New report on global flows focuses on resilience

The McKinsey Global Institute (MGI) recently released a report entitled, “Global flows: The ties that bind in an interconnected world.” On the heels of major world events including Russia’s invasion of Ukraine, rising tensions between the U.S. and China, this new analysis from MGI finds a more realistic view regarding global flows.

As the world remains deeply interconnected, flows have proved remarkably resilient during the most recent turbulence across end-to-end value chains affecting industries such as oil and gas, mining, agriculture, textiles and apparel, electronics, pharmaceuticals, chemicals, and minerals. Specifically, this research offers an analysis of about 6,000 globally traded products and a 360-degree view of factors driving global integration based on a comprehensive assessment of trade, capital, people, and intangibles flows.

The challenge moving forward will be to harness the benefits of interconnection while managing the risks and downsides of dependency—particularly where products concentrate at their place of origin.

Here are the key takeaways.

Intangibles, services and talent matter

Flows of intangibles, trade and capital increased, and their relative resilience was essential to navigating the turmoil seen throughout the COVID-19 pandemic.

Despite the disruption caused by the virus, most global flows accelerated in 2020 and 2021. Asian supply chains were able to bridge the drop in output of Western supply chains in early 2020. Flows of data reached all-time highs and enabled remote working for the continued operation of essential businesses at a time when global travel was mainly impossible. Meanwhile, trade in manufactured goods enabled regions to retain consumption while navigating the many disruptions that took place at a local level.

Trade in manufactured goods reached a record high last year in 2021, despite new disruptions to supply chains as growing consumer spending caused higher demands for many goods.

No region can be self-reliant (yet)

As it stands, virtually every region imports 25 percent or more of at least one type of resource or goods across industries, where oftentimes this number continues to rise. While the EU is a strong manufacturing region, it imports more than 50 percent of its energy resource needs. Prior to the conflict seen in 2022, Europe’s largest source of energy resource imports was Russia. Since Russia’s invasion of Ukraine earlier this year, European economies have made substantial efforts to diversify sources of natural gas away from Russia.

The same notion also holds true for resource-rich regions including Eastern Europe, Central Asia, Latin America, the Middle East and Africa, as these areas tend to be net importers of manufactured goods and services. The Asia–Pacific area is the largest partner of these regions for flows of electronics, textiles and basic metals (where many companies have sought to reduce costs of labor), while Europe is the largest partner for pharmaceuticals and machinery production.

Across the pond, North America is a net importer of both manufactured goods and mineral resources, where the Asia–Pacific acts as the main partner for both flows. North America imports about 15 percent of its electronics consumption needs, and Asia–Pacific accounts for about 85 percent of these imports, split between China and other economies across Asia.

Trade flows continue to evolve

Between 1995 and 2008, the direction of change was almost uniformly toward less concentration as truly global value chains were unleashed by many new advancements in technology with the rise of the internet. After 2008, the patterns of trade flows started to diverge as the world became smaller and international goods and commodities were widely accessible.

Looking ahead at the entire range of flows across products and industries, MGI predicts that global connections are reconfiguring to usher in a new era of world trade. Amid recession fears and economic uncertainty, navigating these complexities will require a deeper understanding of the full picture of flows from multinational corporations and a deeper look into their networks to map out new solutions for the future.

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