The past year has been challenging for many businesses around the world impacted by the global trading system. However, a new report from DHL reveals that globalization is holding up under pressure; a trend that is anticipated to continue in 2020.
The DHL Global Connectedness Index reported that shrinking international capital flows caused global connectedness to dip slightly in 2018. However, despite strong headwinds in global geopolitics and trade that year, the Global Connectedness Index maintained a level close to its previous record high in 2017.
During 2019, we did experience a modest decline in the index as the U.S.-China trade war intensified; current forecasts call for a similar decline in 2020. And while trade volume growth is likely to remain positive over the next twelve months, it is not expected to keep pace with GDP growth. Nonetheless, even before positive news in December about a temporary truce between the U.S. and China, current projections still suggest that the share of global output traded internationally will match its 2016 level. So, despite major downgrades to the trade forecasts for 2019, the DHL report showed that the world’s overall level of connectedness only declined slightly.
Although current geopolitical tensions could seriously disrupt global connectedness, most international flows have remained resilient. Today we’re seeing the evolution of globalization, not its decline. Thanks to online commerce, the world is more connected than any point in history with no signs of a retraction.
Another key takeaway from the DHL Global Connectedness Index is to look at the emerging markets on the rise in 2020. As a result of the U.S.-China trade war, U.S. businesses have sought alternative trading partners. In fact, Taiwan, Mexico, the European Union and Vietnam are the exporters that have benefited most from U.S. imports previously sourced from China. Most likely, these regions will continue to see growth in 2020 because of the important new developments in trade policy, including:
- The EU-Japan Economic Partnership Agreement, which was enacted in February, 2019.
- The African Continental Free Trade Agreement (ACFTA) signed in May 2019 by half of the member nations on that continent. Since then, another five nations have signed, bringing the total to 27 African countries.
- The European Union completed negotiations on a trade pact with Mercosur or the Southern Common Market twenty years after the negotiations began; the EU also signed a new trade deal with Vietnam.
- Mexico ratified the United States-Mexico-Canada Agreement (USMCA) in June 2019, and in December of that year, the agreement with minor amendments was approved by one-half of the U.S. Congress – the House of Representatives – with Senate approval expected in 2020. Although still awaiting ratification by the Canadian Parliament and additional changes in Mexico, the USMCA once approved will offer significant benefits for U.S. businesses that trade with our closest neighbours.
- Finally, negotiations on the Regional Comprehensive Economic Partnership (RCEP) are nearing completion, with the aim to complete the deal this year. The RCEP would link the 10 member countries of the Association of Southeast Asian Nations (ASEAN) with China, Japan, South Korea, Australia, and New Zealand.
Even with all signs pointing to continued global tensions into 2020, we can optimistically expect that by strengthening links between global trade partners we will ultimately boost worldwide prosperity.