THE FUTURE OF GLOBALIZATION AND WORLD TRADE

Rıza Mehmet KORKMAZ
UGM General Manager

Globalization is a complex and multifaceted process that causes people, companies, and governments around the world to become more interdependent and interact with each other than ever before. However, there are many dynamics affecting this process today, and on the other hand, some developments are strengthening the localization trend.

In the localization-globalization dilemma, where will the world economy and especially world trade evolve? While seeking an answer to this question, it will be necessary to evaluate the major developments in globalization in recent times and which of the results of these developments accelerate localization.

It is possible to summarize the major developments that have affected globalization in economic, political, technological, and environmental dimensions in the following main headings.

I. Main Factors Affecting Globalization Positively

Technological Advances

• Digitalization and the Internet: The spread of the Internet and digital technologies, 5 G technology, have accelerated information sharing and global communication tremendously. As of 2023, there are 5.16 billion internet users in the world. This corresponds to 64.4 percent of the world population. As of 2023, there are 4.76 billion social media users worldwide, which corresponds to slightly less than 60 percent of the total global population. Turkey ranks 37th in the world in terms of internet usage in 2023, with a rate of 83.4 percent of the total population. More than 328.77 million terabytes of data are produced every day in the world, and 29 terabytes per second. The world's digital data volume, which was 15.5 zettabytes in 2015, reached 120 zettabytes by 2023. In one minute, 6.3 million Google searches are made in the world; 241 million emails and 41.6 million WhatsApp messages are sent. While the number of connected IoT devices worldwide is estimated to reach 17.08 billion by the end of 2024, the number of objects connected digitally is also increasing at a tremendous pace, reaching 2 trillion by 2022; the digital broadcasting platform Netflix will reach over 100 million subscribers. According to CoinMarketCap, the number of cryptocurrencies in the world will exceed 23,000 by 2024; the value of cryptocurrencies is estimated to be $2.67 trillion.

On the other hand; e-commerce and digital services enable the increase of international trade and cooperation. The growth in online retail sales in the recent period is coming back from the high levels of 30% caused by the pandemic. Online product sales are expected to grow in single digits in the next five years. It is estimated that the e-commerce market generated $5.5 trillion in revenue in 2023 and sales will constitute 23% of the global retail sector by 2027. On the other hand, it is expected that there will be approximately 2.77 billion online shoppers worldwide by 2025. With e-commerce, even small and medium-sized businesses can access global markets. Buyers also have the opportunity to shop alternatively not only from their own country but also from many other countries within certain limits. As a result, with these developments, e-commerce is becoming one of the driving forces of globalization.

T.1. Global e-commerce share in                      T.2.Global e-commerce growth 2017-2027

retail sales 2022-27

• VİEW

On the other hand; digital payment systems and fintech solutions strengthen the financial infrastructure of international trade on the one hand, while on the other hand, they increase the vulnerabilities of countries as seen in international sanctions.

• Transportation and Communication Technologies: Advances in communication technologies and logistics, last-mile delivery, on-demand storage, and elastic logistics concepts; driverless vehicles, electric vehicles, smart warehouses and containers, drones, hyperloop, high-speed trains; IoT, RFID, robots and artificial intelligence use enable products and people to move faster and partially at lower costs around the world, thus enabling faster and more efficient trade and easier access for businesses to international markets. On the other hand, transportation capacity is also increasing. According to UNCTAD data, the commercial cargo transportation capacity by sea, where 90% of world trade is carried out, increased by 3.2% compared to the previous year and reached 2.3 billion dwt.

International Trade Agreements

• Free Trade Agreements: Free trade agreements between countries facilitated trade by reducing customs duties and trade barriers. Free trade agreements in the world have accelerated significantly in recent years, reaching approximately 371. However, as can be seen from the table, this trend has slowed down recently.

