Despite much hand-wringing to the contrary over the past three years, the end of globalization is nowhere near nigh.
The 10th annual DHL Global Connectedness Index, released Wednesday by Deutsche Post DHL Group (OTCUS: DPSGY) and New York University’s Stern School of Business, found that more merchandise trade moved over longer distances in 2021 than at almost any time in the past 12 years. The preliminary 2022 data points to a further increase, despite slower growth in some trade flows.
International trade in goods was 10% above pre-pandemic levels as of mid-2022, the index said. The average distance trade traversed stretched out over longer distances during the COVID-19 pandemic, due in part to the resiliency of China’s manufacturing sector for much of that time, according to the report.
(The yellow line shows average distance of merchandise trade travel. Dotted line indicates percentage of trade within regions. Source: NYU Stern School of Business)
The index, which measures the health of global trade, has continued to grow over the past decade despite multiple challenges like the pandemic, the global financial crisis of 2007-09 and the war in Ukraine.
Another tailwind for globalization is the significant decline in shipping costs over the past year or so, the report found. This effectively lessens the shipping penalty that had accompanied long-range trade flows.
The latest merchandise data, which analyzes trade flows from 171 countries and territories, “clearly debunks the perception of globalization going into reverse gear,” said John Pearson, CEO of DHL Express, the time-definite air express unit.
As a byproduct, the study casts doubt on any surge in regionalization in the wake of pandemic-related supply chain disruptions. “It remains an open question whether trade patterns will become significantly more regionalized in the future,” said Steven Altman, a senior research scholar at NYU’s Stern School and co-author of the report.
Many companies will continue to consider nearshoring, and such moves may make sense, Altman said. However, more than half of all trade already happens within regions, so he said that raises the question as to how much more trade will shift to shorter, regional distances.
The sizable decline in shipping and fuel costs in the past year has proved to be a tailwind for long-distance trade because it reduces the expenses that disproportionately affect long-distance shipping, Altman said.
In what has become a near-annual event, the Netherlands was chosen as the most globally interconnected economy in 2021, followed by Singapore and Belgium. The U.S. came in 28th, though it was the top performer among economies in the Americas.
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