Globalisation and International Trade

The essentials

Globalisation is characterised by the growth of trade

As we saw in the introduction, economic globalisation is characterized by the growing interconnection of economies due to the expansion of the flow of goods and services, capital, people, and information. Here, we focus on the trade dimension of globalisation and its continuous development since World War II.

Up until the 1970s, international trade was dominated by developed countries

From the late 1940s through the 1970s, international trade in goods experienced very strong growth: in terms of volume, exports increased by more than 8% on average each year during that period.

Global trade is largely dominated by developed countries (particularly the United States, Western European countries, and Japan), which account for more than two-thirds of world trade. Developing countries—including those in Asia and Africa that are gradually gaining independence in the wake of waves of decolonization—are largely confined to exporting primary products (agriculture, extractive industries) to developed countries.

Several factors account for this strong growth in international trade:

• the reconstruction needs of Western Europe and Japan following World War II, thanks in particular to the Marshall Plan;
• The emergence and expansion of the multilateral framework for free-trade negotiations: The signing of the General Agreement on Tariffs and Trade (GATT) by 23 countries in 1947 was followed by several rounds of negotiations involving an increasing number of countries, with the aim of reducing tariffs in a growing number of sectors ⁵;
• the creation of the European Economic Community (EEC) in 1957 and the establishment of a customs union in 1968⁶ which led to an acceleration of trade among the original member states⁷ ;
• From a technical standpoint, the invention of the container and its growing use represent a major innovation.

The 1980s have ushered in an era of hyper-globalisation

Following the crisis-ridden years of the 1970s and 1980s, marked by a sharp economic and trade slowdown (see Essential 2.1), a new period of expansion began. Often referred to as “hyper-globalisation,” this period was characterized by a very sharp increase in trade as well as in international financial flows (see Essential 2).

As we explain in detail in Essential 3 on global value chains⁸, this expansion is the result of several factors. The crises of the 1970s and 1980s led to the rise to power of governments committed to neoliberal ideas in developed countries. The focus is now on opening up capital markets and deepening the international framework for free trade, first at the multilateral level with the creation of the WTO, and then through the proliferation of trade and investment agreements. Geopolitical developments—such as the end of the Cold War, the deepening of European integration, and China’s entry into the globalized economy—also contribute to trade growth. Finally, technical advances in transportation and the advent of information and communication technologies would enable the unprecedented development of global value chains and, consequently, international trade.

A trade boom hard to measure accurately

Between 1995 and 2024, the value of global exports of goods and services increased more than fivefold⁹. However, while growth remained strong during the 1990s and 2000s, the 2008 crisis marked a turning point, with a sharp decline in average annual growth¹⁰ over that period.

Several observations can be made.

• Exports of services are playing an increasingly important role: they rose from about 20 percent of the value of global exports of goods and services at the beginning of the period to more than 25 percent starting in the mid-2010s.
• The share of commodity revenues hovered around 20% over the period, with fluctuations in magnitude linked to changes in raw material prices (peaking at over 28% in 2012).
• The share of manufactured goods is declining significantly, falling from 60 percent of the value of global exports in 1995 to 50 percent in 2024, due in particular to the decline in the share of low- and medium-technology manufactured goods as well as those derived from natural resources.

While these figures reflect interesting trends, they should nevertheless be interpreted with caution. Indeed, developments in international trade pose formidable challenges for statistics for two main reasons.

The expansion of Global Value Chains (GVCs)

The compilation of international trade statistics is based on the crossing of a border. This allowed for a reasonable degree of accuracy as long as the goods exported by a country were primarily manufactured in that same country. However, the increasing fragmentation of production along global value chains¹¹ has led to an increase in the share of imported intermediate goods and services used in the manufacture of goods that are subsequently exported. This results in double counting and, consequently, an overestimation of the value of global exports.

Let’s illustrate this with a hypothetical example. A French yogurt producer imports €1,000 worth of strawberries from Spain. He adds these strawberries to his yogurt, which he then exports to various countries (including Spain) for €4,000. International trade statistics show €5,000 in trade, since the value of the strawberries is counted twice (as strawberries themselves and as ingredients in the yogurt)!

Since the early 2010s, various studies¹² have sought to develop trade indicators that measure domestic value added and foreign value added in a country’s exported goods.

The expansion of GVC (i.e., the dispersion of production across different countries) has manifested itself in most countries as an increase in foreign value added¹³ in exports of goods and services. Globally, this share rose from just under 20% in 1995 to more than 26% in 2008¹⁴ at the onset of the financial crisis. It has remained at that level ever since.

The growth of the services sector

As we have seen previously, hyper-globalisation has led to the growth of trade in services.

Measuring trade in services poses significant challenges for official statistics: since most services do not involve the physical crossing of a border, they are recorded based on the place of residence of the company providing them. As a result, they are used by multinational corporations to evade taxes.

A growing share of traded services (particularly services deriving from intangible assets with no determined geographical location, such as financial loans or intellectual property rights licensing) represent intra-firm trade, much of which is used for tax optimization strategies of firms. […] Such trades often do not generate any production, employment and labour income in the low-tax jurisdictions where they are recorded, even as they siphon capital income and profit out of higher-tax jurisdictions.

UNCTAD, 2018

The rise of China and the “Asian Tigers”

Starting in the 1980s, there has been a steady decline in the share of developed countries in international trade: in 2024, they accounted for approximately 52% of global merchandise exports (see graph) and 56% when services are included.¹⁷

Since the 1980s, nearly all developed countries have seen their share of global trade decline.

• The European Union (including all member countries and the United Kingdom) appears to be a major trading power, but one that is losing momentum: its share of global exports has fallen from more than 43% in the early 1990s to about 31% in 2024.¹⁸
• The United States’ share declined steadily over the period, reaching about 8.5% around 2024. However, most of the decline in U.S. trade occurred during the Glorious Thirty.
• Japanese trade enjoyed its heyday in the 1980s and 1990s, when its share of world trade peaked at nearly 10 percent, before entering a long decline (less than 3 percent in 2024).
• “Other developed economies” include 22 territorial entities in 2024, with the top five accounting for 88% of the group’s exports (Canada, Switzerland, Russia, Australia, Norway). Their share has remained stable since the early 1990s, hovering around 9 to 10%.

Since the 2007–2008 financial crisis, many observers have been predicting the end of globalisation or even “deglobalisation”. An analysis of the data casts doubt on the reality of such a phenomenon. While the growth of international trade has paused, there has been no decline in trade flows. Furthermore, financial globalisation shows no signs of slowing down: whether we look at the volume of assets under management, stock market indices, the volume of derivatives, or foreign exchange transactions… All indicators of a thriving financial sector continue to rise. The growing influence of digital players on the global economy also runs counter to any notion of so-called “deglobalisation”. However, the growing tensions between China and the United States, the trade war initiated by U.S. President Donald Trump during his first term, and above all, the growing awareness of the vulnerabilities inherent in dependence on global value chains¹⁹ could lead to the relocation of certain production activities or, at the very least, to the regionalization of trade.

