World Trade Boom
Globalization may be on a high level, but the resilience of trade in the face of growing headwinds means reversing the past three decades is not inevitable.
After the COVID-19 pandemic and Russia’s invasion of Ukraine disrupted global supply chains, the debate rages about how integrated the global economy will be in the future compared to the previous 30-40 years.
For many economists, globalization has stalled after three decades of low inflation, China’s integration into the world economy, and relative peace.
The pandemic, the rise of populist politics, the war in Europe, and China’s military and technological advances may make a world more inclined to look inward than outward.
Global trade reached or approached record levels in nominal terms last year; perhaps surprisingly, inflation was the highest in 40 years in volume terms.
As a share of global GDP, trade should increase from last year’s 58% and exports.
The structure of worldwide trade will inevitably change toward deglobalization or regionalization, but the process will be selective across industries.
Global goods trade hit a high-level last year. Moreover, US and EU goods trade with China is high, and global exports of digital services have tripled since 2005.
China’s exports and imports hit record highs last year at $3.58 trillion and $2.73 trillion, respectively, as did the eurozone’s exports and imports at 2.899 trillion euros and 2.95 trillion euros.
But disruptions to worldwide supply chains since the pandemic and war in Ukraine have forced countries and regions to become more self-sufficient in energy, food, resources, technology, and beyond.
Impact of regionalization on global semiconductor industry supply chains
The Biden administration has crafted landmark fiscal packages such as the Inflation Reduction Act and the Chip Finance bill, including unprecedented subsidies and funding for the technology and semiconductor industries.
China is working on a 1 trillion yuan support package for its semiconductor industry. Europe is sure to follow suit with similar projects.
Economists at JP Morgan note the increasing regionalization of supply chains. Asia now accounts for 78% of China’s total car and transport equipment imports, up from 66% from 2017 to 2019.
It is a small sample size, and Templeman emphasizes that economic, financial, demographic, and political factors were at play. But it is worth considering, as the forces of deglobalization will intensify in the coming years.
