments, which constitute both an opportunity and a competitive challenge. For governments and policymakers, the rapid transformation of digital trade raises important issues that will need to be addressed, including lingering barriers to its growth, appropriate ways of measuring it, and questions about governance and data security.