The economic expansion of developing economies, which is often highlighted, is in fact driven primarily by Asia.

This initially refers to the Asian Tigers (sometimes also called the first-generation Newly Industrialized Countries)²⁰ whose economic takeoff was based on a strategy of developing industrial policies protected by tariff barriers specifically targeting products exported to developed countries. Their share of global merchandise exports began to rise in the 1980s and stabilized at around 10% in the 1990s.

China pursued a similar strategy beginning with Deng Xiaoping’s rise to power in the late 1970s. Its rapid growth accelerated after it joined the WTO in 2001. Having first become the “world’s factory” for manufactured goods, China has, since the early 2020s, established itself as a powerhouse in high-tech sectors (IT, AI, and green transition technologies). The value of its exports rose from less than 2% of global exports in the 1980s to nearly 15% in 2024. The world’s leading exporter since 2007, China is also the top trading partner (including both imports and exports) for nearly 60 economies worldwide.²¹

The group of “other developing economies in Asia and Oceania”comprises 43 territorial entities in 2024, with the top eight accounting for 76% of the group’s exports: these include the major oil exporters (the United Arab Emirates and Saudi Arabia), the Asian Tigers (Vietnam, Malaysia, Thailand, Indonesia²²), India, and Turkey. Their share has doubled since the late 1980s, reaching approximately 15% of global exports.

The share of the rest of the developing world (that is, all of Africa and almost all of the Americas²³) has remained steady at around 7% to 8% over the period. As explained in Preconceived Idea 3 regarding the supposed benefits of globalisation for developing countries, an analysis of export composition further shows that, for these countries, the share of exports directly linked to raw materials (primary products, fossil fuels, and manufactured goods derived from the processing of natural resources) is dominant. Over the entire period from 1995 to 2024, it accounted for more than half the value of exports from developing countries, excluding China and the Asian Tigers.

Globalisation: the triumph of finance

Although trade globalisation began in the aftermath of World War II, it was not until the 1970s and 1980s that financial globalisation truly took off.

The end of the Bretton Woods system, combined with trends toward banking and financial liberalization and the opening of capital markets, led to a true financialization of the economy²⁴. This is characterized by the increased influence of finance over the productive sector and by the rise in international financial flows. Numerous indicators point to this growing influence, whether in terms of the level of public and private debt, the importance of financial actors in corporate governance, or the growing disconnect between the financial sector and the real economy. This is evidenced, for example, by the growth in the stock of global financial assets, which has been significantly greater than that of GDP.²⁵

The promise of this financial liberalization was to facilitate access to international financing for all stakeholders in order to promote growth and development. As we will see, foreign direct investment²⁶ have indeed seen a marked increase. In particular, they have contributed to the development of global value chains²⁷—and thus international trade—but also to the growing power of the multinational corporations that control them. It is, however, far from clear that the overall outcome is positive. The financialisation of the economy has, in fact, also had numerous harmful consequences, whether in terms of the proliferation of financial crises—including the global crisis of 2007–2008—or in terms of its impact on inequality and the strategic orientation of companies toward short-term profit.

From Bretton Woods to financial liberalisation

The failure to establish a stable monetary and financial system

While trade liberalization was certainly on the international political agenda in the aftermath of the war, the same could not be said for currency and capital flows. The 1944 Bretton Woods Conference²⁸ established an international financial order aimed at stability: a system of fixed but adjustable exchange rates based on the convertibility of the dollar into gold, capital controls, and IMF support for the balance of payments²⁹ of countries in difficulty. However, this system was neither flawless nor free of imbalances. Thus, the early stages of financial globalisation began to take shape during this period.

The “Eurodollar” market: the birth of offshore finance

In 1957, a seemingly innocuous decision by the Bank of England opened a loophole in the controls on cross-border capital flows. By allowing British banks to act as intermediaries between foreign economic actors conducting transactions in currencies other than the pound sterling (primarily dollars), it created the “eurodollar” market³⁰ that was free from any public regulation. This marked the beginning of offshore finance.

As Ronen Palan, a professor of international politics, explains, “The Central Bank had just decided that transactions taking place in London could be considered as not having taken place in the City and would thus be exempt from British regulatory oversight. But since they were, in fact, taking place in London, the only public authority with the power to regulate them was the Bank of England ³¹!” This market quickly became the preferred vehicle for British and American banks, as well as multinational corporations, to circumvent their countries’ financial regulations.

Collapse of the Bretton Woods system

In monetary terms, the dollar’s dominant position in international trade—which stemmed from the Bretton Woods agreements—created a difficult situation for the United States³². To import (particularly American goods), countries must have dollars; therefore, the current account balance³³ must be in deficit.

In the 1960s, the sharp rise in this deficit³⁴ eventually created a mismatch between the dollars held abroad and U.S. gold reserves. In August 1971, President Nixon, faced with the depletion of these reserves, decided to suspend the convertibility of the dollar. A new system of floating exchange rates was formalized by the Jamaica Agreement in 1976. From then on, currency exchange rates fluctuated on the foreign exchange market based on supply and demand. This opened the door to speculation on currency exchange rates. Furthermore, the introduction of floating exchange rates, by creating a new risk (foreign exchange risk), also spurred the growth of the derivatives market.

The turn of the 1980s and the rise of neoliberalism

The end of the dollar’s convertibility into gold ushered in a period of international economic instability. The two oil crises of 1973 and 1979 caused a significant rise in oil prices, the negative consequences of which were felt across all economies (with the exception of oil-exporting countries). Developed countries entered a period of stagflation (the simultaneous occurrence of inflation and mass unemployment). Global growth slowed, falling from about 5% per year in the previous period to less than 3%.

In the face of economic difficulties, neoliberal ideas are gaining ground in political circles—on both the right and the left—in developed countries. The goal is to promote the market economy and the “open society” on a global scale while limiting public interventions that “disrupt” the economy. Financial liberalization, inflation control, fiscal discipline by governments, labor market flexibility, and the removal of trade barriers are all on the agenda.

Upon coming to power in 1979, the administrations of Ronald Reagan in the United States and Margaret Thatcher in the United Kingdom implemented this agenda at the national level and promoted it internationally. In Europe, the French Socialists promoted, within the European Commission, the deepening of the internal market and, in particular, the free movement of capital.

