Globalization in Transition

China port

By Irving Wladawsky-Berger for The Wall Street Journal

I recently read two reports on the state of globalization in 2019, one by the Economist, the second by the McKinsey Global Institute. They both agree globalization and global trade have been undergoing considerable changes since the 2008 global financial crisis. But they differ in their explanations of the reasons for the changes.

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According to the Economist, we have entered the slobalisation era. World trade rose from 39% of world GDP in 1990 to 61% in 2008, and has now fallen to 58%, mostly because of a slowdown in trade from emerging markets. Cross-border investments are down as are cross-border bank flows. Gross capital flows have declined from a peak of 7% in 2007 to 1.5% now.

Activity is shifting towards services,which are harder to sell across borders: scissors can be exported in 20ft-containers, hair stylists cannot.

says the Economist

A few measures have continued to rise, notably the volume of data, which has gone up by a factor of 64 since 2007.

McKinsey in Globalization in Transition: the Future of Trade and Value Chains argues that globalization is in transition rather than faltering. “The 1990s and 2000s saw the expansion of complex value chains spanning the globe. But production networks are not immutable; they continue to evolve.”

McKinsey’s central finding is that global value chains have been undergoing major structural changes over the past decade. And, one can imagine, a number of those changes, listed below, house a digital technology component.

Services play a growing and undervalued role in global value chains. Trade in services has been growing more than 60% faster than the trade in goods over the past decade. Moreover cross-border trade in services generate far more economic value than what’s been captured in traditional trade statistics, including the contributions of value added services to physical goods. These value adds include R&D and engineering as well as the the intangibles–software, intellectual property– companies send to foreign affiliates. McKinsey estimates that such uncounted services “collectively produce up to $8.3 trillion in value annually.

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