You will be redirected back to your article in seconds
Skip to main content

Geopolitics Causing Globalization to Evolve Not Weaken, DHL Index Shows

The world’s level of connectedness declined in 2018, reversing part of the gains that had propelled it to a record high in 2017.

Capital flows dragged down the DHL Global Connectedness Index (GCI), while flows of trade, information and people intensified. Even with strong headwinds in global geopolitics and trade, the GCI stayed close to its record high of 2017.

“While current geopolitical tensions could seriously disrupt global connectedness, this 2019 update finds that most international flows have remained surprisingly resilient so far,” John Pearson, CEO of DHL Express, said in a webinar discussing the DHL GCI. “Ultimately, what we’re seeing today is the evolution of globalization, not its decline.”

While regionalization is a development in international trade reflected in bilateral and regional trade agreements, most companies are still thinking globally, Pearson said.

“Our analysis does not confirm a robust regionalization trend. Instead, we see that the average distance across which countries trade has held steady since 2012,” Steven A. Altman, senior research scholar at the NYU Stern School of Business and lead author of the DHL GCI, said. “While fraying relations between major economies could lead to a fracturing along regional lines, such a shift has not yet conclusively taken place.”

Despite escalating trade tensions, trade remained resilient during 2018, Pearson said. However, this strength did not extend into 2019, as the proportion of global output traded internationally declined during the first half of the year.

The report traced the steep decline in U.S.-China trade, with the index showing that China’s reliance on exports to the U.S. was falling sharply even before the trade war, due in part to China’s desire to support its domestic industry over reliance on imports. The GCI update shows trade flows continued to intensify through the early stages of the U.S.-China trade war in 2018, but in the first half of this year, the share of global output traded across national borders fell.

Related Stories

While global trade volume growth is likely to remain positive this year, it is not expected to keep pace with gross domestic product growth. Current forecasts suggest that trade intensity is on track to modestly decline through 2020, Altman said.

Some countries are showing a positive outlook, while for others there’s a more pessimistic forecast, Pearson said.

Capital was the only pillar of the index that declined in 2018, specifically foreign direct investment (FDI) and portfolio equity investment. While early capital flow data for 2019 suggests some stabilization, a robust recovery on these metrics remains elusive, Altman said. U.S. tax policy changes that caused U.S. multinationals to repatriate earnings held abroad spurred a large part of the recent FDI drop.

Looking ahead, the 2019 update indicates that all four flows measured by the index–trade, capital, information and people–are running up against powerful headwinds.

“Rising barriers and uncertainty about future openness are starting to carry significant costs,” Altman added. “At the same time, a survey on globalization perceptions reveals that many people do not realize how limited global connectedness actually is. While the world is more connected than at almost any previous point in history, most business still takes place within, rather than across, national borders.”