Borders create restrictions to the free flow of goods and services. You need to know them. - Trade that benefits the environment and development: opening markets for environmental goods and services (2005) - Environmental Goods and Services:The Benefits of Further Global Trade Liberalisation (2001) More documentation on - Environmental goods and services Simon London: I’m going to make a very simplistic point here. Leading companies are already at the forefront of these changes. Learn about
Today that’s down to 43 percent. Now you see it in China. Low wages are no longer the driving force in global trade flows. Globalization encourages free trade. We see this not only in things like fashion but all sorts of consumer products. For many people, probably including me, that’s still my mental model of what globalization is. For instance, if you have a pair of leggings, if you put a pocket on it, it then becomes a pair of pants, which have a different tariff rate than leggings. Simon London: I think we’re out of time for the day. Hong Kong also recorded an overall surplus, but resulting from a surplus for services that was slightly larger than its deficit for goods. Borders create restrictions to the free flow of goods and services. Something went wrong. All sorts of things are driving this that are way, way bigger than what the policy makers in any one country will do. Please use UP and DOWN arrow keys to review autocomplete results. Again, if I’m thinking about economic development, particularly in a developing economy, and also in developed economies, how do I make sure that I’m thinking forward and not looking back at the previous chapter of globalization when I think about my policy actions and where to place my bets and how to try and position my country in this new world? The Flows of Globalization You also then start to look at things like energy costs and electricity costs and the quality of infrastructure and logistics. Figure 4 presents information on the relative importance of trade flows for both international trade in goods and international trade in services (more detailed information on these two types of products are provided in separate articles on goods and services). Why Trade of Services Lagged Behind. Exports of goods and services have grown from 6% of global Gross Domestic Product (GDP) in the 1850s to 30% in 2018. The information presented in Figure 2 shows that the importance of international trade in goods and services between some of the world���s largest trading countries was quite different when measured in relation to economic output (gross domestic product ��� To do that, you need to have a relationship with that supplier. 5.5 Globalization and International Trade Before we begin a discussion about why nations trade, it would be helpful to take a moment to consider the character and evolution of trade. Simon London: Let’s segue to the policy maker’s view of the world. Between 2007 and 2012 the EU-28âs share of global trade fell strongly, before recovering somewhat through until 2017. In 2017, goods accounted for more than three quarters of world exports of goods and services. You can do that very quickly. Try the new automatic translation by clicking on the blue icon âTranslateâ up in the right corner of the article! Then it all adds up. Trade within regions like the EU-28 or the Asia–Pacific region is growing much faster than the long-haul global trade. To learn more about our work on global trade, globalization, and the McKinsey Global Institute, please visit us at McKinsey.com. Well, it is easy to switch your soybean source from, say, the US to Brazil. The HST in Canada may be collected at a rate of 13%. Where can I get the engineers and the technicians to run the machines, to maintain the machines? A Snapshot of U.S. Trade In the year 2011, Americans sold $2.1 trillion in goods and services to corporations and consumers in other countries.Goods and services sold to other countries are called exports. While the value of the EUâs international trade in goods and services with the rest of the world has expanded at a relatively fast pace compared with the value of trade between EU Member States (intra-EU trade), this has not prevented a gradual reduction in the EUâs share of global trade. But it’s going to require much more nuanced, careful policy making to look at the data and the facts and think about where the opportunities for a country are going forward. Susan Lund: That’s absolutely true. In 2018, international trade in goods and services represented 17.6 % of the EUâs GDP. Our flagship business publication has been defining and informing the senior-management agenda since 1964. Unleash their potential. But, increasingly, labor-intensive services, like call-center work, that simply give someone an account balance—that can be done by a machine. In simple terms, globalization is the process by which people and goods move easily across borders. You do see that countries like Vietnam and Bangladesh are still growing their exports very rapidly and building up these export industries. Please click "Accept" to help us improve its usefulness with additional cookies. In this episode of the McKinsey Podcast, Simon London speaks with McKinsey Global Institute partner Susan Lund about the changing dynamics of global value chains, which are transforming the meaning of globalization. Analysis of a survey done by McKinsey’s Operations Practice found that the manufacturing companies that say they collaborate closely with their suppliers on a range of production and design issues are growing their profitability much faster than companies that say they only minimally collaborate with their