1. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. You need to agree to co-invest. The EU-28âs share of world exports of goods and services was 17.8 % in 2017. Between 2007 and 2012 the EU-28âs share of global trade fell strongly, before recovering somewhat through until 2017. At the same time, many countries retaliated against US agricultural products, like soybeans. Susan Lund: There’s a whole range of goods that aren’t widely traded—things like heavy commodities, like steel and aluminum, and like food and beverages that are perishable. So, increasingly, globalization is about trade in various forms of services, like IT services and telecommunications, transportation, business services, and these types of things. And what are the implications? We found that three-quarters of them say they are reconsidering their globalization strategy. Borders create restrictions to the free flow of goods and services. That would be exports of business services, transportation services, tourism, and education. Simon London: Let’s segue to the policy maker’s view of the world. While international trade in goods is relatively simple to grasp (a product is sent from one country to another and will, eventually, incur a tariff as it crosses the border), the idea of trade in services is more diverse and harder to figure out. We did a survey of over 1,000 business executives last September. Low wages are no longer the driving force in global trade flows. We think there will be increasing opportunities to trade and export in knowledge-intensive services. Trade in services (as opposed to goods) has continued to rise, while intraregional trade has intensified. Simon London, a member of McKinsey Publishing, is based in the Silicon Valley office. It’s ships full of relatively low-value-added goods sailing around the world. Figure 5.2. The ratio presented in Figure 2 is based on the average value of exports and imports relative to GDP and provides a means for analysing the âdepthâ of globalisation or the âopennessâ of individual economies. If you want some bedtime reading on this one, you can download the report, Globalization in transition: The future of trade and value chains, which you can find on McKinsey.com. Simon London: Let’s talk a little bit more about the trade in services. The information presented in Figure 2 shows that the importance of international trade in goods and services between some of the worldâs largest trading countries was quite different when measured in relation to economic output (gross domestic product (GDP)). So declining trade intensity, is it a bad thing? Two-thirds of trade within the EU-28 is just between countries in the EU-28; only one-third is with the rest of the world. Is there a sense that with telemedicine, with automation, with robotics, that maybe there’s a wave of technology coming that doesn’t have quite such a simple effect and may encourage the onshoring of production that may previously have been offshored or nearshored? This allowed globalization of goods and services, as well as people and ideas, between these three countries. This means that to get those things, you want to think about production in places where there’s a skilled workforce in engineers and a start-up ecosystem. Then you moved into higher-value-added manufacturing and services. But then, on the other hand, you see these technologies that we’ve started to talk about—like automation or 3-D printing or artificial intelligence—that will start to favor producing goods in different parts of the world. Try the new automatic translation by clicking on the blue icon âTranslateâ up in the right corner of the article! Is globalization in retreat, and what do the numbers tell us? We'll email you when new articles are published on this topic. Those decisions are driven, in turn, by patterns of demand, assessments of risk, and the march of technology. Unequal distribution of international trade gains is another main disadvantage of globalization. But over time, that’s going to become less available for other countries that have not yet participated in global value chains. The most striking feature concerning developments for world shares of international trade in goods and services between 2007 and 2017 was the continued progression of China as one of the worldâs leading trading nations. More and more international companies continue to trade because we are in the Golden Age of Globalization, too. By contrast, the largest deficit was registered in the United States (EUR 531 billion), followed at some distance by India (EUR 90 billion). That’s a huge change from what we saw in the previous chapter of globalization. Simon London: I think we’re out of time for the day. tab. At global level, it represents the share of total global trade in GDP, the sum for all countries. Susan Lund: Companies around the world are increasingly rethinking their global strategy. Our image of globalization, for many of us, is really of companies deciding to offshore production to countries where wages are very, very low. People create and sustain change. collaboration with select social media and trusted analytics partners You can do that very quickly. GDP (Baccaro, 2011). The trade intensity of manufactured goods is going down. You used to go into low-skill manufacturing. That started in Kenya with M-Pesa. You also then start to look at things like energy costs and electricity costs and the quality of infrastructure and logistics. We use cookies essential for this site to function well. Understanding The Importance Of Globalization | by David ��� That includes the R&D and design. By contrast, there was a more marked reduction in the share of the EU-28 in world imports for goods and services, as its share of the global trade was 16.3 % in 2017, a reduction of 3.7 percentage points compared with a decade earlier. Globalization would reduce the efforts made to build weakness or strength into these currencies to influence