What is behind deglobalization?
Global trade in goods has been growing more slowly than the global economy for a more than fifteen years.
Commerzbank Economic Research
09/27/2024
Is globalization being dismantled?
Globalization seems to be reversing. It is true that the volumes of goods traded continue to grow – in real terms, world trade has risen by more than 1% per year in recent years despite the COVID-pandemic. However, the world's gross domestic product (GDP) has grown significantly faster during this time. Contrary to the long-term trend, world trade as a share of the world economy has therefore been declining for several years. This share fell from its peak of 26% in 2007 to 23% in 2023. This development is particularly worrying for Germany, as one fifth of all jobs in this country are directly or indirectly dependent on the export of goods and about one third of the welfare gains of recent decades can be attributed to foreign trade. We analyze which factors contribute to this trend, how global trade flows are shifting, and how global supply chains have changed since the pandemic.
China plays a decisive role
One of the main reasons for the slowdown in globalization is China's economic development. China has experienced rapid economic growth since the early 2000s, fueled primarily by exports. However, China's foreign trade share has been falling since 2007:
- China is strengthening its domestic market. Due to the increasing prosperity of the population and the political aspiration for economic independence, domestic demand for services is growing significantly faster than the demand from abroad for goods. The public sector is increasing spending on health and education, the private sector is investing in research, and private individuals are spending more money on domestic services. As a result, the service sector attracts more resources, such as labor, which are not available for the production of export goods. Consequently, exports have grown more slowly than GDP.
- Chinese production is increasingly replacing foreign intermediate and capital goods with domestically produced goods. In 2005, around a quarter of the goods exported from China consisted of foreign value added that had previously been imported in the form of intermediate goods. This proportion has fallen to 16% within fifteen years. On the one hand, this leads to lower imports. On the other hand, the domestic production of intermediate goods also ties up resources that are no longer available for the production of final products for export.
For full text see attached PDF-Version.