suppliers. Services are activities provided by other people, who include doctors, lawn care workers, dentists, barbers, waiters, or online servers, a book, a digital videogame or a digital movie. That’s an opportunity that we call technology leapfrogging. The EU-28 ran a trade surplus for both goods and services in 2018 and therefore an overall trade surplus for goods and services combined. Since the steam engine, globalization has continued to expand. Do you want to talk a little bit about that? Despite all this, there have been myths growing about globalization, obscuring what it means, and how it works. We know that technology has massively reduced transaction costs—particularly cross-border transaction-coordination costs—facilitating global trade in many ways. For more than 1,500 years, Europeans traded glass and manufactured goods for Chinese silk and spices, contributing to a global economy in which both Europe and Asia became accustomed to goods from ��� A lot of us thought, “Well, when the recovery gets going in the US and Europe, then trade will ‘go back to normal.’” Now we’re ten years out from that point, and we can look back and see, in fact, we’re in a very different chapter of globalization. The most striking feature concerning developments for world shares of international trade in goods and services between 2007 and 2017 was the continued progression of China as one of the worldâs leading trading nations. The trade intensity of manufactured goods is going down. To discuss all this, I spoke with Susan Lund, a partner with the McKinsey Global Institute, who is based in Washington, DC. This was in contrast to the situation at the onset of the global financial and economic crisis 10 years earlier, when the EU-28 ran a deficit for its trade in goods that outweighed its surplus for services resulting in an overall trade deficit. This explains why less goods are being traded. Canada and Mexico both reported trade deficits both for goods and for services. Increasingly, China and other developing countries are home to a growing consuming class—people spending money on all sorts of goods. Simon London: And thanks, as always, to you, our listeners, for tuning in. More and more international companies continue to trade because we are in the Golden Age of Globalization, too. This relative shift may, at least in part, be attributed to the growing importance of trade in intermediate goods, which itself was driven by higher levels of international outsourcing as global production chains were established. Globalization has led to lowered average prices of goods and services. Simon London: You mentioned automation and a little earlier you mentioned telemedicine. Is globalization in retreat, and what do the numbers tell us? 8. Flip the odds. And instead, you’re looking at different things. And, indeed, that defined a lot of what we saw in the 1990s and early 2000s. But they are increasingly traded and, especially for advanced countries like the US, we’re running a very large surplus in traded services. Commodities are not only competing in their own countries, but also abroad with competitors in their own countries and other countries. We talked about the need to collaborate with your suppliers. That would tend to boost global trade. According to Chase-Dunn (2002), trade globalization is the ratio of world export divided by all national GDPs. In 2017, goods accounted for just over three quarters (76.6 %) of the worldâs total trade. They have a customs union. In textiles and apparel, 55 percent of global trade was an export from a low-wage country to a high-wage country [about] ten years ago. Of course, the future of globalization cannot be predicted, and past experiences do not provide any guarantee. tab. These figures could be contrasted with much lower ratios for some of the worldâs largest economies â China (19.1 %), the EU-28 (17.6 %) and the United States (13.7 %). Producers are now being caught up in the vagaries of social media driving trends and tastes. Inbound trade is defined as imports, and outbound trade is defined as exports. We see this, for instance, in the surge in mobile payments and mobile banking. But, increasingly, we find that’s only a small share of global goods trade today. The ratio of trade in goods and services relative to GDP fell in several of the worldâs leading economies between 2008 and 2018 and this was particularly the case in Singapore, South Korea, China (where the domestic economy grew at a faster pace than the value of international trade, even though China captured a growing share of world trade), South Africa and India. Understanding The Importance Of Globalization | by David ��� But at the same time, we see Susan Lund: Yes, sometime around the mid-2000s, the dynamics began to change. International trade is an exchange of goods or services across national jurisdictions. They���re not traded or exported and imported. Underlying it all is the impact of automation on low-skill jobs—which will ultimately increase the need for innovation in operations, manufacturing, and supply chains. But trade in services has grown more than 60 percent faster than goods trade over the past decade (Exhibit 2). While international trade in goods is relatively simple to grasp (a product is sent from one country to another and will, eventually, incur a tariff as it crosses the border), the idea of trade in services is more diverse and harder to figure out. A lot of that basic work is also automatable, done by algorithms and AI. Increased trade liberalisation from the 1990s onwards provided a stimulus for international trade in goods and services. Susan Lund: Companies around the world are increasingly rethinking their global strategy. ⦠while much higher ratios for trade to GDP were recorded in some Asian economies. Globalization would reduce the efforts made to build weakness or strength into these currencies to influence local markets. 