local markets. We didn’t see this immediately, because we had the 2008 financial crisis and the Great Recession. International trade is subject to the regulatory oversight and taxation of the involved nations, namely through customs. Unleash their potential. There is a big opportunity to create regional trading blocs in Africa, in Latin America, in the Middle East. Again, if I’m thinking about economic development, particularly in a developing economy, and also in developed economies, how do I make sure that I’m thinking forward and not looking back at the previous chapter of globalization when I think about my policy actions and where to place my bets and how to try and position my country in this new world? It actually reflects the shift in where the world’s consumers are. That’s already an astonishingly small component, given that our image of globalization is often about offshoring to low-wage countries. Two relatively small Asian economies reported the highest degrees of exposure to international trade, as the average value of exports and imports for goods and services (relative to GDP) in Hong Kong represented 188.1 % of its GDP in 2018, while the corresponding ratio for Singapore was 163.1 %. International Trade of Cultural Goods and Services | UNESCO UIS The Flows of Globalization The result is an increase in the flow of goods, services��� Within the context of globalisation, stronger links between some of the worldâs most rapidly growing economies â in the form of increased levels of trade and cooperation â can provide a stimulus to support continued economic development. These trends really favor the US, European countries, and, say, South Korea, Japan. tab, Engineering, Construction & Building Materials, McKinsey Institute for Black Economic Mobility. There’s also a lot of focus on integrating with your suppliers. According to Chase-Dunn (2002), trade globalization is the ratio of world export divided by all national GDPs. Globalization 2.0 and 3.0 followed over the next 100 years as advances in manufacturing and transportation made trade faster and cheaper. Then it all adds up. And as you say, those are real, and those could impose real costs or, indeed, on the other side reduce the cost of global trade. There’s a lot of opportunity for more regional trade, particularly in sub-Saharan Africa, the Middle East and North Africa, and Latin America. Press enter to select and open the results on a new page. Fresher data are available for individual countries and in 2018, the share of goods in total exports peaked at 94.0 % in Mexico and 91.2 % in China. Globalisation patterns in EU trade and investment is an online Eurostat publication presenting a summary of recent European Union (EU) statistics on economic aspects of globalisation, focusing on patterns of EU trade and investment. As a layperson, we do tend to get somewhat fixated on the politics and the rhetoric and the tariffs. Globalization will be less about manufacturing chains and trade, and more about services and ideas. It should be noted that the high share in 2007 preceded the global financial and economic crisis, which impacted strongly and for several years on the EUâs economy. Susan Lund: When you look purely at the data, a lot of integration within the EU-28 and within the Asia–Pacific region is driving this increase in regionalization. It’s a very, very big and complicated bucket. Inbound trade is defined as imports, and outbound trade is defined as exports. We talked about the need to collaborate with your suppliers. In all types of manufacturing, more and more production is being done by machines. But that window of opportunity is closing. You might be surprised and say why? There will be opportunities. Ideally, the diversification of markets as well products has contributed towards an increase in competition among sellers. What is globalization? Susan Lund: Services trade has always been the poor stepsister of manufactured goods; trade negotiations often focus on things like cars or agricultural products. These are technologies like blockchain to track where goods come from or to automate payout of trade credit in insurance contracts; the Internet of Things, where you can now track a shipment of goods as it moves around the world with more precision; automated document processing in customs; or autonomous vehicles in ports, which streamline the amount of time it takes to load and unload a ship. And, indeed, what we see is that some of them are already profiting. They have a customs union. Enterprises and households are more likely to consume goods and services from an international partner if such transactions are free from tariffs and other trade barriers, thereby allowing goods and services to cross borders in a frictionless and efficient manner. The final big change is just that we often talk about globalization, but over the last five years what we see, increasingly, is regionalization. And here we find that R&D and innovation and investment in intangible assets are increasingly important in virtually every industry that we look at. Globalization is the process of integrating various economies of the world without creating any barriers in the free flow of goods and services, technology, capital and even labour or human capital. our use of cookies, and We see this not only in things like fashion but all sorts of consumer products. I’m thinking, in particular, of a lot of African countries. While the value of the EUâs international trade in goods and services with the rest of the world has expanded at a relatively fast pace compared with the value of trade between EU Member States (intra-EU trade), this has not prevented a gradual reduction in the EUâs share of global trade. Exports of goods and services in EU countries recorded different levels in the period 2005-2012 (see Fig. Talk a little bit more about how that’s declined and why that’s declined. But would you agree with that? Simon London: