3D PRINTING AND TRADE 2

# **1. Introduction**

Will 3D printing disrupt world trade? The new technology has been accompanied by predictions of a future where goods will be printed locally, global supply chains will be shortened, and international trade will be dramatically reduced. Firms (and perhaps even consumers) will be able to create a solid three-dimensional object from a digital file and will no longer need to import printable goods and components. One study finds that as much as 40 percent of trade could be eliminated by 2040.<sup>1</sup> In contrast, many earlier improvements in production processes that have reduced production costs and/or improved quality have boosted international trade. The industrial revolution is perhaps the best example, where a transformation in technology and management practices brought huge productivity gains, output growth, and expanding trade. The impact of 3D printing technology on world trade is therefore an empirical question.

Early evidence suggests that firms (and countries) will continue to specialize and 3D printing will stimulate trade growth. While 3D printing allows product customization, it does not beat traditional manufacturing technologies for bulk production of simple items. Even for the specialized products where it is most effective, it is not leading to decentralized production. One example comes from dentistry, where custom products are in high demand but are being manufactured and exported by high-tech firms. Consider Renishaw, a British engineering company, that makes dental crowns and bridges from digital scans of patients’ teeth. The printers run for 8-10 hours to make custom teeth from cobalt-chrome alloy powder, which are then exported. Dentists are not installing the machines to print teeth locally, rather the parts are shipped to dental labs in Europe, where a layer of porcelain is added before the teeth are shipped to dentists.<sup>2</sup> With 3D printing, the production process changed but the supply chain remains intact.

In addition to teeth, the innovative technology is also being used for several other goods, from running shoes to prosthetic limbs. The good where 3D printing is most common is hearing aids. Nearly 100 percent of all hearing aids consumed in the world are produced using 3D printing.<sup>3</sup> 3D printers transformed the hearing aid industry in less than 500 days in the mid-2000s, which makes this product a unique natural experiment to assess the trade effects of this technology. In particular, we use the example of hearing aids to examine the effects of 3D printing on international trade and to study how trade patterns have changed as production technologies shifted. Beyond this specific example, we also investigate trade in other goods where the use of 3D printing is expanding.

The main result is that 3D printing leads to an increase in world trade. We examine the data in two ways, first using a standard difference-in-difference technique and comparing the growth in hearing aid trade to other similar products. Second, we use synthetic controls. The results show that the development of 3D printing led to an increase in trade of 58 percent over nearly a decade, relative to the baseline. A dynamic extension of our model shows that the impact

> 1 - - - ING Report (Leering, 2017) https://www.ingwb.com/media/2088633/3d <u>printing report 031017.pdf</u>

> 2 “A printed smile,” The Economist, 28-Apr-2016.https://www.economist.com/science-and- <u>technology/2016/04/28/a-printed-smile</u> 3 See Banker (2013).