T.3 Decreasing Trend of Regional Trade Agreements

• Graphic
• World Trade Organization (WTO) Studies: WTO studies have played an important role in determining and implementing global trade rules and have removed barriers to trade. Today, world trade volume is roughly 45 times the level recorded in the early days of GATT, with a growth of 4500% from 1950 to 2022; the values ​​reached by world trade have increased almost 400 times compared to the levels in 1950. After the establishment of the WTO, average customs duties in the world have decreased to 6-7%, and significant progress has been made in removing barriers to trade with the WTO Trade Facilitation Agreement (TFA). It is estimated that the full implementation of the TFA could reduce international trade costs in the world by an average of 14.3% and increase global trade by up to 1 trillion dollars per year.

Cultural and Social Interaction

• Migration and Diaspora, international students: Migration movements have helped build bridges between different cultures and have also contributed to the formation of global communities. There has been a significant increase in migration movements in the world recently. According to the UNHCR 2023 Report, the number of refugees in the world has reached 37.4 million, and the number of forcibly displaced or stateless people has increased by 5.5% compared to 2022, reaching 122.6 million. The number of legal immigrants is estimated to have exceeded 280 million as of 2020. In the US alone, the rate of people born in other countries has reached 15% of the country's population.

On the other hand; the number of international students worldwide, which was 2 million in 2000, has exceeded 6.4 million in 2021 (UIS, 2023), and more than half of them are concentrated in 10 countries. Current data show that 5 out of 7 international students are enrolled in educational programs in high-income countries.

• Tourism: The increase in tourism in the world, people traveling more, strengthened cultural interaction and understanding. In 2024, the number of tourists reached the pre-pandemic level of 1.5 billion.

T.4 The Course of Tourist Numbers in the World

• Graphic

II. Factors Negatively Affecting Globalization

Protective Economic Policies

• Trade Wars: Trade wars, tariff increases and trade restrictions between major economies such as the US and China have also negatively affected global trade. While the average tariff rates applied by the US on Chinese products increased from 3.1% to an average of 19.3% in two years, the tariff rates applied by China on US products increased from 8% to 20.3% from 2018 to 2020. The new tariffs applied by the US to China affected approximately 18% of its imports, or 2.6% of its GDP, while China's retaliation affected 11% of its imports, or 3.6% of its GDP. These tariffs affected multiple sectors in both countries and increased the costs of approximately two-thirds of the products subject to tariffs in the US.
• Protective Measures: Many countries have begun to implement protective trade policies and restrict imports in order to protect their domestic industries, which could slow down the pace of globalization.

T.5. Trade restrictions are increasing.

• Graphic

Political and Geopolitical Tensions

• Geopolitical Conflicts: In the Middle East, the Syrian Civil War, the Israel-Hamas Conflict, and the Israel-Iran tension; in Eastern Europe, the Russia-Ukraine War; in Asia, geopolitical tensions between Taiwan and China, ongoing tensions between North Korea and South Korea, and India and Pakistan are negatively affecting global trade and investments. The disruption of maritime traffic in the Suez Canal due to security reasons stands as the most concrete sign of the impact of recent political tensions.
• Nationalism and Populism: The rise in nationalism and populist policies in recent elections around the world seems to encourage anti-globalization discourses and policies. The success of radical right-wing parties in the EU parliament (EP) elections also seems to be a beacon of this new era that is changing for Europe. At this point, if Trump wins the presidential elections to be held in the US at the end of this year, the US turning inward and increasing its protectionist trade policies could seriously disrupt globalization.

Environmental Problems

• Climate Change: Climate change, which has been experienced with the world's temperature increasing by an average of 0.06° Celsius every decade since 1850, or approximately 1.6° Celsius in total, is turning into a threat that can negatively affect global supply chains and economic activities by increasing the frequency and severity of natural disasters.
• Carbon Emission: Pre-industrial CO2 levels were around 280 parts per million (ppm). Today, we are close to 420 ppm. Although efforts to take global measures to reduce carbon emissions, especially under the leadership of developed countries, are gaining momentum, this situation is also causing underdeveloped countries that want to industrialize to withdraw into themselves due to the disadvantages it creates for developing countries.
• Depletion of Natural Resources, Increasing Demand for Clean Water and Food: It is predicted that food demand will increase by 59% in 2050 compared to today. At least 50% of the world's population, i.e. 4 billion people, suffer from water shortages at least one month of the year. By 2025, 1.8 billion people are expected to face what the Food and Agriculture Organization (FAO) calls "absolute water scarcity," forcing countries to retreat into seclusion over their resources and refusal to share.