Does regionalization potentially offer some interesting new opportunities to become a regional hub for processing or manufacturing services? This explains why less goods are being traded. The EUâs share of world exports of goods and services was 17.8 % in 2017. It’s actually a sign of economic development and strength. Subscribed to {PRACTICE_NAME} email alerts. GDP (Baccaro, 2011). Developing countries are going directly to paying with your phone. Services trade is growing 60 percent faster than goods trade Service sectors CAGR, 2007���17 Percent 7.8 5.3 5.2 3.7 3.2 1.7 Travel services Business services 2.4% Goods Telecom and IT IP charges Finance and insurance Transport 3.9% Services McKinsey & Company 9 2 SERVICES TRADE IS GROWING FASTER THAN GOODS TRADE SOURCE: McKinsey Global Institute According to Chase-Dunn (2002), trade globalization is the ratio of world export divided by all national GDPs. And it enables the free movement of people, culture, and information. Reinvent your business. As soon as, say, Kate Middleton or Kim Kardashian wears something, suddenly that item stocks out of shelves. Services are activities provided by other people, who include doctors, lawn care workers, dentists, barbers, waiters, or online servers, a book, a digital videogame or a digital movie. Susan Lund: It’s very clear that the trends I’ve talked about will favor advanced economies, because they are the ones with the skilled workforce, the good logistics infrastructure, the engineering and high-skill talent, the intellectual-property protections. 5.5 Globalization and International Trade Before we begin a discussion about why nations trade, it would be helpful to take a moment to consider the character and evolution of trade. And so, ironically, the US ended up with a larger trade deficit than ever. Write the types of globalization? Telephone companies, publish-ing houses or news agencies all provide services in quite different ways. 3). These are important, not only for countries but for companies. Producers are now being caught up in the vagaries of social media driving trends and tastes. By contrast, the relative weight of services in total exports was far more pronounced in the EU-28 (31.7 % of the total) and the United States (33.1 %), reaching a high of 38.2 % in India. Despite all this, there have been myths growing about globalization, obscuring what it ��� Globalization encourages free trade. It’s a growing interdependence of countries on one another for trade in goods and services. The reason is automation. This was in contrast to the situation at the onset of the global financial and economic crisis 10 years earlier, when the EU-28 ran a deficit for its trade in goods that outweighed its surplus for services resulting in an overall trade deficit. In 2017, the global value of exports of goods and services was EUR 15.9 trillion (or EUR 15 900 billion). It began in the 1800s when the steam engine made it possible to produce goods in one location and transport them to another���almost anywhere in the world. To discuss all this, I spoke with Susan Lund, a partner with the McKinsey Global Institute, who is based in Washington, DC. In 2017, gross trade in services totaled $5.1 trillion, a figure dwarfed by the $17.3 trillion global goods trade. We see this, for instance, in the surge in mobile payments and mobile banking. This page was last modified on 9 October 2019, at 14:41. Within the EU-28, the ratio of international trade in goods and services relative to GDP rose from 14.9 % in 2008 to 17.6 % by 2018, thereby confirming that trade in goods and services was growing at a faster pace than the overall EU-28 economy. When you start to automate production, then labor costs, in general, aren’t as important. But at the same time, we see services trade continues to grow much faster than goods trade. Something went wrong. Of those executives, nearly half say that they are changing their global footprint already, that they’re increasing investments in some countries and decreasing them in others. You do see that countries like Vietnam and Bangladesh are still growing their exports very rapidly and building up these export industries. Well, it is easy to switch your soybean source from, say, the US to Brazil. That could actually reduce global trade flows. I think it’s exactly what our report highlighted—that the ultimate trade numbers we talk about are really the result of the decisions of millions and millions of businesses deciding where to source inputs, where to produce goods, where to sell to consumers. To do that, you need to have a relationship with that supplier. INTRODUCTION. Immigration and Trade (Percent of labor force and GDP, respectively) 0 5 10 15 20 25 30 35 40 45 1990 2005 Advanced Economies Imports of goods and services Immigration2 Developing Countries 0 5 10 15 20 25 30 35 40 45 Exports of goods And welcome back to the podcast. Since the steam engine, globalization has continued to expand. The regional-trade figures for those parts of the world are very, very low—say, 20 percent of trade is within regions in those parts of the world, as opposed to with the rest of the world. All sorts of things are driving this that are way, way bigger than what the policy makers in any one country will do. Select topics and stay current with our latest insights. The EU-28 ran a trade surplus for both goods and services in 2018 and therefore an overall trade surplus for goods and services combined. International trade in goods and services, Ratio of trade in goods and services relative to GDP, The EU-28âs share of international trade in goods and services, Trade flows for international trade in goods and services, Globalisation patterns in EU trade and investment, International Monetary Fundâs (IMFâs), Balance of Payments and International Investment Position Manual (BPM6), World trade in goods and services â overview: tables and figures, Balance of payments - International transactions (BPM6), International trade in services, geographical breakdown (BPM6), Balance of payments - international transactions (BPM6), European Commission â globalisation and the EU economy, European Commission â reflection paper on harnessing globalisation (COM(2017) 240), United Nations Statistics Division â national accounts data, https://ec.europa.eu/eurostat/statistics-explained/index.php?title=World_trade_in_goods_and_services_-_an_overview&oldid=454292. In 2017, goods accounted for just over three quarters (76.6 %) of the worldâs total trade. Fresher data are available for the EU-28 and for individual countries.The EU-28 exported more goods and services in 2018 (EUR 2.9 trillion) than any individual country and the EU-28 also recorded the highest level of imports (EUR 2.7 trillion), just ahead of the United States (EUR 2.6 trillion). Globalization encourages free trade. It���s a growing interdependence of countries on one another for trade in goods and services. The ones that say they don’t collaborate at all with their suppliers over the last five years have seen their profitability decline. There is a cost to this globalization. A public example that’s been written about in the press is Columbia Sportswear, where they will design products to minimize the overall tariff impact. 1. Where can I get the engineers and the technicians to run the machines, to maintain the machines? The Flows of Globalization | The Geography of Transport Systems First of all, where can I get high-skill labor? But let’s talk a little bit more about regionalization—the emergence of these more intraregional trade flows. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. A. it homogenizes our world and destroys its rich diversity of cultures B. it allows us all to profit from our differing circumstances and skills C. nations can then trade with each other to obtain goods and services they desire but do not produce D. We don’t think that the opportunity to engage in labor-intensive manufacturing is over yet. World exports of goods and services (excluding intra-EU trade) reached nearly EUR 16 trillion in 2017. Most transformations fail. It’s not regional trade. For some specific countries, including the United States, our overall trade balance would look very different if you appropriately accounted for all the exports of services. This page has been accessed 17,587 times. A Snapshot of U.S. Trade In the year 2011, Americans sold $2.1 trillion in goods and services to corporations and consumers in other countries.Goods and services sold to other countries are called exports. In 1994, the United States, Mexico, and Canada signed the North American Free Trade Agreement (NAFTA), which eventually ended all tariffs on trade goods between the three nations. Exports of goods and services in EU countries recorded different levels in the period 2005-2012 (see Fig. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. We can’t use general, global observations, particularly in the developing world. Yet, data patterns closer to date may reveal further insights, namely data on the recent changes in the US stock market prices. In 2017, some 17.8 % of world exports for goods and services originated from the EU-28; as such, its share of world exports was 1.0 percentage points lower than a decade earlier (18.8 %), but 1.3 percentage points higher than the share (16.5 %) recorded in 2012. Why Trade of Services Lagged Behind. Please try again later. Figure 4 presents information on the relative importance of trade flows for both international trade in goods and international trade in services (more detailed information on these two types of products are provided in separate articles on goods and services). They’re not traded or exported and imported. Simon London: We do make this distinction between labor-intensive services and knowledge-intensive services. Companies are even collaborating on things like product design and manufacturing processes. A lot of us thought, “Well, when the recovery gets going in the US and Europe, then trade will ‘go back to normal.’” Now we’re ten years out from that point, and we can look back and see, in fact, we’re in a very different chapter of globalization. For many people, probably including me, that’s still my mental model of what globalization is. Borders create restrictions to the free flow of goods and services. ⦠while much higher ratios for trade to GDP were recorded in some Asian economies. Never miss an insight. So already, in many, many, industries, there are other factors driving global trade. This report uses the methodology outlined in the 2009 UNESCO Framework for Cultural Statistics to analyse trends in the international trade of cultural goods and services from 2004 to 2013. Digital upends old models. For those countries to maintain their service exports, they’re going to have to get into more complicated things like sales and troubleshooting IT problems, not simply providing very basic information. Leading companies are already at the forefront of these changes. Many companies are also prioritizing speed to market. One of the things we found is that if you take a traded manufactured product, like an automobile, 30 percent of the value in creating that automobile comes from the services that go into it. At a practical level, this means the European Unionâs (EUâs) international trade policy has been designed around promoting reciprocal market opening and trade liberalisation, creating new opportunities for increased levels of trade (for both goods and services), investment, innovation and productivity growth. That just meant that the value of imports went up. But at the same time, we see That means more goods that are produced are now sold in the country they’re produced in. All of these things will continue to encourage more and more goods to be traded as it gets faster and cheaper to do so. Now you see it in China.
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