Their indicators are ineffective---overall data demonstrates growth of globalization

The pandemic, Ukraine, simmering U.S.-China tensions, and rising American populism have led many politicians and pundits to boldly proclaim that a new era of de‐​globalization is upon us. Factories are “re‐​shoring,” economies are “decoupling,” and everyone has abandoned “neoliberal” free trade. Some have gone so far as to openly—and ominously—wonder whether we are witnessing the “end of globalization.”

Surely, the last few years have stressed the global economy and seen certain policymakers more pessimistic about foreign trade and investment than they’ve been in decades past. Nevertheless, the evidence thus far shows that globalization is not dying but instead evolving in response to various economic and geopolitical trends. In fact, one big problem with the current de‐​globalization chatter is that it misunderstands—sometimes wildly—what globalization actually is, as well as the rules that undergird it. It also ignores—as economist Jeffrey Kleintop has pointed out—the long history of people wrongly predicting globalization’s imminent demise. As this essay documents, today’s skeptics likely will be proven wrong once again.

What Does Plateauing Global Trade in Goods Really Say about Globalization?

The primary datapoint used to announce the “death of globalization” is the slowing share of both goods trade and total trade as a percentage of global gross domestic product (GDP) since the Great Recession (see Figure 1 and Figure 2), with the former driving the latter because goods trade accounts for a large share of total trade. Given this relationship—as well as recent supply chain snarls and the centrality of goods, tariffs (which apply to goods), and containerized shipping to the typical story of globalization—some focus on trade in goods is understandable. Yet plateauing international trade in goods is not a very useful indicator of de‐​globalization.

First, goods trade as a share of global economic output may have peaked in 2008 at 51.1 percent but remained historically high in 2021 at 46.8 percent—well above levels seen during the “hyperglobalization” heyday of the 1990s and higher than it was in 2016 through 2020. Economist Richard Baldwin adds that most of the decline in goods trade since 2008 was due to two factors: (1) China returning to a normal level of trade and (2) a collapse in mining and fuels prices. Other economies, as well as trade in manufactures and agricultural goods, experienced no such collapses. Thus, these data at most reveal a period of stagnation (or “slowbalisation”) instead of a serious de‐​globalization retreat.

Second, there is little reason to think that goods trade should have continued previous decades’ upward trend; instead, several factors make eventual moderation inevitable. For example, practical constraints on shipping (e.g., on cost savings, capacity and speed, or specific product traits), evolving consumer tastes (e.g., for vine‐​ripe produce or quick access to customized items), and new technological developments (e.g., industrial robots that make high‐​wage countries more competitive) naturally push against the globalization of certain manufacturing supply chains and make local or nearby production more financially attractive.

Furthermore, some of this moderation reflects the fact that, as I explained in a 2020 Cato Institute paper, countries increasingly produce and consume services (and move away from goods) as they develop. Thus, as world manufacturing output and agriculture output decline as a share of global economic output over time (because nations are developing and thus shifting a greater share of their economic activity to services), it makes sense that goods trade as a share of that same global economic output stops increasing at the breakneck pace it exhibited in earlier periods—even as goods trade continued to increase in nominal, inflation‐​adjusted terms. Since many services—such as construction, maintenance and repair, or hospitality—are nontradable and many others face domestic regulatory barriers (e.g., occupational licensing), it would be difficult for services trade to offset a trade‐​in‐​goods moderation, at least in the near term.

Finally, there is ample evidence that global goods trade remains quite healthy, if not expanding, in many areas. In the supposedly retrenching United States, for example, inflation‐​adjusted merchandise trade (imports plus exports) reached record levels in 2022, with less than 12 percent of that total coming from petroleum products (see Figure 3).

According to the United Nations, moreover, 2022 global merchandise trade hit a record high in terms of both nominal value ($25 trillion) and volume. The DHL Global Connectedness Index 2022 report from the global logistics giant found much the same:

Trade in goods plummeted at the beginning of the pandemic, but after just three months of declines, trade volumes swiftly recovered to above pre‐​pandemic levels and continued growing through the early stages of the war in Ukraine. As of mid‐​2022, the volume of world trade in goods was 10% higher than it was at the end of 2019.

Finally, the latest data from the World Trade Organization (WTO) show that global trade in intermediate goods—items used to manufacture downstream products and thus a sign of companies’ use of global value chains—was well above pre‐​pandemic levels in 2021 (see Table 1) and heading for even greater heights in 2022.

Other indicators reveal similar strength for global trade in goods: For example, a record number of ships (23,583) transited the Suez Canal last year—easily surpassing a 2021 record (20,694) that occurred despite the famous Ever Given ship blocking the canal for several days. The Suez Canal Authority is expanding the canal to handle even more traffic in the years ahead. The Panama Canal also saw record tonnage in 2022 (beating 2021’s record), while U.S. ports broke volume records in 2021 (Los Angeles, Long Beach) and 2022 (New York/​New Jersey, Houston, Virginia, Savannah, and Charleston).

In short, there are numerous signs that global goods trade is still increasing—just not as fast as the rest of the global economy. This is hardly the “death of globalization.”