Pandemics and Health Crises

• COVID-19 Pandemic: The pandemic has severely impacted the globalization process by disrupting global supply chains and restricting international travel, resulting in world trade falling by approximately 9% in 2020. This crisis has shown that future long-term pandemics can negatively impact global economic activity and interaction, leading to countries becoming more introverted.

III. Globalization and Foreign Trade Relationship

It is necessary to examine some basic points in the relationship between globalization and foreign trade, which have a complex interaction that mutually feeds and supports each other.

Reducing Barriers to Trade: Globalization has been supported by a series of agreements and regulations aimed at reducing customs tariffs, quotas, and other trade barriers between countries. Organizations such as the World Trade Organization (WTO) have carried out important studies to reduce trade tariffs and quotas. Thus, the volume and value of world trade have expanded by an average of 4 to 6 percent every year since the WTO was first established in 1995. However, the effectiveness of multilateral organizations such as the World Trade Organization (WTO) may weaken in the coming period due to political conflicts and disagreements between members.

Increased Market Access and Product Diversity: Thanks to globalization, businesses can offer their products and services to a wider global market by going beyond national borders; thus, both the growth of exporting companies is ensured and a greater variety of products are offered to consumers through imports.

Increased Competition: The increase in international trade requires local businesses to compete in the global market. While this encourages efforts to increase efficiency, innovation, and quality, it also creates competitive pressure for local companies, and local businesses in some sectors may struggle. This is the negative aspect of globalization for local companies and is a factor that fuels localization.

Optimization of Resource Allocation: Globalization encourages countries to produce according to their competitive advantages and use their resources more efficiently. Globalization can allow capital flows to cross borders and companies to expand their production and distribution networks on a global scale.

Technological Diffusion and Innovation: Globalization enables countries and businesses to develop more efficient production methods and adopt technological developments more quickly by enabling the rapid spread of technological innovations and knowledge.

Globalization of Supply Chains: The expansion of supply chains on an international scale accelerates with globalization. The global supply chains created allow production processes to spread to different countries. Products can be produced at different stages in more than one country and final assembly can be done in another country. This can reduce costs, but at the same time increase supply chain risks and complexity. Large producer countries that want to minimize these risks may prefer to turn to local production, especially for some strategic and technological products.

Economic Dependency and Spread of Crises: Economic dependency between countries increases with globalization. An economic or financial crisis in one country can quickly spread to other countries. This can affect the stability and resilience of the global economy. Especially in times of political instability, countries may turn to localization to be less affected by such risks and not to be dependent on hostile countries.

IV. What could happen in globalization shortly?

Although it is a complex process to predict how globalization will evolve in the coming period, some of the basic trends and factors that we will mention below may shape the outlines of this transformation.

Digital Globalization

• Digital Economy and E-Commerce: Digitalization seems to continue to be one of the main drivers of globalization. E-commerce platforms and digital services will increase trade and cooperation beyond physical borders.

• Artificial Intelligence and Automation: Artificial intelligence, blockchain, the internet of things, robotics, and automation technologies will transform production processes; may change global trade and cooperation dynamics; and will reshape supply chains.

Green Globalization

• Climate change and environmental degradation will necessitate a sustainability-oriented transformation in globalization; renewable energy, circular economy, and green technologies will come to the fore in this process. International environmental agreements and environmental regulations of local governments will encourage global trade and production to comply with sustainability principles.

