Whether it was wrongly predicted the demise of globalization for what seems like years. Now, given the war in Ukraine and other disruptions, many are once again sounding its death knell. Is it really in retreat. The streams of goods, the real touchable substance, have leveled off after nearly twenty years and above of growing at twice the rate of Gross Domestic Products (GDP). But the flows of goods kept pace with GDP and even rose a little bit, surprisingly, in the past couple of years. Since GDP has been growing, that means actual ties have gotten stronger. That flows representing knowledge and experience, such as IP and data, and flows of services and international pupils have accelerated and are now growing faster than the flow of goods. Streams of data grew by more than forty percent per annum over the past ten years.
Goods versus share of total flows of economic output: The fact that certain goods are growing less quickly than other types of flows shows this shift in our economy and what’s most important to the way the economy functions. It comes on the back of a long history of different factors that influence growth and shifts in the way patterns work. That a variety of countries are producing more domestically first and foremost China. That has been driving a lot of the flow down, if we take the longitudinal view, over the past ten years versus before.
About the interdependence of the world : It is evident, every region in the world depends on another significant region for at least twenty five percent of a flow it values most. It is observed at it on its own because it’s such a large economy depend very strongly on the rest of the world for resources: food to some degree, but really energy and minerals of different sorts. In general, regions that are manufacturing regions depend very strongly on the rest of the world for resources: food to some degree, but really energy and minerals. China imports over twenty five percent of its minerals, from places as far-flung as Brazil, Chile, and South Africa. China imports energy, particularly in the form of oil from the Middle East and Russia. Europe is emblematic of these forms of dependency on energy. It was dependent on Russia for over fifty percent of its energy, but now that has drastically changed. In some other regions in the world places that are resource rich, like the Middle East, sub-Saharan Africa, and Latin America those places are highly dependent on the rest of the world for their manufactured goods. Well over half the world’s population lives in those places. They import well over fifty percent of their electronics and similar amounts of their pharmaceuticals. They are highly dependent on other parts of the world for things that are really quite critical to development and for modern life. North America is somewhat of a different story. It doesn’t have any single spot of quite as great a dependency, at least at the broad category level. It has to import close to twenty five percent of what they use in net value terms across the spectrum, both of resources and of manufactured goods. This doesn’t yet express of data and IP, where, for example, the US and Europe are fairly significant producers/exporters. A country like China is a very large consumer of IP.
Global workforce versus interdependence : It is quite remarkable. The numbers are very substantial versus the working populations in different countries. When it considers how much of what North Americans or Europeans are consuming could be produced onshore, by onshore labor, the answer is not even remotely close to those sorts of numbers at least given the means of production or the way services are delivered today and the role people play in that.
Driving growth in global flows versus the trade in goods: Knowledge services that have historically grown more slowly than manufactured goods and resources, with increased global connection over time, have turned over over the past ten years. Professional services, such as engineering services, are among those more traditional trade flows that have been growing fastest, at about six percent a year, versus resources, which have slowed to just around two percent. Anything that involves real know-how engineering, but also providing, say, call center support is in that category. The flows of IP are growing even faster. Now, IP is tricky because accounting for it is a very tricky thing to do. But it roughly looks at flows of the fun stuff. It’s also important to consider flows of patents and ideas and the way countries or companies will use ideas or know-how developed in one country to help what they do broadly across the world. Those flows have been growing at roughly six percent per year as well. There are data flows the flows of packets of data. There are also flows linked to our ever-expanding use of cloud and data localization. Data transfer is happening more and more quickly. The flows of international pupils have also been rising. That was mightily interrupted by the pandemic. It’s important to consider the degree to which those will jump back on their accelerated growth path.
Resource concentration versus dynamics of the connectivity globally : As far as global perspective concerned, there are some products that truly originate in only a few places in the world, and all of us across the globe are dependent on those few places for our supply. Iron ore is quite concentrated, and cobalt is concentrated in the Democratic Republic of the Congo. The second type of concentration is viewed from the standpoint of an individual country. For example, Germany was getting gas from only a very concentrated set of sources. These are places where, for a variety of reasons, countries have built up dependencies on just a small number of other countries. Position and reason concerned, people have made decisions based on economic factors. Another reason is regional preference. Not all goods are created equal, even if they fall in the same category. The third reason is preferential trade agreements between different countries or other forms of tariffs or taxes that shape the way flows occur. People are realizing they have to contemplate the consequences associated with concentration not of suppliers, but of the country of origin from which they’re buying things.
Geopolitical risks versus global chains evolvement : There may be four categories of potential evolution. Semiconductors are most prominent in public discussion. Evidence shows that electronics, more broadly, is one of the fastest-moving value chains since 1995, with twenty percentage points of share movement per decade. Pharmaceuticals and the mining of critical minerals are other examples. And they will be part of what shifts the way that flows crisscross the globe. Second category, textiles and apparel. This category is not as sensitive in a geopolitical sense as some of the things. This category is one where actually do have new center creation right now. Consumer electronics, other forms of electric equipment that aren’t particularly sensitive, possibly fall in that category too. Third category, IT services and financial intermediation or professional services. That will reconfigure the ways in which services flow. Fourth and finally, there’s the substance that’s just going to be steady food and beverages, paper and printing. There’s no particular reason to expect that there are strong forcing mechanisms that will change the way those things are flowing across the world right now. They’re things that have remained relatively steady for the past ten or more years.
Net-zero transition versus global flows : Energy-generating technologies include both the minerals that underpin construction of those technologies and the actual manufacturing. So, in the first category, think nickel and lithium. In the second category, think about the actual manufacturing of solar panels. The minerals themselves are processed in only a few countries around the world. So people are going to have to move them from one place to another. Maybe the world could have broader diversification of such things, but on average, the timeline from discovering a mineral to being able to produce it at scale is well in excess of over a decade. If the stakeholders want to move fast, so they have the luxury to move things across the world. Meeting cost curves for manufacturing at scale and in locations where it has at least some established presence is going to be important. The final element that’s crucial with respect to net zero is cross-border capital flows. It’s really important that developing countries are able to finance shifts in the way that energy is produced and consumed in their countries, which means they may have to both spend more, at least as a ratio of GDP, and have less ability to spend, given other forms of development authoritative.
Global connectedness and multinationals companies : It should recognize that major multinational corporations play an outsize role in global flows today. Evidence shoes that multinationals are responsible for about thirty percent of trade. They’re responsible for sixty percent of exports and eighty two percent of exports of knowledge intensive goods. So they disproportionately drive flows, especially the ones associated with knowledge. And therefore, they’re going to be the center of handling for their own resilience, but also in a shared sense, for the pliability of the world.
Concluding remarks of global flows in future : Dependency on just a few points of potential weaknesses rather than a broad web, which in general is a more resilient and robust structure. The world we live in right now is highly dependent on flows. Reconfigure and shift is absolute. Which have in the past, and they will have in the future. Along regional lines, individual regions can’t be independent. Decoupling of regions is not possible. Now, it is possible that gets groups of countries that become more strongly interconnected among them and less strongly connected with others. It’s possible to move in that direction. Tends toward the shift in degree rather than an abrupt or sharp true change or decoupling. To some degree greater regionalization can improve resilience. There are a whole host of reasons some degree of regionalization might help.