The neoliberal agenda is also being imposed on many developing countries, whose situations are deteriorating as a result of global economic shocks and interest rate hikes by the U.S. Federal Reserve³⁵. In August 1982, Mexico announced that it could not meet its financial obligations, triggering the developing-country debt crisis that lasted throughout the decade. In exchange for their support, the IMF and the World Bank imposed “structural adjustment programs” on struggling countries in Latin America and Africa, including, among other measures, cuts in public spending, the opening of domestic markets to imports, and the free movement of capital.

An increasingly “free” world (for global finance)

In 2010, the IMF developed a financial liberalization index covering 91 economies over the period 1973–2005, which illustrates the extent of this phenomenon, particularly in advanced economies.

It should be noted that, beyond deregulation measures, the development of new information and communication technologies has played a major role in the expansion of the financial sector. Digitization provides the physical foundation for financial globalisation, which could never have reached its current scale in the paper-based era—whether in terms of the speed and volume of transactions (further accelerated by fully automated high-frequency trading), data analysis, the increasing complexity of financial products, or the interconnection between financial markets.

Foreign Direct Investment: development, relocation and the fragmentation of production

Financial globalisation is based on multiple flows of capital between countries, which are often grouped into two categories³⁶ :

• Portfolio investments are driven by financial investment strategies, or even speculation;
• Foreign direct investment (FDI) stems from a desire to influence the management of a company.

FDI has been a powerful driver of the development of globalised value chains³⁷ and trade globalisation. They enable firms in developed countries to expand globally, whether by establishing subsidiaries abroad or by acquiring stakes in existing companies.

The line between FDI and purely financial investments has become increasingly difficult to draw as the economy has become more financialized. According to an IMF study, a significant portion of current FDI actually stems from aggressive tax optimization strategies by multinational corporations that artificially locate investments (particularly intangible assets⁴⁰) in low-tax countries. Over the 2009–2017 period, 30% to 40% of annual FDI flows are estimated to be “phantom FDI”⁴¹.

FDI flows are largely dominated by developed countries

As can be seen in the graph below, FDI flows generally increased until the 2007–2008 financial crisis. They then remained relatively stable, hovering around $1,500 billion per year. Their trend also reflects the succession of booms and crashes in global financial cycles (e.g., the dot-com bubble and crash in 2000, the financial crisis of 2007–2008, the 2020 crisis following the COVID-19 pandemic). It is also worth noting that capital flows from developed countries are what drive the global cycle.

FDI comes primarily from developed countries (mainly the United States, Japan, and the European Union), although this dominance has declined over the period (from 95% to 69% of outbound flows). Of particular note is China’s emergence as an international investor: starting in 2015, it accounted for around 10% of annual outflows.

Developed economies are the primary destination for FDI. In short, rich countries invest far more in other rich countries than in developing economies. However, this trend reversed around the turn of the 2010s and 2020s: FDI inflows into developing economies then became dominant. They are primarily directed toward countries in Southeast Asia, China, and, to a lesser extent, Latin America.

All these figures should be interpreted with caution because, as noted earlier, FDI flows can mask tax evasion or even tax fraud. For example, starting in 2006, the Cayman Islands and the British Virgin Islands accounted for a very significant share of FDI inflows into Latin America (ranging from a low of 31% in 2022 to a high of 94% in 2015⁴²). One might question the truly productive nature of these investments…

Foreign direct investment does not necessarily foster economic development

Inward foreign direct investment is traditionally viewed as a means of promoting economic development, particularly in developing countries, as it is believed to provide stable sources of external financing that supplement domestic resources.

However, this depends on several factors.

• The type of FDI: creation-oriented FDI (the establishment of new production capacity) is far more conducive to economic development than flows related to mergers and acquisitions or intra-company flows (which may be—and increasingly are—linked to tax optimization strategies).
• The sector: Investment in the primary sector (agriculture and extractive industries), which reinforces the specialization of many countries, does not have the same impact on economic development as investment in high-value-added manufacturing industries.
• FDI comes with a financial counterpart (interest payments, dividends, etc.) that can put recipient countries in a difficult position. As UNCTAD explains, it ” are accompanied by outflows of income in the form of repatriated profits, royalties, and license fees. These payments can result in negative financial transfers, particularly when FDI inflows fall significantly below those of previous years and payments must be made on a large stock of existing FDI. Countries that have been receiving FDI for a long time and therefore have a relatively large stock of foreign capital are the most likely to record negative net transfers. .”⁴³

Finally, FDI accounts for only a portion of capital flows: as explained in Essential 4, the overall stock of foreign investment and the volatility of investment flows can have extremely destabilizing effects on the countries involved.

Globalisation is underpinned by the unprecedented expansion of global value chains

Starting in the late 1980s, international trade and financial flows skyrocketed. This period was also marked by the unprecedented expansion of global value chains (GVCs). Since the COVID-19 pandemic, a series of crises—whether health-related, geopolitical, or energy-related—has highlighted the dangers posed by this situation.

Definition: What is a global value chain (GVC)?

A value chain⁴⁴ includes all the interdependent activities carried out around the world by various companies to take a product from its design to its final use.

Depending on the context, these activities may include research and development, design, the extraction and processing of natural resources, the manufacturing of various components, assembly, sales and marketing, distribution, retail, and end-of-life management. Value chains therefore involve the participation of several economic sectors⁴⁵. Furthermore, the concept is much broader than that of a supply chain, which focuses on the provision of raw materials for production.

A GVC requires a high degree of coordination among the various stakeholders involved, coordination that is carried out by the multinational corporations that lead and control them.

A bit of history: where do global value chains come from?

Global supply chains have existed for a very long time. In their simplest form, they originated with bilateral trade: raw materials on one side and fully assembled manufactured goods on the other. The division of labor thus pits industrialized countries against developing countries and/or colonies: to put it simply, the extraction or cultivation of raw materials takes place in poor countries, while design, processing, assembly, and marketing occur in rich countries.
Starting in the 1980s, global value chains gradually began to take shape: the various stages of production are carried out in different parts of the world. The structure of trade became multidirectional, and intermediate goods (those used in or incorporated into the production process) played an increasingly important role.

Even the way we trade has changed immensely. In the past, goods were made in Mexico, or Mauritius or Malaysia. Today, goods are made in the world. The expansion of global value chains means that most products are assembled with inputs from many countries. Products cross borders frequently during various stages of assembly. […] Twenty years ago, the import content of exports was 20 per cent. Today, it is around 40 per cent. More than half of global manufactured exports are components which are inputs to other as yet unfinished goods. In Asia, the figure is more than 70 per cent.

Pascal Lamy, Director-General of the WTO, 2012

Example from the automotive industry

The automotive sector is a good example of this trend and also illustrates just how simplistic Donald Trump’s decisions on tariffs in early 2025 were⁴⁶.