Local and Regional Economies

• Localization and Regionalization: Some negative effects of globalization and vulnerabilities in supply chains may strengthen localization and regionalization trends. Countries may tend to localize the production of some strategically important or rare products and create regional trade blocks. The concept of supplying products from friendly, close, and allied countries, shaped by the concepts of nearshoring and friend shoring that we are now hearing more about, is a reflection of this.

• Multi-Centered World: Global economic power centers will diversify and a multi-centered economic structure may emerge. Very shortly, emerging economies such as China, India, Indonesia, and Brazil will play a more important role in global economic dynamics.

Social and Cultural Dynamics, socio-economic inequalities

• Cultural Diversity and Interaction: Cultural interactions and diversity will increase; however, at the same time, the preservation of local identities and cultural heritage will gain importance. A balance will be tried to be achieved that emphasizes the value of local cultures as well as global culture.

• Migration and Demographic Changes: Migration movements and demographic changes will shape the socio-economic structure of globalization. Dynamics such as population aging, migrant labor force, and urbanization will come to the fore.

• Income Distribution: While globalization encourages economic growth in some regions, it may also increase inequalities in income distribution. This situation may trigger social unrest and political instability.

• Unemployment and Migration: Imbalances in global labor markets may increase unemployment rates and trigger migration movements; social and political tensions may arise.

Geopolitical and Economic Balance of Power

• New Geopolitical Tensions: Geopolitical tensions between major powers such as the USA, China, Russia, and the European Union will affect the direction of globalization; and will reshape trade policies and international cooperation.

• Lack of International Cooperation: Lack of international cooperation and coordination makes it difficult to solve global problems. Therefore, international cooperation is essential for the sustainability of global trade and economic cooperation.

• Economic and Trade Blocks: Regional trade agreements and economic unions will be the building blocks of global trade; they will increase economic solidarity and partnerships. Regional cooperation will become more prominent.

• Protective Economic Policies: Increasing protectionism and trade wars have the potential to slow down the pace of globalization. The new protectionist trade policies to be implemented will shape trade flows and investments. The recent decrease in Western investments in China is one of the signs of this.

Health and Safety

• Pandemic and Health Security: Pandemics such as COVID-19 have shown the health dimension of globalization and the importance of international cooperation. Global health security and emergency preparations will become more important in the future. However, while global health problems necessitate international cooperation in this area, they also lead to countries becoming introverted and trade shrinking

• Technological Inequality and Cybersecurity Threats: Technological inequalities may prevent some countries and communities from benefiting sufficiently from globalization. The digital divide may deepen economic and social inequalities. In addition, cybersecurity threats will grow with increasing digitalization; international cybersecurity cooperation and regulations will be of critical importance to ensure the security of the global economy. Concerns about cybersecurity may also encourage countries to establish their own internet platforms and social media networks, as is currently the case in China and Russia, and thus pave the way for more localization

Foreign capital inflow

One of the indicators of globalization is the course of net foreign capital investments in the world and their ratio to GDP. According to World Bank Data, in the period from 1970 to 2022, foreign capital investments remained below the 2010-2015 period and decreased to 1.7%. Here, it is clear that the decreasing Western investments in China have a significant share. In other words, we can partially confirm the localization trend with this data. The course of international investments in the coming period and which countries they will focus on will also affect the future of globalization.

V. Conclusion

In the last century, globalization has generally shown an increasing trend despite interruptions such as wars and economic crises. Global trade, foreign capital and investments, cultural interaction, and technological connections have been the main indicators of globalization. Globalization has deeply transformed international trade and continues to do so. The direction of globalization today and in the future will be shaped by the threats and opportunities mentioned above, and globalization in the 21st century will continue to be a multidimensional and complex process shaped by digitalization, technological advances, sustainability, geopolitical dynamics, regionalization, and social dynamics.

The future of globalization depends on how these threats are managed and how the international community responds to these challenges.

The global community must develop cooperation and innovative solutions to make the most of this process and overcome the challenges encountered. Countries and businesses must develop strategic and coherent policies to balance the opportunities and challenges brought by globalization. If these policies and solutions are not found, localization and regional blocs will increase even more.