Globalisation hasn’t collapsed amid Covid-19. That’s the takeaway from the latest DHL/New York University report on globalisation, which is a yearly deep dive into data around global trade, capital, information and people flows. It’s always a great finger to the wind about global connectivity, and it will reassure many FT folks.
First, while connectedness did decline somewhat in 2020, the authors say it’s on track to rise by the end of 2021. This is in part because the US and China still need each other — trade between the two nations actually increased during the pandemic (though it must be said that this was coming off a major decline in 2019). Trade in overall goods is already at pre-pandemic levels, and while cross-border portfolio flows declined sharply in 2020, foreign direct investment was up in 2021.
One thing that surprised me was that while long-distance trade in goods was up (again, in part because China was supplying so much of what the world needed amid Covid), digital information flows have gone back to a slower longer run trend after growing sharply at the beginning of the pandemic.
This is counterintuitive. There’s been an assumption that trade in goods will become much more regionalised. This stems from issues with monopoly power, supply chain problems, emissions costs and geopolitics. There is also a desire to have production and consumption linked together in new industrial systems that are built on resiliency rather than efficiency. (See my article here, on why manufacturing still matters for most superpowers.) Dan Breznitz’s book Innovation In Real Places also does a nice job of saying why that’s so important.
But everyone thought that cross-border information flows would continue to rise exponentially, as they have in recent years. For more on this, read my colleague Gillian Tett’s column from last year in which she wrote about why reports of globalisation’s death were greatly exaggerated.
It may be that the clamp down in both capital and data between the US and China is creating the beginnings of a splinternet. The global regulation of technology giants in so many regions, countries and states may be having an effect too. It’s getting more difficult for data to flow quite so easily across borders given the different regulatory regimes emerging.
It’s also worth pointing out that some of the regionalisation of trade that is occurring, particularly in areas such as semiconductor foundry creation, could be a decade-long process. Building, let alone building back better, takes time.
I suspect next year’s survey may show a bit more regionalisation, particularly if we continue to see divergence between emerging markets and rich countries in the post-Covid economy, different regimes globally in tech and trade, more travel restrictions and continued supply chain rejiggering.
Ed, what’s your bet? And I’m curious if you have any soft metrics or personal anecdotes of your own that you’d call out to illustrate your take on the state of globalisation today?
Gillian’s piece this week on how congressional sausage making can end up with the wrong legislation for the right reasons is a cautionary tale for Washington and Wall Street.
Katherine Eban writes a worrisome feature in Vanity Fair about the Biden administration’s failed efforts to distribute donated vaccines across the world so we don’t see more Covid variants. Also worth a read is Eban’s recent book on the problems in the booming generic drug business, Bottle of Lies, which didn’t get enough attention.
I picked up my first-ever issue of the hipster New Yorker, n+1, and really enjoyed this piece, documenting an early moment-by-moment experience with the pandemic.
Edward Luce responds
Rana, I’m all about soft metrics, particularly when I feel the hard ones are too difficult to dispute. Our colleague Alan Beattie, and FT contributor Megan Greene have both recently written about the resumption of normal globalisation. What you write about the slowdown of cross-border information flows both surprises me, for the reasons that you set out, but also resonates with some recent anecdotal experience. I have subscribed to the view that Covid did not change the contours of history so much as accelerate pre-existing trends — with digitisation being an obvious example. Another of those trends is the emergence of a cold war between the US and China, which will increasingly lead to technological bifurcation, as you point out. Other countries are taking note.
I was recently in Abu Dhabi and could not get around the local internet censorship with my VPN, as was easily the case the last time I was there two years ago. In India, the changes have been even more pronounced. I suspect within a few years it will be normal for large areas of the world to be sealed off from the global internet, or at least from big chunks of it. VPNs won’t work. Data clouds will be nationalised. And information will increasingly be weaponised.
Covid has undoubtedly increased our ability to work remotely. But I think it has also provided cover for governments to impose controls far more quickly and stringently than they otherwise would. Thus we have accelerated digitalisation of our increasingly privatised lives but restricted information flows, and there is less openness on a global scale. I don’t like either of these trends. If this week’s virtual Summit for Democracy can achieve anything, I hope it will be able to deliver a robust pledge in favour of open digital standards and the global internet. I don’t hold out much hope such a declaration would have teeth. But the pledge in itself could plant a seed of something more useful.
And now a word from our Swampians . . .
In response to ‘America’s long goodbye to Roe vs Wade’:
“Rana, I can relate to every one of the points you made but they are all oh so thoughtful and contained. What about your feelings? Your horror? Your rage? What if you didn’t live in New York and your daughter didn’t have a British passport and a family with sufficient funds to whisk her away? How would you feel, then?” — Elizabeth Neustadt, Cambridge, Massachusetts
“Jurists on all sides have considered Roe vs Wade ‘bad’ law — Ruth Bader Ginsburg being one famous example — and that the real solution lies with voters and Congress . . . By refusing to move to proper federal regulation pro-choicer purists may have done as much damage as the more bigoted of the pro-lifers.” — Simon Noble, Madrid, Spain