Let’s take a broad look at the history of this industry in the United States to illustrate the growing fragmentation of value chains.

In the early 20th century, American automakers such as the Ford Motor Company adopted a vertically integrated production model. Design, manufacturing, assembly, and distribution all took place at the same site, most often in the Detroit area. The value created by the product therefore remained largely local, with the exception of imported raw materials such as steel and rubber. The Ford Model T, for example, perfectly illustrates this model, in which all essential activities took place in the United States.

After World War II, between the 1950s and the 1970s, the U.S. automotive industry began to gradually specialize. Manufacturers continued to concentrate the majority of their operations in the United States, but certain parts began to be produced by specialized suppliers located in Mexico, Japan, or Western Europe. This period marked the beginning of a regional fragmentation of operations, although American companies continued to capture the lion’s share of the value.

Starting in the 1980s, Ford, GM, and Chrysler began partially offshoring certain stages of production, notably assembly in Mexico and the manufacture of electronic components in Asia. Design and R&D remained concentrated in the United States, but the value captured locally declined proportionally.

In the 2000s and 2010s, automotive value chains became truly global. An American car, such as the Ford F-150 or the Chevrolet Bolt, is now made up of components sourced from at least ten different countries. Electronic systems may be manufactured in China, South Korea, or Japan; transmissions or mechanical parts come from Europe or Mexico; the batteries for electric vehicles—which are increasingly common—involve raw materials from Australia, Chile, and China, as well as Chinese companies such as CATL and BYD. Final assembly often takes place in the United States or Mexico.

How significant are global value chains in international trade?

This question is harder to answer than it seems. In fact, the trade flows reported in trade statistics are estimated on a gross basis: when a good crosses a border, the full price of the good is reported. Since exported goods increasingly consist of goods and services that were previously imported, this leads to double counting and, consequently, an overestimation of the overall value of international trade.

Furthermore, these figures do not allow us to distinguish between purely bilateral trade and trade involving GVC. That is why, since the 2010s, various studies have sought to assess the value added by each country to the final value of a good. This makes it possible to determine the share of GVC in global trade, as shown in the following graph.

Several factors have contributed to the expansion of GVC

The development of global value chains stems from a combination of several factors. First, there is the political and economic context linked to the neoliberal revolution of the 1980s, as well as geopolitical developments such as China’s accession to the World Trade Organization and the collapse of the Soviet Union. Technical factors, such as falling transportation costs and the development of digital technologies, have also played an important role. Finally, multinational corporations—which lead global value chains and organize them on a global scale—have been instrumental in their development.

The entry of new countries into the global economy

At the turn of the 1980s and 1990s, Deng Xiaoping’s transformation of China into a “socialist market economy” and the collapse of the USSR and “Eastern Bloc” marked the triumph of the free-market economy.

Almost every country in the world was then entering the era of globalisation. China’s rise has been one of the defining trends of recent decades. Relying on an abundant and inexpensive labor force, the country developed an economic strategy based on opening up to foreign investment, followed by trade (with its accession to the WTO in 2001), while maintaining significant government control (targeted industrial policies, management of trade liberalization, and currency controls). This strategy first enabled China to become the “world’s factory” and then to move up the value chain by developing industries with higher value-added. Today, China clearly poses a threat to Western economies⁴⁷ in all areas.

The continued development of European integration and the deepening of the internal market were another major milestone of this period. With the Maastricht Treaty (1992), the EEC became the European Union and adopted a common currency, the euro. Successive accessions (19 new countries between 1973 and 2013) expanded the EU’s single market, making it the world’s largest free-trade zone, where goods, services, capital, and workers move freely. The integration of Eastern European countries provided a pool of low-cost labor that fueled value chains, such as the automotive industry, where Western European multinationals have a strong presence.

Free movement of capital and greater trade liberalisation

The neoliberal ideological shift of the 1970s and 1980s was accompanied by numerous measures aimed at opening up capital markets and liberalizing trade.

• The opening of capital markets and the proliferation of investment protection agreements⁴⁸ have led to an unprecedented growth in foreign direct investment⁴⁹ and thus facilitated the entry of multinational corporations into new countries, whether through the creation of subsidiaries or the acquisition of stakes in domestic companies.
• The expansion of MTCs is closely linked to changes in the legal framework of international trade. Launched in 1986, the Uruguay Round of negotiations led to the creation of the World Trade Organization in 1995, which, paradoxically, also marked the end of multilateral trade negotiations (the Doha Round, launched in 2001, would not result in any new agreements). Beginning in the 1990s, bilateral and regional trade agreements proliferated, as did investment protection agreements. Among the major regional trade agreements, NAFTA is particularly noteworthy⁵⁰ signed in 1994 between Canada, the United States, and Mexico. The content of the agreements also changed: whereas previously the focus had been primarily on reducing tariffs, it now centered on non-tariff barriers⁵¹. This concern is linked in particular to the need for multinational corporations to harmonize regulations (most often by lowering standards) to facilitate the standardization of technical norms with which their various suppliers around the world must comply.

Innovation and cost reductions in the transport sector

While the reduction in costs affects all modes of transportation, it is crucial for the maritime sector, which accounts for approximately 80% of the volume of goods traded worldwide⁵². In this regard, the container revolution has played a decisive role. More generally, progress has been made in adapting ships to the types of cargo they carry⁵³ have greatly facilitated trade. Finally, the rise of flags of convenience beginning in the late 1960s also contributed to lower costs by allowing shipowners to circumvent social and environmental standards and engage in tax optimization.

New Information and Communication Technologies (NICT)

The development of information and communication technologies (ICT) has made it easier and less expensive to manage very large and complex production networks. Management software, GPS, barcodes, and, more recently, chips embedded in products (or packaging), as well as artificial intelligence systems (algorithms) related to the collection and analysis of big data, are all indispensable tools for managing GVC, whether for tracking goods, managing supply chains and procurement, or marketing and selling products.

The digitization of the economy has also led to the emergence of new global players that have become indispensable to all GVC, whether by providing the infrastructure, products, and services of the digital economy (data centers, microprocessors, computers and cell phones, internet services, hosting, software, cybersecurity protocols, etc.) or by adding an additional layer to global production systems—or even, at least in part, replacing traditional players—through the development of the platform economy (e-commerce, fintech, on-demand ride-hailing platforms).

The largest of these players⁵⁵—the American Big Tech companies and a few very large Chinese firms—now dominate the global economy in terms of market capitalization, revenue, and profits.

The recent series of crises has highlighted the dangers associated with the expansion of GVC

In addition to the factors listed above, the expansion of GVC was also based on relative stability in the international order⁵⁶. This stability, already put to the test during the 2008 financial crisis, deteriorated significantly at the turn of the 2020s. The COVID-19 pandemic and the invasion of Ukraine demonstrated just how fragile GVC could be, jeopardizing the economic security of many countries.

