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Globalization Isn’t Over. A New Age of Service Exports Should Tempt Investors. | Barron's

Globalization Isn’t Over. A New Age of Service Exports Should Tempt Investors. | Barron's

But where politics and economics may slow the gains from larger and more-open markets, technological progress has, if anything, accelerated the arrival of a new chapter. The next few months look deeply uncertain for markets, given inflation pressures, coronavirus variants, and a potential war in Ukraine. A decade from now, however, we may all regret that we didn’t fully size up a dawning age of global services.

For most countries, services constitute only 10% to 20% of total exports. For a picture-postcard destination like Thailand, tourism contributes 20% to gross domestic product. For the U.S., tourism and financial services exports are 1% and 0.6% of GDP, respectively. Economists love to interrupt overenthusiastic globalists with a sarcastic reminder that much economic activity is personal and local. “You can’t export haircuts!” is a favorite line.

Yet when surgical tools and mining equipment can be handled expertly from many time zones away, the line between goods and services begins to blur. The possibilities we’re afforded to cheat geography have multiplied as business models draw increasingly on the combined tools of remote sensors, cheap data storage, mobile networks, and analytical algorithms.

What we call the Internet of Things is in fact powering a new age of global services. Jet-engine manufacturers now monitor their products in real time, offering detailed reports on how to improve efficiency and when to schedule maintenance. Excavators are tracked precisely so that drivers can be trained to operate them more safely and efficiently—that is, unless they don’t need a driver at all.

Indeed, if you can now shop for new eyeglasses online, why couldn’t a remote-controlled set of trimmers give you a haircut? Include real-time language translation algorithms and your stylist could be in France. Add in a 3-D printer and, one day, they may even sell you the latest hair product.

Global commerce has mostly expanded over the past two centuries, shaped by economic possibility, transportation technology, and, of course, politics.

The most recent surge arrived in the early 1990s with China’s emergence from decades of isolation, the collapse of the Soviet Union, and the opening of emerging markets from India to Brazil. The gains from this wave of globalization slowed naturally as competition began to erode profits. Wage differentials narrowed, transportations costs stopped falling, and multinational corporations faced rising threats from more-nimble local rivals.

Globalization Isn’t Over. A New Age of Service Exports Should Tempt Investors. | Barron's

Political pressures have famously conspired against further integration, too. The 2008-09 financial crisis triggered disgust over rising inequality blamed on Wall Street’s excesses and global overreach. Manufacturing job losses blamed on China’s rise ultimately scuttled a U.S. trade deal with key Pacific economies. Tariffs on Chinese imports imposed by President Donald Trump have been maintained by President Joe Biden as the World Trade Organization nervously monitors levels of protectionism.

Climate concerns pose fresh political challenges to trade, as plans for carbon taxes will raise the costs of producing and moving goods. Europeans insist that their proposed Carbon Border Adjustment Mechanism is not protectionist, but it will obviously increase the costs of supply chains that extend to countries without carbon pricing. Meanwhile, a central lesson of the pandemic seems to be that inventories can’t run so lean.

None of this implies that borders are shutting down, but there are stiff headwinds to further growth that may, at the very least, lead to more regionalization of supply chains. The Trump administration’s ratification of the U.S.-Mexico-Canada Agreement will reinforce commercial flows in North America. The Regional Comprehensive Economic Partnership represents an effort to do something similar, if less ambitious, in Asia.

The investment implications of these trends are already coming into view. Firms that benefit from more-regional trade flows and shorter supply chains look well placed. Innovators that can provide cleaner delivery and logistics services will find advantage, too.

But if the global flows of goods may be stabilizing, the flows of cross-border data continue to explode, even amid sharpening debates on how to keep them secure and protect personal privacy. You don’t have to buy into a breathless vision of the metaverse to imagine how traditional services will increasingly move across borders in ways we never thought possible. Education, financial advice, and design are already well into the early stages of international experimentation. If your firm shifted seamlessly to remote operations through the pandemic, you should look hard in the mirror to ask why a competitor halfway around the world might not be creeping up on you.

It will be an exciting and disruptive next chapter. And it won’t take long for your far-away “barber” to know where you part your hair.

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