Forget trade wars — the future isn't about physical goods, but data, ideas and services

The Hill

24-07-2025

Despite a U.S.-driven trade war with China, voters turning to populism across the globe and the risk of a recession, reports of globalization's demise are — at least for now — overblown. Washington's trade hawks would do well to read the signs.
True, that may seem like pie in the sky. Messages from Washington are all about reshoring and decoupling of trade. As President Trump's reciprocal tariffs aims to reindustrialize the American economy, his vision is one of the manufacture of cars and smartphones moving away from Asia to assembly lines of obedient workers in America.
But the chief engine of the U.S. economy is no longer found in physical factories. Instead, it lies in intangible investments, such as research and development, software, organizational structures and intellectual capital.
These immaterial assets eclipse physical capital such as machinery and equipment, now accounting for over 60 percent of corporate capital investment and, by some estimates, 90 percent of the S&P 500's market value.
This has led to new patterns of globalization, defined by invisible items — data, ideas, modern services and cross-border teams. As trade in physical goods began to sputter in the beginning of the 21st century, these invisible flows have soared over the past decade. They are largely immune to tariffs, decoupling and attacks of populist politicians.
Even with chips nearshored, global U.S. companies like Qualcomm still earn a quarter of their profits by licensing ideas globally.
Although the U.S. may start soon a full-blown trade war with the European Union, data flows between the two trade giants are set to soar in the next decade, according to the European Commission.
And as U.S. multinationals exit China, they remain reliant on cross-border teams within these companies. Meanwhile, modern services trade has continued to grow by 10 percent well into 2024 without interruption.
Contrary to common belief, intangible flows span both manufacturing and services. Take Coca-Cola. The multinational rarely produces any of its famous beverages anymore. Instead, it licenses its recipe to non-affiliated contract producers called bottlers, from whom it receives property income. Google runs on worldwide data flows to power its services globally.
McKinsey predicts that by 2040, modern sectors such as cloud computing, shared autonomous vehicles, AI, space and biotechnology will account for 16 percent of global GDP, nearly double the share of today's leading sectors like industrial electronics and semiconductors, which currently make up 9 percent. These emerging sectors fuse manufacturing and services.
These sectors are also rife with global intangible flows. Consider BioNTech's COVID-19 vaccine. The underlying mRNA technology was licensed from the biochemist Katalin Karikó. Cloud‑based trial data zipped across borders and Pfizer's partnership turbo‑charged the research and development and scale‑up. The same blueprint was later licensed to Moderna for its vaccine.
Intangible flows like these are powering modern U.S. multinational production networks and their supply chains. Just as a quarter to half of the trade in U.S. goods in the 20th century occurred within multinationals, so too will U.S. intangible flows mostly take place within global firms this century.
These new flows clash with Trump's trade narrative. For starters, the American economy is well positioned to benefit, as it holds strong comparative advantages in these emerging industries. Second, they don't fit with populist views on the evils of trade deficits.
Data, for instance, transcends borders as a global commodity, contributing neither to a country's trade deficit nor surplus. U.S. cross-border research and development and global teams remain largely unnoticed as an international flow. But their output has surged by respectively 95 and 30 percent since 2009, boosting income at home.
Meanwhile, the U.S. has held the world's largest trade surplus in modern services for years, backing both high- and low-skilled jobs at home. The overall U.S. trade deficit in goods is not the problem, but rather the byproduct of America's greatest modern globalization success.
These new globalization flows are difficult to grasp, hard to monetize and challenging to rein in behind countries' borders. They do not rely on ships, airplanes and trucks, but instead on the internet, human minds and collaboration.
The paradox is that they have continued to grow despite the ongoing global turmoil, and they could put the U.S. in the driver's seat this century. The outlook for globalization is more positive than the populist doomsayers in Washington are claiming.
However, new intangible flows rely on attracting the world's top talent, without undermining universities; on maintaining a predictable environment for global business, without disregarding court rulings; and on avoiding questionable policy initiatives, without blindsiding allies.
If the U.S. truly wants to capitalize on its strengths, policymakers should change their global engagement strategy and embrace the next wave of globalization before it's too late.