Four major risks, in particular, have become apparent.

Disruption or failure in a critical link

International trade and, more broadly, the global economy depend on critical hubs such as Chinese ports and the 14 straits and canals⁵⁷—essential chokepoints for international trade. This reality was very well articulated in reference to the Strait of Hormuz by Ahmed Al-Jaber, Minister of Industry of the United Arab Emirates and CEO of ADNOC, the national oil company, in a video sent in March 2026 for CERA Week, the annual oil and gas industry conference held in Texas.

The world’s critical arteries must remain open. The Strait of Hormuz is one of those arteries: 21 miles wide, 20 million barrels per day, nearly one-fifth of the world’s oil and gas, over a third of the world’s fertilizers, almost a quarter of the world’s petrochemicals, and significant amounts of industrial metals. In short, much of the oxygen of the global economy runs through a single throat.

Ahmed Al-Jaber, Minister of Industry of the United Arab Emirates, 2026

Geopolitical, natural, health-related, or logistical events affecting these strategic hubs can paralyze entire value chains. The COVID-19 pandemic, which disrupted the production and transport of many goods, is the most extreme example of this, but it is far from the only one.

Since the early 2020s, vulnerabilities in strategic waterways have regularly made headlines. These vulnerabilities can be exposed by geopolitical events. Starting in 2023, attacks by Yemen’s Houthis—against the backdrop of the war in Gaza—on cargo ships crossing the Red Sea⁵⁸ divert a significant portion of the traffic passing through the Suez Canal, thereby lengthening transit times for many goods. The closure of the Strait of Hormuz following the U.S. and Israeli attack on Iran in February 2026 prevents the export of fossil fuels, fertilizers, and even helium (a strategic gas for microprocessors) from countries in the region. This situation raises fears of a new massive energy, food, and industrial crisis.

Weather events—which will only worsen as the climate warms—can also block strategic waterways and disrupt traffic. This is how the Ever Given, a massive container ship, ran aground in the Suez Canal in March 2021 following a sandstorm, blocking traffic for nearly a week⁵⁹. Traffic through the Panama Canal is regularly disrupted by drought⁶⁰.

These vulnerabilities expose global trade to disruptions and additional costs. Cyberattacks on ports or critical infrastructure pose an additional risk.⁶¹

Loss of control over strategic production

When countries or companies do not have control over critical stages of production, this can lead to a loss of economic sovereignty. In France, approximately 40% of industrial inputs come from abroad⁶². Drug shortages⁶³ and semiconductors⁶⁴ are concrete examples of this. The war in Ukraine has also caused fertilizer shortages, while food crises in the United States and Cuba demonstrate the fragility⁶⁵ of critical food supply chains. This dependence is even more critical for Europe in the digital and financial services sectors.

In light of these risks, some companies and countries are reevaluating the benefits of extreme fragmentation in global value chains. According to researcher Philippe Silberzahn⁶⁶, the current context is driving a return to vertical integration: securing strategic production by bringing critical stages in-house—from design to final assembly—in order to reduce dependence on foreign suppliers and strengthen resilience in the face of crises. This model applies equally to digital technologies and traditional sectors, such as the automotive and pharmaceutical industries, and could mark a major turning point in the future organization of global value chains.

Economic interdependence can become a tool for exerting geopolitical pressure

India’s economic dependence on China has increased dramatically over the past two decades and has become a geopolitical lever wielded by Beijing. Today, China is India’s largest trading partner, with more than $120 billion in merchandise imports in 2024, and India’s trade deficit with China has risen from about $60 billion in 2020 to roughly $100 billion in 2024⁶⁷. More than 90% of these imports consist of intermediate goods and production inputs: electronic components, machine tools, integrated circuits, electrical equipment, and active pharmaceutical ingredients for drug and vaccine manufacturers. Chinese imports are therefore essential to India’s industrial production and its own exports (primarily to Europe and the United States). This is the case, for example, with iPhones, which account for 35% of India’s electronics exports and for which 95% of the components needed for their manufacture come from China. Similarly, while India is the “pharmacy of the world” —it produces 60,000 generic drugs, with sales of $42 billion—it is dependent on China, which supplied two-thirds of the active pharmaceutical ingredients used by the Indian pharmaceutical industry in 2019⁶⁸.

This trade structure creates a strategic vulnerability. When, in 2023, India attempted to impose controls on laptop import licenses to protect its domestic industry, opposition from Indian manufacturers in the sector forced it to back down, demonstrating just how deeply economic actors are entangled in these value chains⁶⁹. More broadly, this dependence provides Beijing with leverage for political pressure : New Delhi’s need to ensure access to Chinese components limits its room to maneuver in border or diplomatic disputes with China and pushes India to seek a compromise in its bilateral relations, even after recent military clashes such as those in 2020 in the Galwan Valley.

The situation in India clearly illustrates how value chains can create structural dependencies that become tools for geopolitical pressure: a country whose economy depends on key components or products imported from a rival may find itself forced to moderate its political positions or make concessions, at the risk of losing some of its strategic autonomy.

Shift from economic partner to enemy

As early as the 1960s and 1970s, the USSR began exporting natural gas to Western Europe, particularly to Germany and Italy. Despite ideological tensions between the blocs, long-term energy contracts were signed: Europe needed competitively priced energy, and Moscow needed foreign currency. After the collapse of the USSR in 1991, Russia further strengthened its role as a supplier of fossil fuels to Europe. In the 2000s, under President Vladimir Putin, gas and oil exports to the European Union rose sharply. Major projects such as the Nord Stream gas pipeline, which began operations in 2011, symbolize this growing energy interdependence.

Russia has therefore been a strategic energy partner for Europe for about fifty years. Given the central role of energy in the economy, it can be said that Russia played a significant role in the economic interdependence resulting from globalisation. Since the invasion of Ukraine in 2022, Russia has been viewed as a geopolitical adversary.

This development illustrates the vulnerabilities of globalisation based on fragmented value chains and strong interdependencies: what was once a driver of economic cooperation can, in times of geopolitical crisis, become a means of exerting pressure and a major risk to the security, sovereignty, and stability of the states concerned.

Monetary power is key in a globalised world

Currency exchanges between countries or regions with different currencies are governed by a set of implicit or explicit rules, which constitute the international monetary system (IMS). It lies at the heart of globalisation, as it is essential to the existence and growth of the international flows of goods, services, investments, capital, and income that characterize it.

As economist Éric Monnet writes:

In the 1990s, the prevailing view was that of a world in which the international monetary system would function almost automatically, governed by free capital flows and flexible exchange rates.

