1What is digital trade?

Digital trade, or e-commerce, is the delivery of products and services over the Internet. Digital trade includes the exchange of end-products (e.g., downloadable movies or games), associated products (e.g., smartphones), and services that rely on or facilitate digital trade (e.g., cloud data storage). Although gross output has been steadily growing since 2005, digital trade rapidly grew during and after the COVID-19 pandemic, increasing from $758 billion in 2019 to $941 billion in 2021. In the Northwest, digital trade values proved resilient to COVID-induced disruptions and did not experience the same precipitous drop as goods or other services exports.

According to the Bureau of Economic Analysis, digital trade makes up more than one-fourth of the broader U.S. digital economy, which employed more than 8 million people and represented one-tenth of U.S. GDP in 2021. Digital trade is expanding faster than the rest of the digital economy, growing four-fold since 2015.

Digital trade is more than just the classic 'tech' sector and is increasingly crucial for all industries. Examples include:

• Agriculture: Integrated digital trade platforms allow agricultural traders to manage the entire trade process in one place — from managing payments to tracking compliance to food safety standards — reducing the time and cost burden to participating in agrifood trade.
• Manufacturing: Cloud manufacturing platforms streamline the process for ordering components, allowing companies to receive instant price quotes for parts and reducing the lead time for component prototyping.

Figure 1: Washington, Oregon, and Idaho Services Exports (2011–2020; USD millions). Source: U.S. Chamber of Commerce.

2How is digital trade changing?

There are many services that have the potential to be traded digitally but are not yet fully digitized. Industries such as consulting, financial advising, and insurance services comprise a broad category of services delivered over Internet and communication networks, yet cannot be defined as pure "digital trade." In 2022, the U.S. exported more than $625 billion of these "potentially digital services." Combined, these two categories represent more than $718 billion of total U.S. exports — a number that will only grow as the entire global economy heads toward digitization.

Figure 2: Digital Economy Gross Output, by Activity (Indexed to 2005 Levels; 100% = 2005 value). Source: Bureau of Economic Analysis.

The digitization of additional sectors and the growth of existing digital sectors has brought much of the traditional economy into the 'digital' fold. This shift has been particularly beneficial to small- and medium-sized businesses, enabling them to overcome barriers to entry, export their goods and services internationally, and realize the gains from global trade.

3How does digital trade impact the Northwest?

The Northwest is home to many of the world's most iconic technology companies and thousands more that make and sell digitally traded goods and services. As a key part of the "West Coast Innovation Economy," the region's businesses are making inroads in cloud computing, big data, blockchain, and artificial intelligence. Businesses at every level and of all sizes are crucial to the Northwest's role as a digital trade leader.

Companies such as Amazon, Intel, Micron, and Microsoft are well-known and employ tens of thousands of people in the Northwest, but the impact of thousands of small- and medium-sized businesses is equally significant:

• Itron, near Spokane, provides intelligent metering, data collection, and utility software solutions across global markets.
• Lightcast, headquartered in Moscow, Idaho, is a global leader in labor market analytics.
• Eleven Software, in Portland, provides software to authenticate public wi-fi users in over 50 countries.

Additionally, the gaming industry's impact on the region is significant, with 149 companies supporting over 57,000 direct and indirect jobs and $13.5 billion in economic impact. Games are sold worldwide and are almost exclusively delivered digitally.

In Washington alone, exports of ICT services accounted for nearly half of the state's total services exports — the highest share of any state. Across the region, over 100,000 people are employed through digitally traded service exports. Digital trade is and will continue to be vital to the economic well-being of the Northwest.

4What could threaten the U.S. digital trade economy?

Given digital trade's increasingly essential role in the global economy — and for Washington state specifically — emerging threats must be monitored and proactively addressed. Two of the United States' biggest trading partners are advancing digital trade policies that would disproportionately harm U.S. companies.