One of the benefits of having sat on a pubic board is the lesson learned about presenting problems. One never comes to a board room to present a problem without also balancing it out with a proposed solution.
As the debate about the new tariffs on steel and aluminum rage on, it’s important to realize that there is something we are missing altogether. We are fighting a 21st century war with 19th century weapons. Tariffs are not the answer; the solution is found in technology.
The thought of protectionism, in any form, nauseates me. Blanket tariffs have unintended consequences in commerce and, most important, are a tax on the U.S. consumer. Protectionism, or tariffs, are prosperity killers, plain and simple.
But as a believer in free, open markets the dumping of government subsidized products (steel from China for example) is disruptive to market structure. So how do you punish cheaters without hurting friends? To keep markets fair and open it becomes imperative to start thinking of solutions which are out of the box.
Tariffs are as old as commerce itself. The word itself can be traced back to Aramaic times and the practice has become always understood to be a tax. The proposed tariffs today are no different. For many conservatives it goes against the very fiber of their being. It acts as an albatross around the neck of the economy and hinders growth.
Innovation and the creation of distributed ledger technology, known as Blockchain, is the answer. Too often, because of the misunderstood nature of the industry, blockchain is associated with cryptocurrencies. The reality is that blockchain is a disruptive technology which can do much more. It gives us the ability to create a supply chain using a distributed ledger which can replace tariffs forever.
The use of the ‘smart contracts’ created by blockchain technology allows for the irrefutable, certainty of the origin of any product produced or trader around the world. By tagging the origin of products, it’s no longer ‘trust and verify’, it becomes proof or no trade! The supply chain will never be the same.
Let’s understand how a smart contract works. Today, when a load of a given commodity is traded or sold, we assume the origin from a ledger entry. This ‘trust and verify’ network changes when blockchain technology is introduced.
With a smart contract, the commodity load is tagged with a serial number immediately as it is produced, much like the diamond industry. Once the given serial number tag is entered on the blockchain, the origin of that commodity cannot be tampered, refuted or changed.
As with any new technology, challenges will present themselves when implementing blockchain into the supply chain. Security must prevent hackers from corrupting the proof of work which supports the concept and there is always the danger of lost digital keys. But the enhanced nature of the distributed ledger makes it that much more difficult for those looking to circumvent the system by the embedded audit trail in the code.
This changes the game for those looking to dump certain products on the world. Image if any load of steel produced in China, tagged on the blockchain, was being moved around the world? The buyer would know the origin of that steel regardless of who sells it. The blockchain is a ‘Don’t trust, prove it’ solution to the free trade issue.
Now is the time for the WTO and the U.S. to step up and come up with a 21st century solution to maintain fair and free global markets. Smart contracts should be created and used to monitor every aspect of global trade. Blockchain technology will give the world absolute transparency of trade making it next to impossible to transact commodities on the black market. Cheaters will be found immediately.
The global infrastructure which is needed to make this vision a reality now exists. The cloud market, which is the cornerstone of the concept, has never been better and more equipped to handle the future smart contracts of commodities.
One thing we should all agree on is that you can’t fight a digital economic war with analog ideology. As the creators and proliferators of American free market style capitalism around the world, it becomes the job of the U.S. to lead. Smart contracts and blockchain technology will be much more effective than any tariff ever established.
Commentary by Jack Bouroudjian, chief economist at the Universal Compute Xchange.