Is globalization dying? The 1990s-era flow of goods is truly over—but the exchange of data and IP is thriving

The past few years may have left us with the conclusion that globalization is in decline. The COVID pandemic, the Russian war in Ukraine, and the increasing strategic competition between the U.S. and China all pointed to a new era of “friend-shoring” and “near-shoring.”

But the reality is more complex: “Looking at the entire range of global flows, it is clear that the world is not defaulting to deglobalization, but rather that global connections are evolving and being reshaped,” Olivia White, director of McKinsey Global Institute, told us.

Goods flows hit a record high in 2021 despite the lingering impact of the pandemic. But their trade is plateauing as a percentage of GDP, a trend that was first observed in the mid-2000s. The 1990s-era hyper-globalization of goods therefore seems well and truly over.

The same however cannot be said of ideas: the flow of data and intellectual property continues to break records. As a result, knowledge and know-how are driving global integration, McKinsey said. Flows of services, international students, and intellectual property, for example, grew about twice as fast as goods flows in 2010–19, and that trend continues post-pandemic.

The Institute for International Education (I.I.E.) this week released its latest Open Doors report on international students in the U.S. It revealed there are now more international graduate students in the U.S. than at any point in history, at 385,000. And as before, China (still the single largest country of origin) and India count for over half of them.  

But if Asian students continue to gain knowledge from the U.S., the reverse is not true. American students this past year more often favored Italy and Spain as study abroad destinations, and a short-term summer stay was favored over a full academic year abroad.

This all adds up to a warped U.S. perspective on globalization. While America’s future workforce mostly remains within a Western bubble, and Congress mulls more Trump-era economic confrontation with China, Asian countries continue to trade goods and exchange ideas the world over.

How should American companies react? Diversifying their sourcing networks towards closer or more friendly places is one possible route. It’s one that (U.S.) multinationals also have leverage over, given that they drive two-thirds of global trade.

But the options to diversify sourcing for critical commodities such as rare earths, cobalt, and lithium are limited. Plus, changing supply chains can take many years, White warned: “In our highly interdependent global economy, it is unlikely that any region would be self-sufficient.”

More news below.

Peter Vanham
@petervanham
peter.vanham@fortune.com

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This edition of CEO Daily was edited by David Meyer.