Éric Monnet, 2023⁷⁰

The argument was that this system would be of the greatest benefit to everyone: capital would flow to where investments were needed, and exchange rate fluctuations⁷¹ would automatically rebalance the current account⁷², and central banks could focus on stabilizing inflation.

It must be acknowledged that this vision has not come to pass. The dominance of the U.S. dollar, floating exchange rates, and the free movement of capital have been (and continue to be) sources of numerous imbalances, whether in terms of trade or financial crises.

Not all currencies carry the same weight in the international monetary system

If there are just over 150 currencies in the world⁷³, not all carry the same weight in the international system. Their respective strength stems both from history (which largely explains the dollar’s dominance) and from the economic importance of the countries where they are legal tender.

Which currencies are used most often?

The importance of a motto can be assessed by how it is used in various fields:

• its role in foreign exchange reserves⁷⁴ of the various states;
• its use for international payments (trade in goods and services, foreign direct investment, income flows);
• its use for issuing debt (many countries cannot issue debt in their own currency).

The more a currency is used for these three purposes, the more it is traded on the foreign exchange market⁷⁵.

It is, of course, the dollar that dominates the international monetary system in all these areas. The other currencies that play a significant role are primarily the euro, the Japanese yen, the Chinese renminbi, and the British pound.

The fact that a currency is widely used provides economic actors in the country in question with advantages, whether in terms of participating in international trade or accessing global financial markets.

In our module on public debt and deficits, we explain in detail the issues surrounding the fact that some countries can incur debt in their own currency while others cannot. Below, we focus on international payments.

The advantages of a currency used in international payments

Made by economic agents in two different countries, international payments cover a wide range of activities: commercial transactions between customers and suppliers, payment of taxes to foreign governments, foreign investments, transactions between different entities of a multinational corporation, repatriation of dividends or interest, compensation for international employees, etc.⁷⁶

As can be seen in the following chart, some currencies are used significantly more than others. In particular, the dollar plays a dominant role, accounting for nearly 50% of payments in 2025.

In practical terms, how do international payments work?

Let’s imagine that a French exporter sells wine to a Brazilian importer and asks to be paid in euros.

If the latter accepts the offer, he has two options:

• either he has a euro account and can therefore pay using it;
• Either he must obtain euros to pay the French contractor (by asking his bank to exchange his reais for euros).

The second scenario entails a cost for the Brazilian importer because foreign exchange transactions often involve multiple intermediaries in addition to the importer’s bank⁷⁹. Furthermore, the importer assumes an exchange rate risk because the exchange rate⁸⁰ between the real and the euro may fluctuate between the time the order is placed and the time payment is made. The importer may seek to hedge this risk, which also entails a cost.

It should be noted that these various costs and risks affect the competitiveness of the French producer’s bid. If competitors submit a bid in reais, they may win the contract. In that case, it will be up to them to assume the various risks.

As is well understood, the more a currency is used for international payments, the easier it is for economic actors in the country in question to engage in international trade. This is obviously true of the dollar. It is also true, to a lesser extent, of the euro.⁸¹

The difficult situation faced by countries with an unstable or little-used currency

Some countries have weak currencies or currencies with little demand: their exchange rates are so low and erratic that they prevent any imports. In extreme cases, these currencies are non-convertible.

A currency’s vulnerability can result from many factors

Some factors relate to the structure of the issuing country’s economy. A country that is dependent on raw materials (agricultural or mineral) and energy resources and lacks economic strengths is structurally an importer. Its currency will therefore be in little or no demand. Next, factors related to the conduct of economic and monetary policy come into play. Political instability, rampant corruption, or excessive inflation do not inspire confidence. Finally, external shocks—whether or not they are linked to global crises (such as oil shocks, financial crises, or the COVID-19 pandemic)—can weaken a country’s currency.

A fragile currency—one with low demand or low credibility—limits international trade and investment; it increases the cost and risk of external financing. It heightens the country’s vulnerability to exchange rate crises and imported inflation and makes monetary policy less effective. In short, it reduces a country’s autonomy and its ability to develop.

What we see here, then, is a kind of vicious cycle of underdevelopment: a country that needs others to develop and is viewed as fragile may find itself stuck, unable to attract the foreign capital it so desperately needs.

What are the links between foreign trade, capital flows, and currency?

Economic ties between countries are manifested through the exchange of goods, services, and capital⁸³. The relative value of different currencies is a key factor in this. The question of the balance of these exchanges is also crucial: current account balance⁸⁴, as well as an economy’s greater or lesser vulnerability to capital flows.

What is the exchange rate, and how does it affect the economy?

A currency’s exchange rate plays a decisive role in a country’s relations with the rest of the world.

As can be seen in the diagram below, the exchange rate affects not only the current account⁸⁶ (notably through the trade balance and tourism) but also the country’s attractiveness in terms of foreign investment, as well as the cost of its debt when it is denominated in foreign currency.

How is the exchange rate established?

The exchange rate depends first and foremost on the exchange rate regime of the country in question—that is, on the rules adopted by the government to establish the conditions under which it is determined.

Depending on this system and public policy objectives (financial stability and capital controls, trade or industrial policy, capital controls), central banks intervene to a greater or lesser extent in exchange rates through the foreign exchange market or their monetary policy (see the section on central banks’ room for maneuver).

Next, a currency’s exchange rate is determined on the foreign exchange market ( known as “Forex” to those in the know).

FOREX is the market where currencies are traded: euros for yen, renminbi for dollars, and so on. It is the interplay between supply and demand for each currency in this market that determines its price. As we have seen, the participants in this market include central banks, but also—and above all—private financial institutions (notably a few major banks that trade on their own account or on behalf of their clients, such as companies involved in international trade).

The exchange rate is determined much more by capital flows than by trade in goods and services.

Trade in goods and services between different countries, and more generally, the current account balance⁹², naturally affect the demand for foreign currency.

However, in the foreign exchange market, most transactions are purely financial. They are used either for direct investment or portfolio investment purposes⁹³, or to establish currency hedges⁹⁴, or for speculative purposes (betting on changes in the relative exchange rates of currencies).

Beyond economic factors, political and institutional factors play a significant role in how Forex market participants perceive a currency. Political and legal stability is a factor in currency appreciation: the currency of a country perceived as stable will be in greater demand. Monetary and fiscal policies are also taken into account. A central bank that raises interest rates—often to combat inflation (whether rightly or wrongly)—supports the value of its currency. A massive government deficit can undermine market confidence and lead to a depreciation of the exchange rate.

Finally, as with any financial market, purely psychological factors also play a role . Traders buy a currency if they believe it will appreciate or to engage in speculative trading, as George Soros did against the British pound. They also take announcements into account (political statements, central bank decisions, or geopolitical tensions, etc.). They are also likely to turn to “safe-haven assets” (gold first and foremost!) during times of crisis, and thus to currencies considered stable (the dollar, the Swiss franc, the yen).

