DHL Global Connectedness Tracker: No sign of globalization in reverse, international trade resilient

Globalization remains at a record level, despite geopolitical tensions and uncertainties and the share of global economic output traded internationally remains close to an all-time high.

Moreover, countries that are neither close allies of the US nor of China are growing their shares of world trade, connecting geopolitical rivals, while traded goods are traversing the longest average distance on record, countering claims of a broad regionalization trend.

These are some of the latest findings of the DHL Global Connectedness Tracker, a data tool for customized deep dives into the state of globalization and global trade, released earlier today.

Developed by DHL and New York University’s (NYU) Stern School of Business, it is based on more than 8 million data points and tracks how flows of trade, capital, information, and people move around the world.

At a digital media briefing broadcast earlier today from DHL’s HQ in Bonn, Germany, John Pearson, CEO, DHL Express, picked out three key takeaways from the Tracker for special mention.

“One is that the level of global connectedness is at an all-time high and despite what you read about protectionism and nationalism, global free trade agreements, free trade deals and ‘I want to trade with another company’, is still happening.”

Secondly, international trade remains a central pillar of the world economy with 21% of all the value of goods and services produced being traded internationally. he observed.

“Now, two things come to mind when I think about that number 21: It’s a lot of trade, and it's a lot of trade that is growing year on year. But there is also so much more potential for people to take their products to other countries for their use, for their appreciation and their utility.”

The third takeaway, which according to Pearson is becoming more interesting and relevant and is potentially the most closely watched indicator of all, is that countries that are neither close allies of the US nor of China have posted trade growth of 6-7% annually over the last eight years.

“That works out at 42-47% which is an enormous acceleration in trade growth during that period. And if you're wondering which countries they are, they're UAE, India, they're Mexico, they're Vietnam, and they're Brazil, amongst a few others.”

Digging deep into the Tracker’s data at the briefing, Professor Steven A. Altman, Senior Research Scholar and Director of the DHL Initiative on Globalization at NYU Stern’s Center for the Future of Management, highlighted that the current edition of the Tracker focuses on four questions that lie at the heart of current debates about a possible reversal of globalization: 1) Has the growth of global flows gone into reverse? 2) Is geopolitical rivalry fracturing the world economy? 3) Are international flows becoming more regional? and 4) Are countries diversifying their international flows?

Turning to the first question, Altman noted that the latest results on the Tracker show that the share of global output that's traded internationally was at a record high level in 2022 and remains very close to that record high-level today. There was a very small decline in 2023, but the forecast is for no change in global trade intensity in 2024, with trade continuing to be as important as it's ever been to the world economy.

25% and Counting

However, this record high level is only 25% on a scale that runs from 0% - which would mean no flows across national borders at all - up to 100% which would mean that borders and distance have ceased to matter, and activity is just as likely to happen between countries as it is within countries, he explained.

“Only at 25% means that we're still closer to a world of completely separate countries than we are to a completely globalized world which has all kinds of implications, one of which is that there's still quite a bit of potential to continue growing international flows.”

As for the second question – whether geopolitical rivalry is fracturing the world economy – Altman considered the answer to be a bit more complicated.

“In broad brushstrokes, what we see is that countries at the center of current geopolitical tensions do have substantial geopolitically driven shifts in their international activity, but around the rest of the world and in global perspective, these geopolitically driven shifts in international flows are still pretty small.”

Looking for evidence of this in the Tracker, Altman focused on interactions taking place between the U.S. and China.

The data shows direct trade between the US and China fell from 3.5% of global goods trade in 2016 to 2.6% in 2024 (January to July). Breaking it down further, the U.S.’ share of trade flows to and from China has declined by 26% since 2016 and the share of China's flows to and from the US has fallen by 20% since 2016.

“So, these are substantial declines, but I wouldn't actually call that a decoupling between the US and China because these two countries are still connected by larger flows than almost every other pair of countries worldwide, and they actually had an unusually high level of connectedness before the recent declining trends began.”

As to international flows becoming more regional and whether near-shoring is gathering momentum, Altman displayed a chart in the Tracker which showed that the average distance over which countries trade hit a new record high over the first seven months of this year of almost 5,000 kilometers.

While the data only covers seven months of data, the conclusion drawn is that trade is clearly not becoming more regional, at least not yet.

“There continues to be substantial interest in near-shoring which could increase trade regionalization moving forward, but there's not currently an ongoing global shift to more regionalized trade patterns.”

Finally, as to whether countries are diversifying their international trade flows, data in the Tracker points to stability in this regard since 2022 rather than major shifts.

“So, when we look across the answers to all four questions, our main conclusion is that international flows continue to be highly resilient. They continue to grow roughly in line with domestic activity.”

He continued: “Geopolitically driven fracturing or fragmentation of international flows is still pretty limited, mainly concentrated in countries at the center of current tensions, and there are no ongoing global trends toward higher levels of regionalization or diversification.”

As to what might happen moving forward, Altman said it was important to recognize that this resilience took place against the backdrop “of shock after shock after shock” — a reference to Brexit, the US-China trade war, the COVID pandemic, and conflicts in Ukraine and Gaza.

“There's no guarantee this resilience will continue, but recent trends suggest that we should be cautious about predictions that globalization will go into reverse.”

At a Q&A session following the Tracker briefing, Altman was quizzed on the impact of potential tariff increases on US imports and possible new trade conflicts after Donald Trump’s return to the White House.

In response, he said that if all of the tariffs that were proposed during the Trump campaign were actually implemented, and if countries then, as you would expect, retaliate with tariffs against the US, this would of course, have a negative effect on trade growth.

“However, I think it's important to keep in mind that there's still a high level of uncertainty on what policies will be implemented, I think the most likely course of events is that we're going to see a start of a series of negotiations, and then ultimately there will also be exceptions processes for US importers.”

He added: “So we'll ultimately see some tariffs implemented, implemented gradually over time, and we'll probably see some exceptions. So, it won't be exactly what we saw during the campaign, but it will be very important to watch going forward.”