Asia Pacific emerges as a pivotal region driving global trade growth amidst an evolving geopolitical landscape.
Geopolitical tensions between the U.S. and China have prompted predictions of a new trade war that could fracture the global economy into rival blocs.
The United States’ (U.S.) goods trade deficit with China dropped by 27 percent to US$279 billion in 2023, the lowest level in more than 10 years. As well as reflecting reduced imports from China, this deficit decline raises critical questions about trade levels between the two economies, following the punitive tariffs imposed on Chinese imports in 2018.
However, as new research from DHL indicates, globalization is very much alive. The DHL Global Connectedness Report 2024 shows that international trade flows now span longer distances than before the Covid-19 pandemic and extend beyond major geographic regions, defying predictions of increased regionalization. This is largely thanks to the growth of emerging economies and the opportunities they create for further cross-regional exchange.
At the same time, trade connectivity continues to expand. DHL’s report found that global connectedness — measured by the depth and breadth of flows in trade, capital, information, and people — reached a record high in 2022 and remained close to that level in 2023.
“In short, rather than retreating from globalization, the world is undergoing a paradigm shift, with Asia Pacific poised to emerge as a key hub for trade growth,” said Ken Lee, CEO, DHL Express Asia Pacific.
PIONEERING THE RISE OF ASIA-PACIFIC MARKETS
Amidst a softening in trade between the U.S. and China, Asia Pacific markets are stepping up to fill the gap. Evidence shows that markets in Asia Pacific are strongly connected with each other in the region and that intra-Asia trade flows remain strong. As shown in the DHL Global Connectedness Report 2024, at least 70 percent of the countries in Asia pacific have strong flows with their Asian counterparts. When looking at these countries’ top 10 connections, six or more are with an Asia Pacific market, citing robust intra-Asia trade.
From 2020 to 2022, DHL Express spent EUR 750 million on infrastructure and air network enhancement across key markets in Asia Pacific to boost the region’s connectivity and underpin Asia’s status as a powerhouse of global growth. Among those, the DHL Central Asia Hub expansion in Hong Kong has boosted almost 70 percent more handling capacity and 50 percent more warehouse space. It is by far the largest infrastructural investment by DHL Express in Asia Pacific, with a total investment of €562 million since its establishment in 2004. Other strategic investments, such as the €131 million Incheon Gateway expansion, also play an important role in facilitating regional and intra-Asia trade.
To further enhance regional trade flows and improve connectivity between Oceania and Asia, DHL Express introduced a dedicated flight between Sydney and Hong Kong. The dedicated Boeing 777-200 operated by Tasman Cargo Airlines flies five times a week, providing over 500 tons of payload capacity. The new flight from Sydney makes next-day delivery services possible to Mainland China, India, Korea, Japan, Malaysia, Taiwan, Thailand, Philippines, and Vietnam, upon shipment arrival in Hong Kong.
DRIVING GLOBAL TRADE GROWTH
With ongoing efforts to strategically de-risk supply chains, global flows also continue at healthy levels. The geographic diversification of production away from China may even boost trade – as other manufacturing hubs lack the domestic resources of the Chinese market, they must import materials from other countries.
This shift in global production patterns has not diminished China’s role in many supply chains. Despite China’s decreased share of U.S.-manufactured imports, a significant portion of increased imports from Vietnam and other key markets often comprise components originally sourced from China. Analysis shows that while China’s proportion of U.S.-manufactured imports declined from 2017 to 2020, China’s share of value added in goods consumed in the U.S. slightly rose. For example, U.S. imports of laptops from Vietnam surged alongside Vietnamese imports of laptop parts from China between 2017 and 2022.
Other Asia Pacific markets stand to benefit from this trend as the region’s trade growth accelerates, strengthening its position as a leading global economic powerhouse and trade hub. According to International Monetary Fund’s report, Asia Pacific remained the world’s most dynamic in 2023 and contributed nearly two-thirds of global growth.
Some of Asia Pacific’s rapidly expanding economies are now crucial trade partners for the world. India, for example, ranks ninth in the Global Connectedness Report on breadth in global merchandise trade. With its status as the fastest-growing large economy, India’s international flows could outpace its domestic activity, placing the country in an increasingly central role in the future of globalization.
CHAMPIONING PROACTIVE TRADE POLICIES
Crucially, many Asia-Pacific countries have revamped their trade policies and embraced broad and modern trade agreements. “This openness to cross-border trade enables them to stimulate economic growth, increase trade volumes, and improve market access opportunities,” noted Lee.
This notion of open cross-border trade and connectivity is demonstrated notably by Hong Kong. In the DHL Global Connectedness Report 2024, the city ranks first on merchandise trade depth and FDI flows depth, and fourth in terms of the scale of its international flows relative to domestic activity. This highlights its central role as a regional trade and investment hub. Hong Kong also follows a free trade policy and therefore effectively maintains no barriers on trade, with no customs tariff on goods imported into or exported from the city, plus minimum import and export licensing. These business-friendly trade policies, combined with its strategic location and world-class infrastructure, contribute to Hong Kong’s position as a key player in global trade.
DHL Express’ recent investment of HKD$1.5 billion in the Hong Kong West Service Center (KWC) further underscores Hong Kong’s important role as a hub for international trade. The new fully automated, eco-friendly facility in Hong Kong seeks to address the increasing demand for international express services within the city and from around the world. Boosting an increase of over 90 percent in the site area, KWC can handle over 50,000 shipments a day and highlights a double increase in sorting capacity compared to its predecessor.
EMBRACING GLOBAL SHIFTS
Globalization remains resilient despite geopolitical tensions and the evolving global trade dynamics. Emerging economies, especially those in the Asia-Pacific region, are set to play an increasingly pivotal role in driving cross-regional exchange. Despite the softening U.S.-China flows, China remains resilient in global trade. It holds significant opportunities for import and export businesses, especially since its optimistic recovery after the pandemic. Hong Kong, serving as a key gateway for flows between Mainland China and the rest of the world, also continues to play a pivotal role in regional logistics. Maintaining collaboration and openness to cross-border trade will be more essential than ever for sustaining global growth and connectedness as the world navigates the ever-changing landscape.