The links between exchange rate and the current account

A country’s current account consists primarily of the balance of exports and imports of goods and services⁹⁷. By affecting export competitiveness and the cost of imports (and thus purchasing power), the exchange rate influences this balance:

• A stronger currency (appreciation) makes exports more expensive for foreign buyers and imports less expensive, which can worsen the current account balance;
• A weaker currency (depreciation) boosts exports (making them cheaper for foreign buyers) and reduces imports, which can improve the current account balance.

This led neoclassical economists⁹⁸ and monetarists⁹⁹ to conclude that a floating exchange rate regime would allow for an automatic rebalancing of the current account. As UNCTAD notes, this was supposedto “ease the pressures forcing deficit countries to make quantitative adjustments (i.e., by reducing domestic demand) and instead encourage adjustment through prices (i.e., by changing exchange rates), notably through the appreciation of the surplus currency.”¹⁰⁰

In reality, this rebalancing is not taking place, for two main reasons.

• As mentioned above, the exchange rate is not determined solely by flows related to trade in goods and services. The majority of transactions in this market are purely financial. Consequently, a currency’s exchange rate depends on numerous factors that can cause it to deviate from a theoretical value that would lead to a balanced current account. In particular, an inflow of foreign capital makes it possible to maintain a current account deficit over the long term.
• The effects of exchange rate fluctuations are not immediate: tests of the hypothesis that a currency depreciation would improve the current account generally show a “J-shaped effect.” When a currency depreciates, imports immediately become more expensive, while the volume of exports does not increase instantly (even though they are cheaper for foreign buyers). This situation leads to an initial deterioration in the trade balance. Over time, exports increase and imports decrease, thereby improving the trade balance.¹⁰¹

The links between capital flows, exchange rates and the current account

Let us clarify, first of all, that the term “capital” is not limited here¹⁰² to investments in a company’s equity but encompasses all financing instruments, including bonds and bank loans.

As we saw in Essential 2, starting in the 1980s, the trend was toward financial deregulation and the opening of capital markets. This development was based, in particular, on the idea that the free flow of capital would help promote access to financing for countries in need.

The decision to invest in one country rather than another is based on various factors, foremost among which are political stability and overall macroeconomic considerations (particularly growth prospects). It should be noted that environmental and climate issues will become increasingly significant as their macroeconomic effects become more and more noticeable and quantifiable.

Among the factors that enhance a country’s attractiveness, the exchange rate plays a role, but this is by no means systematic.

• A currency’s appreciation makes domestic assets (buildings, land, equity stakes in domestic companies) more expensive for foreign investors, which can slow foreign direct investment (FDI)¹⁰³. Such a situation is, however, sometimes seen as a sign of a stable and prosperous economy, which can, on the contrary, attract certain types of FDI (confidence effect). Switzerland, whose currency appreciates regularly, is a case in point.
• Conversely, currency depreciation makes domestic assets cheaper. This can be seen as an opportunity for foreign investors to acquire companies, land, and infrastructure at a lower cost. However, if the depreciation reflects economic instability (inflation, crisis), it may discourage FDI.

While it facilitates access to international financing, the opening of countries to capital has also had negative effects.¹⁰⁴

In fact, private capital is volatile and procyclical. It flows into countries when growth prospects are strong and is quick to flow out when the global financial cycle turns.

This fuels a vicious cycle for countries with current account deficits.

• These countries can delay adjusting their current account balances as long as they have access to private loans.
• An influx of capital causes the currency to appreciate (unless the central bank intervenes), which can widen the current account deficit.
• Furthermore, the stock of foreign capital has a direct impact on the current account through the outflows of income it generates (repatriation of dividends and interest).

This process continues and intensifies until the international financial cycle reverses and/or investors lose faith and repatriate their capital. It is then—when countries need it most—that capital abruptly dries up. The sudden halt in capital inflows, combined with capital outflows, further exacerbates downward fluctuations in the exchange rate. This can then result in higher debt service costs if the debt is denominated in foreign currency, leading to a debt crisis.

These mechanisms are particularly acute in the case of a country with a current account deficit. However, a country with a current account surplus—but whose development has relied heavily on foreign capital—may find itself in serious trouble if that capital is suddenly withdrawn.

The Renewed Debate on Capital Controls

While financial liberalization was regarded as dogma in the 1980s and 1990s, the proliferation of financial crises¹⁰⁵ linked to these sudden reversals in private capital flows led, in the 2010s and 2020s, to a reevaluation of the IMF’s stance¹⁰⁶.

Capital controls (and interventions in exchange rates—see the section below on central banks’ room for maneuver) can now be justified in the name of financial stability. As Éric Monnet notes, “the main argument is that financial flows and interest rates within a country are determined not only by the country’s intrinsic characteristics but also by a global financial cycle that needs to be moderated.”¹⁰⁷

This shift in the prevailing doctrine on capital controls in the name of financial stability has been accompanied by evidence of the success of models in which capital controls serve broader objectives.

This is particularly true of China, which—despite beginning to liberalize in the 2010s—continues to require administrative approvals for capital flows in order to evaluate investments in light of national industrial and monetary policy objectives.¹⁰⁸

What is the scope of action available to central banks?

Regardless of the exchange rate regime, a currency’s convertibility is intrinsically linked to the confidence it inspires: for a French exporter to accept Brazilian reais as payment for a sale means “believing” that they can be converted into euros. In practice, this comes down to trust in the country’s monetary authorities—and first and foremost, in the Central Bank. It is, in fact, the Central Bank that intervenes in the foreign exchange market (Forex) to ensure—or not!—the successful completion of all transactions.

In fact, contrary to monetarist theories, the role of central banks is not limited to controlling inflation; they also influence exchange rates (through their monetary policy or by intervening in the foreign exchange market) and play a role in preventing or curbing financial crises.

Monetary policy and exchange rates

The central bank influences the exchange rate of its currency through its monetary policy, the primary tool of which is the interest rate.

According to a common misconception, financial markets are averse to “accommodative” monetary policies. In short, a currency is “penalized” (that is, sold more than bought, which could lead to its relative depreciation) by monetary policies aimed at increasing the money supply in circulation to stimulate domestic demand, whether these consist of cuts in key interest rates or quantitative easing operations (QE) or others.

The rationale behind this belief is simple: excessive money supply would lead to a decline in the value of the currency (this is the quantity theory of money). The facts show, however, that it is not quite that simple: if the economic situation of a country (or a group of countries, such as the eurozone) is deteriorating, the markets are not, as a matter of principle, hostile to these “accommodative” interventions, unless they believe such measures risk exacerbating already problematic inflation, are ineffective because interest rates are already too low, or are perceived as circumventing fundamental reforms. In the period following the 2008–2009 crisis, central banks’ quantitative easing (QE) policies did not trigger any sharp negative reactions from the markets.