1. The flow of goods and services across the world is determined by the sourcing decisions of millions of companies. Simon London: So just double click, if you don’t mind, on the trade-intensity point that you mentioned at the front end, if the percentage of output that is traded across borders is declining, in my own rather naughty layperson’s way, that says to me that globalization, in some sense, is in reverse. And it’s declining. So declining trade intensity, is it a bad thing? Developing countries are going directly to paying with your phone. Services play a growing and undervalued role in global value chains. According to IMF data for 1999, tourism exports, estimated at US$443 billion, were 33% of global services exports and 6.5% of total exports. There’s a lot of opportunity for more regional trade, particularly in sub-Saharan Africa, the Middle East and North Africa, and Latin America. It includes the distribution and logistics services, as well as the marketing and sales services. All of this, then, favors putting production close to large consumer markets, like the US or Europe, not halfway around the world, where goods might take 30 days on a ship to reach the market. The information presented in Figure 2 shows that the importance of international trade in goods and services between some of the worldâs largest trading countries was quite different when measured in relation to economic output (gross domestic product (GDP)). It’s like not all services are created equal. This page has been accessed 17,587 times. Answer: The types of Globalization are: Economic Globalization: Countries integrating economically Two-thirds of trade within the EU-28 is just between countries in the EU-28; only one-third is with the rest of the world. Globalization in transition: The future of trade and value chains. In short, it���s goods-related services trade, not digital services trade that is rather in decline. Susan Lund: No, I don’t think it’s a bad thing at all. As soon as, say, Kate Middleton or Kim Kardashian wears something, suddenly that item stocks out of shelves. As a layperson, we do tend to get somewhat fixated on the politics and the rhetoric and the tariffs. The EUâs share of world exports of goods and services was 17.8 % in 2017. THE GLOBALIZATION OF PRODUCTION Refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (such as labor, energy, land, and capital). That’s not going to, necessarily, replace the millions of manufacturing jobs lost in the US since 2000, because as we talked about, a lot of this production is automated. You need to agree to co-invest. That’s a huge change from what we saw in the previous chapter of globalization. The regional-trade figures for those parts of the world are very, very low—say, 20 percent of trade is within regions in those parts of the world, as opposed to with the rest of the world. One of the things we found is that if you take a traded manufactured product, like an automobile, 30 percent of the value in creating that automobile comes from the services that go into it. Immigration and Trade (Percent of labor force and GDP, respectively) 0 5 10 15 20 25 30 35 40 45 1990 2005 Advanced Economies Imports of goods and services Immigration2 Developing Countries 0 5 10 15 20 25 30 35 40 45 Exports of goods There is a big opportunity to create regional trading blocs in Africa, in Latin America, in the Middle East. In all types of manufacturing, more and more production is being done by machines. All of these things will continue to encourage more and more goods to be traded as it gets faster and cheaper to do so. Services trade is growing 60 percent faster than goods trade Service sectors CAGR, 2007���17 Percent 7.8 5.3 5.2 3.7 3.2 1.7 Travel services Business services 2.4% Goods Telecom and IT IP charges Finance and insurance Transport 3.9% Services McKinsey & Company 9 2 SERVICES TRADE IS GROWING FASTER THAN GOODS TRADE SOURCE: McKinsey Global Institute The reason is automation. I’m thinking, in particular, of a lot of African countries. International trade in goods and services. Trade and Globalization Introduction The tremendous growth of international trade over the past several decades has been both a primary cause and effect of globalization. Chinaâs share of the world exports for goods and services rose from 9.8 % to 13.5 % during the period under consideration, while its share of imports grew at an even faster pace, increasing by 5.1 percentage points to reach 12.6 % in 2017 (see Figure 3). Within the EU-28, the ratio of international trade in goods and services relative to GDP rose from 14.9 % in 2008 to 17.6 % by 2018, thereby confirming that trade in goods and services was growing at a faster pace than the overall EU-28 economy. in goods, may have started to decelerate after two decades of uninterrupted progress. Simon London: We do make this distinction between labor-intensive services and knowledge-intensive services. Reinvent your business. In 2017, gross trade in services totaled $5.1 trillion, a figure dwarfed by the $17.3 trillion global goods trade. And it enables the free movement of people, culture, and information. our use of cookies, and
Those decisions are driven, in turn, by patterns of demand, assessments of risk, and the march of technology. Companies are even collaborating on things like product design and manufacturing processes. In 2018, international trade in goods and services represented 17.6 % of the EU-28���s GDP.