I have written about the use of blockchain technology for provenance and supply chains. This is, indeed, a reasonable use case for blockchain technology, if not as compelling as some may think.
But in cryptoland, even the most reasonable ideas can inspire gob-smacking nonsense.
Case in point: Pindar Wong writes at Coindesk about “Blockchain’s Killer App? Making Trade Wars Obsolete” . Huh, what?
This is the familiar supply chain use case. But what does this have to do with trade wars?
Basically, I think there is a dramatic misunderstanding of what the term “Trade War” means. It means national policies that inhibit trade, especially in physical goods. It has nothing at all to do with the technical operation of markets.
Wong wants “trade warriors” to use blockchain technology “to reduce trade friction and improve cross-border relations”. But these frictions and relations are fundamentally political, not technical or economic. And, tellingly, this article is in the context of strategists in Hong Kong exploring “how to fully digitize trade among the 65-plus countries involved in China’s ‘Belt and Road Initiative’.” The B&RI is the very model of twenty first century trade war, not to mention neo-colonialism. (I understand why HK is anxious to find a pivotal role in this initiative.)
Anyway, what is Wong actually talking about? It’s pretty confusing.
One thing he is talking about is simplifying and automating supply chains. This is a familiar use case, though it is usually supposed to assure the provenance of goods. In this permutation, blockchains actually help trade wars, because smuggling is suppressed.
The ”trustless” blockchain requires some form of trust. In this case, Wong describes model systems deployed in China. Characterized as “open, bottom-up, opt-in”, they are actually Chinese government approved standards. Naturally the HK group propose extending these to the B&RI. “Trust us, we’re from Hong Kong.”
Another innovation, indeed the biggest innovation he talks about is moving supply to demand, i.e., shipping raw materials and IP to the consumer, and manufacturing locally, on-demand. A blockchain would be one way to keep track of the IP and return royalties and so on. Basically, when I buy a Samsung mobile phone, it is fabricated in a local factory, and part of the sale gets credited back to Samsung via the blockchain.
This is a highly imaginative scenario, but there are a whole lot of questions. Why would an enterprise want to operate this way? Why would a government let this be done this way? I don’t really know.
Wong makes a good point that current WTO rules would have trouble dealing with this approach, at least initially. But I don’t see any overwhelming difficulties.
More to the point, a blockchain is a pretty minor part of the overall picture. This entire scenario depends on some kind of international legal framework, which is the entire point of the WTO. The WTO of some successor will define the legal framework that the blockchain implements.
The whole idea of a trade war is that nation states have their own policies, which discriminate in favor of local interests. Nothing in Wong’s scenario changes this political picture. Replacing the WTO with an opaque Chinese hegemony such as the B&RI, is scarcely a realistic solution, blockchain or no blockchain.
Taking Wong’s overall point, it is interesting to think it is likely that using a blockchain does not make trade warriors “powerless”. In fact, to the degree that blockchains are transparent and trustworthy, they will make it far easier to implement discriminatory trade policies. In short, nations will be able to use blockchain based provenance to implement “smart trade wars”.
Blockchains will actually empower a new breed of highly efficient trade warriors.
- Pindar Wong (2018) Blockchain’s Killer App? Making Trade Wars Obsolete. Coindesk, https://www.coindesk.com/blockchains-killer-app-making-trade-wars-obsolete/