HomePublicationsInsightsAre we on the path of deglobalization?

Are we on the path of deglobalization?


The word globalization has been present in our lives since the 90s, or even a little before that. Specifically in the economy, the amount of trade between countries is an important indicator that registers, in numbers, what has been happening with globalization in practice.

The history of imports carried out in the world shows that countries actually began to rely more heavily on international supplies in their economies. The World Bank data presented below provide a history, since the 70s, of the percentage of global imports over the total GDP of countries. The numbers indicate that in 1970 this ratio was 13%, in 2018 this percentage more than doubled, registering 29% of imports in relation to global GDP.

Although there is no more recent data, we can learn from the history of this information. Note that the percentage of total imports over world GDP peaked in 2008, reaching 30%. At the end of that same year 2008, the world experienced a memorable financial crisis, when several large banks and real estate credit agencies went bankrupt, and the American and European governments carried out trillionaire rescue packages for their financial systems. In 2009, the year following the outbreak of the financial crisis, there was a drop in both world GDP and imports, and the percentage of imports over GDP dropped from 30% to 24%.

deglobalization---imports---ILOS-Insights Figure 1: Percentage of imports over world GDP. Source: The World Bank. Analyses: ILOS.

Thus, in the current expected scenario of global economic recession due to COVID19, it is understood that trade movements should fall in 2020 and 2021, as happened in past crises, since there will be a reduction in world GDP.

But in addition to the expected reduction in imports, which will naturally occur due to the reduction in economic activity in the countries, what is most strongly discussed in 2020 is the return to the nationalization of production. Nationalization has been evaluated by several countries, especially for products considered essential for the economy and for the health of the population. It became clear the risk of international supply disruption in times of crisis, especially when suppliers are concentrated in a few countries.

In addition, the momentary situation caused by the pandemic in international logistics has drastically reduced the supply of cargo transport services between countries. Specifically for products that use the air modal, due to the cancellation of routes, the goods that were used in the holds of passenger planes to be exported or imported now have very limited space or depend on cargo planes. This means that, forcibly, international trade declined due to the lack of transport options, and not just because of the lack of demand for products. This rupture in international logistics was another factor that aroused the need in companies and countries to rethink their global supply chain, considering not only supply costs, but also the risks of supply interruption.

Governments from different countries may, in due course, restructure their incentive strategies and seek to develop and make local production competitive in some sectors considered strategic. It's not an easy move, as production costs can be very competitive in some countries over others. But if these movements of nationalization really take place, there will be a reduction in international trade that will go beyond the natural reduction expected due to the drop in global economic activity. This movement will represent a path to deglobalization.

I don't believe in large-scale deglobalization, but some movement is likely to occur. The real magnitude of a possible deglobalization can only be measured in the medium term.

References:

World Bank – Imports

World Bank - GDP

The Coronavirus is the prelude to deglobalization

Is the world experiencing deglobalization?

Video Asia Shipping – YouTube

Video Asia Shipping – LinkeIn

 

https://ilos.com.br

Executive Partner of ILOS, holds a master's degree and a degree in Production Engineering from the Federal University of Rio de Janeiro (UFRJ). With more than 10 years of experience in the field of Logistics and Supply Chain, working on several projects, management and participation in research associated with the subject. She has more than 20 articles in newspapers, magazines, periodicals and congress annals, being co-author of several titles in the COPPEAD Collection by Atlas publishing house and in the Panorama Logístico Collection ILOS and CEL / COPPEAD.

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