Globalization and world trade bounce back from the impact of COVID-19: report

COVID-19 has not undermined globalization as much as some had predicted. Although travel and tourism have been hard hit, international trade has surged during the pandemic, according to a new study of global connectedness.

Trade, capital flows and global internet traffic are back at, or even above, pre-pandemic levels. COVID-19 also caused a temporary ceasefire in international trade wars, with the United States and China, for example, trading more during the pandemic than before.

These are some of the findings of the DHL Global Connectedness 2021 Index Update, co-authored by Dr Steven A. Altman and Caroline R. Bastian, both research scholars at New York University’s Stern School of Business. The study uses 3.5 million data points to plot the health of globalization by measuring international flows of trade, capital, information and people.

The data so far suggests COVID-19 has had a much smaller impact on globalization than the 2008-09 global financial crisis, with rates of connectedness set to reach an all-time high in 2021, says the report.

“As 2021 draws to a close, globalization looks far stronger than it did in the early stages of the COVID-19 crisis,” says Dr Altman.

“The swift recoveries of trade and other flows highlight how international connections expand our capacity to overcome challenges,” he adds.

“Most flows plummeted as the pandemic shocked the world, but many have also roared back to play crucial roles in the fight against the virus and in the economic recovery.”

In particular, trade in goods has surged above pre-pandemic levels as the recovery has gathered pace. This is in spite of supply chain problems caused by a shortage of containers and the ships to carry them and ongoing international tensions, the report says.

Some experts predicted the pandemic would lead companies to source from within their local region rather than globally. But, according to the report, the international flow of goods is growing faster than flows within regions.

Capital flows have also defied expectations. Based on UN Conference on Trade and Development (UNCTAD) data, the report says the rate of foreign direct investment is on track to reach pre-pandemic levels in 2021.

This is despite having dropped by over a third (35%) during 2020 as firms deferred foreign-investment decisions in the face of economic uncertainty, worsening macroeconomic conditions and restrictions on business travel.

Growth rates for international internet traffic may have doubled in 2020, with people connecting digitally rather than face-to-face, but have dropped as the recovery has gained pace. This is in line with the general slowing trend seen before the pandemic, the report says.

However, the value of world trade in services dropped by a fifth in 2020, which was almost entirely due to the collapse in travel and tourism, the report explains. In the fourth quarter of 2021, international travel is still more than 80% below its pre-pandemic level.

While there has been “no wholesale retreat from international activity”, the recovery situation varies significantly region-to-region, the authors of the report say.

“Bolstering the foundations of a connected world and better integrating the world’s poorest countries should be urgent priorities in the present context.

“Most countries remain far below their pre-pandemic growth trajectories, and many are confronting high inflation.

“Stronger global connectedness could help countries grow faster and reduce some of the pressure on price levels. Ultimately, a connected world - leveraging the diverse strengths each country can bring to bear - offers the best prospects for a strong and sustainable recovery.”

The World Economic Forum’s November 2021 Chief Economists Outlook warned the emergence of new strains of COVID-19 could derail the global recovery and also cautioned policymakers to beware the dangers of rising inflation.

The Forum’s briefing highlighted the vaccine gap as a major cause of developing nations being left behind economically. It noted that only 3.7% of the population in low-income countries had received at least one dose compared to 61% of people in high-income countries.