Is the World Deglobalizing, Slowbalizing or Newbalizing?

• Many commentators expect the world to deglobalize following the US-China trade war, the pandemic, and the invasion of Ukraine. We take a longer perspective and ask if globalization—the growth in cross-border movement of goods, capital, people, technologies, data, and ideas—has already started to reverse.
• Despite a rapid 2021 rebound, global goods trade has edged down by 4pp as a share of global GDP since the GFC, largely due to a fall in the trade intensity of China output.
• Cross-border flows of direct investment and equity portfolio investment have declined sharply relative to global GDP since the 2000s, although these investments have edged higher on a cumulative stock basis. Similarly, net
  immigration flows in advanced economies have trended down over the past decade, but the population share born abroad has edged up further. Global tourism exports trended up until the pandemic collapse in 2020.
•  Exports of computers and communication services as a share of GDP have risen steadily, while cross-border data flows have continued to surge.
• Taken together, the term slowbalization—slowing growth in cross-border moves—better describes trends for goods, capital, and people over the past 10-15 years than deglobalization—outright declines in cross-border flows and stocks. The surge in digital cross-border activity also supports the notion of newbalization, where globalization slows in tangible areas but accelerates in intangibles

Many commentators and investors expect the world to deglobalize following the US-China trade war, the pandemic, and the invasion of Ukraine. In this comment, we take a longer perspective and ask if globalization has already started to reverse. We define globalization as the growth in cross-border movement of (1) goods, (2) capital and people, and (3) technologies, data, and ideas, and review key trends for each dimension.

Goods. Global goods trade—the sum of merchandise imports and exports—has edged down by 4pp as a share of global GDP since the 2008 peak to 47%, despite a rapid 2021 rebound (Exhibit 1). While global trade has increased by 35% in value and by 30% in volume since 2008, global GDP has grown more quickly. The biggest driver of the decline has been a 28pp decline in China’s trade share since 2006. One reason is that a greater share of the value China sells is now produced at home.

Capital and people. We next look at the major capital account items. The verdict on private capital flows depends on whether we look at stocks or flows. Cross-border flows of direct investment and equity portfolio investment have declined sharply relative to global GDP since the mid-2000s. However, these flows have still been large enough
that the stocks of cross-border investment have continued to grow.3 On the official side, by contrast, net international reserve flows have fallen sufficiently to keep the stocks roughly flat relative to global GDP over the past decade, following 15 years of rapid growth.

This contrast between slowing flows and rising stocks is remarkably similar for capital and labor. Exhibit 3 shows that net immigration flows in advanced economies have trended down over the past decade, but the population share born abroad has edged up further.4 While the pandemic has depressed immigration, net immigration to other European countries is likely to rise as 4.9mn refugees have fled Ukraine since late February (although some are now returning to areas recaptured by Ukrainian forces).

In contrast, global travel services exports trended up steadily until the pandemic collapse in 2020 (Exhibit 4). Although annual tourism exports picked up somewhat in 2021 in the US and Europe, they remained roughly flat globally, with outright declines in much of Asia-Pacific.

Technologies, data, and ideas. While flows of goods, capital, and people have slowed, exports of computers and communication services have risen significantly since the early 90s (Exhibit 5). Exports of computers and communications services now account for more than 3% of global GDP and around half of services exports, well ahead of travel, transport, and financial services.

Used cross-border internet bandwidth has grown 115 times larger since 2008. UNCTAD finds that content providers drive much of this explosive growth, with an estimated 80% of total internet traffic related to videos, social networking, and gaming services. These services are to a high degree provided by major platforms such as Youtube (Google), Facebook, Instagram, or Netflix, for instance. The tech giants’ user base is highly international with a 80-90% non-US share of monthly active users.

Taken together, the term slowbalization—slowing growth in cross-border moves—better describes trends for goods, capital, and people over the past 10-15 years than deglobalization—outright declines in cross-border flows and stocks. The surge in digital cross-border activity also supports the notion of newbalization, where globalization slows in tangible areas but accelerates in intangibles.