McKinsey: World trade defies all crises – economy

the globalization seemed just to stand still. The pandemic and disrupted supply chains slowed trade in goods. Russia’s war against Ukraine and the sanctions that followed created even the impression that the world was about to deglobalize. However, if you look at the latest data, they don’t give it away. A study by the McKinsey Global Institute is showing that global trade in goods has recently reached a record level again after an initial slump in the pandemic.

The researchers at the institute justify it as follows: During the time when consumers spent a lot of time at home due to closures and instructions to keep their distance, they had just as much time to spend it. But during this period, their spending shifted to goods rather than services. Maybe because they couldn’t go out. In addition, government stimulus measures would have meant that consumers had more money at their disposal.

In fact, it was precisely these services that had gained in importance in the globalized world. Because the analysis shows one thing above all: globalization is changing, trade flows have shifted. Instead of goods, it is now largely driven by other factors. Be it data, intellectual property, services or talent. The global exchange of these factors has grown twice as fast compared to flows of goods in the period 2010-2019. Data streams alone recorded annual growth of almost 50 percent.

The winner on the global world market is – not surprisingly – China. In 2021, the country exported more than 60 percent of the products in that category that are produced exclusively by one country. Electronics and textiles are sent out into the world from here. In addition, China is gaining in importance in almost all value chains analyzed by the institute.

There has been a lot of discussion recently about China and its global role. For example in the debate about the Participation of the Chinese group Cosco at a terminal in the port of Hamburg or when selling one, which is prohibited by the government Chip factory in Dortmund to a company backed by Chinese investors. Through the war in Ukraine, Germany realized how dangerous a strong dependency can be. Now it wants to reduce them, but asks itself: how can that be done?

Also the analysis of McKinsey Global Institute shows the great dependence on China. The subsidiary of the management consultancy has examined 30 global value chains of capital, personal and immaterial trade as well as around 6000 globally traded products. In many sectors, China has been the winner of globalization in recent years and decades.

Europe has a completely different position on the world market. The main imports come here, especially energy. In 2021, 50 percent of Europe’s energy needs came from other countries, primarily from Russia.

“Russia was relatively insignificant as a trading partner”

Lisandra Flach, head of the ifo Center for Foreign Trade, is convinced that the slump in energy was a serious blow to the German economy in the short term. In the long term, however, she does not see the greatest consequences in Germany or the European Union (EU), but above all in Russia: “From an overall economic point of view, Russia was relatively insignificant as a trading partner for Germany and accounted for around two percent of German trade. The country was important before especially in gas, oil and raw materials,” she says. The EU and the USA, on the other hand, were important trading partners for Russia. Russia mainly imported machines. Now the country has been cut off. Russia will probably try to fill these gaps with trading partners like China. “But that won’t make it all the way,” says Flach.

McKinsey researchers also see the need to open up new trading partners study as a major challenge: “It consists in reaping the benefits of interdependence while managing the risks and disadvantages of dependencies,” the researchers write. This is particularly difficult in places where goods are concentrated.

And now people in Germany are looking for exactly this new offer in other countries. But that not only takes time, but also the right incentives, says Lisandra Flach: “The diversification of our trading partners is ultimately a decision of the companies.” That is why the government must set incentives. It would have to conclude trade agreements and strategic agreements that encourage greater diversification and thereby reduce the risks of dependency.

The rest of Asia is also already strong in exports. Asia Pacific contributes disproportionately to exports of minerals – including lithium and graphite.

“Globalization is not over”

But it is also clear that no region of the world is self-sufficient. Each country depends on another. McKinsey’s analysis shows that each region imports more than 25 percent of a key resource or commodity from another country. Latin America, Africa, Eastern Europe and Central Asia import more than 50 percent of electronics. North America relies on imports of minerals and manufactured goods. And the Asia-Pacific region also imports more than 25 percent of its energy resources.

All of this paints a picture of a world that is more globalized today than ever before. And in view of the fact that many countries are now looking for new trading partners, the experts expect further slight growth for 2022.

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