The importance of foreign exchange reserves: coping with crises and controlling the exchange rate

The increasing frequency of financial crises since the 1970s has led many countries to build up substantial foreign exchange reserves, which consist of foreign currency assets (known as reserve currencies), gold, and SDRs (Special Drawing Rights) held by a country’s central bank.

These reserves make it possible to influence a currency’s exchange rate by intervening in the foreign exchange market and/or to serve as a form of self-insurance in the event of a liquidity crisis (such as one caused by a sudden withdrawal of capital) or a balance-of-payments crisis. They are therefore the equivalent¹¹³ “real” or “tangible” wealth (know-how, skilled labor, machinery, energy, natural resources, goods and services produced and delivered, etc.).

How are foreign exchange reserves built up?

A central bank builds up foreign exchange reserves by purchasing foreign currency (or gold) on the foreign exchange market using its national currency, which it creates in the process. Of course, this requires that there be parties interested in its currency.

Let’s take China as an example. The Bank of China can exchange renminbi for foreign currencies for foreign importers who want to pay in renminbi, for Chinese exporters who want to convert the dollars they have received, or for foreign investors who wish to invest in China, etc.¹¹⁶. Building foreign exchange reserves is therefore all the easier the more deeply a country is integrated into international trade, whether through its exports or through the attractiveness of its economy to foreign investment.

Reserve currencies are most often held in the form of financial securities denominated in the relevant currency (U.S. Treasury bonds, European bonds, etc.). Foreign exchange reserves can therefore increase as a result of income from these securities. They can also decrease (or increase) due to the depreciation (or appreciation) of these securities. The same applies to gold.

Foreign exchange reserves enable central banks to influence the exchange rate of their currency

By building up substantial foreign exchange reserves, the Bank of China was thus able to keep the renminbi’s exchange rate higher than it would otherwise have been¹¹⁷.

While it seems normal for countries with a fixed (or managed floating) exchange rate regime to intervene regularly in the foreign exchange market, one might think that this would not be the case for countries with a floating exchange rate regime. Yet these countries also engage in this type of intervention¹¹⁸ as the example of Switzerland shows.

In the early 2010s, this country became particularly attractive to foreign investors, largely because its interest rates were higher than those of other countries¹¹⁹. Since the continuous inflow of foreign capital could cause the Swiss franc to appreciate too much (with a negative impact on exports), the Swiss National Bank decided to purchase foreign securities, thereby increasing the country’s foreign exchange reserves. By 2022, 85% of its assets consisted of foreign assets (amounting to 140% of Swiss GDP).¹²⁰

Conversely, a currency may find itself in a situation of excess supply: too many market participants are selling the currency and not enough are buying it. This can result, for example, from a sudden withdrawal of capital following a global financial crisis, or from a crisis of confidence stemming from a political scandal.

In this case, the currency’s exchange rate falls, which the central bank may try to prevent by buying its own currency—but to do so, it must have foreign exchange reserves. In the opposite scenario, it has no choice but to let the currency depreciate, which, as we have seen, has significant economic consequences. This is particularly true if the country is heavily dependent on foreign sources for its imports of basic goods (food, energy).

Foreign exchange reserves are one of the tools of the global financial safety net

A country’s accumulated foreign exchange reserves can help it weather a liquidity crisis. However, this proves insufficient in the event of a global financial crisis, such as the one in 2008, and, of course, for countries that do not have foreign exchange reserves.

There are other mechanisms, but they are neither unlimited nor unconditional.

The IMF was created to address financial crises: it can therefore grant loans, but for a long time these have been accompanied by conditions in the form of structural adjustment programs aimed at implementing the measures of the Washington Consensus.¹²¹

Regional multilateral mechanisms have also been established in the wake of crises. Examples include the Chiang Mai Initiative, a regional mechanism in East Asia created after the 1997–1998 financial crisis, and the European Stability Mechanism (ESM), created in the wake of the 2010–2012 eurozone sovereign debt crisis.

Swap agreements are currency exchange agreements between central banks. Although they have existed for a long time, they have gained in importance since the 2007–2008 crisis. They are used in particular by the Fed to address dollar liquidity crises, by the ECB—especially with EU countries outside the eurozone—and, increasingly, by China to facilitate trade in renminbi.¹²²

With globalisation came increased tax, social and environmental competition

The growing integration of economies has resulted not only in increased trade in goods and services and capital flows, but also in competition among nations and regions driven by large corporations, which have thereby been able to reduce their effective tax rates—and thus their contribution to the public good—or even avoid paying taxes altogether.

How International Trade Actors Have Broken Free from Governments—and from Public Interest

Originally tied to the realm of nation-states, international trade gradually gained autonomy, to the point where the actors involved became powers on par with nations.

Beginning with the opening of the seas in the 15^th and 16^th centuries, those involved in international trade gradually freed themselves from the legal and tax regulations of individual territories. Civil law, which establishes the common rules of social life, has faced competition—and has even been altered—by commercial law, which governs individual relationships centered on economic interests. This development has far-reaching consequences for the protection of collective interests.

In his book The Age of Deglobalisation (2022), economist Guillaume Vuillemey traces this evolution, which he describes as the deterritorialization of trade. We present his thesis below.

Deterritorialization occurs when transactions take place in a given location while partially evading the legal and tax rules in effect in that location; in other words, when there is a break in the link between an actual activity and its legal and regulatory treatment.

Guillaume Vuillemey, 2022

The slow development of long-distance trade

If long-distance trade is as old as civilizations¹²³, for a long time it remained closely tied to the terrestrial world and was therefore subject to the legal systems of the territories it traversed. To reach their final destination, merchants had to travel through various countries and territories and thus submit to the approvals, restrictions, and tolls imposed by local rulers. Maritime trade was also inseparable from the terrestrial world at that time: navigation techniques¹²⁴ did not allow ships to stray far from the coast, and the seas were controlled by the maritime powers of the time.¹²⁵

Beginning in the 15^th and 16^th centuries, advances in navigation¹²⁶ made large-scale European expeditions possible¹²⁷. Europeans’ relationship to space and the ocean evolved: from an impassable barrier, it became a unifying force; it connected worlds rather than separating them.

It was the governments that first promoted the development of global maritime trade. Their support was, in fact, essential for launching costly and highly risky expeditions¹²⁸. This involved financial support for shipbuilding, but also—and above all—the establishment of the East India Companies.

Although heavily dependent on the states for their development, commercial interests gradually broke free from them beginning in the late 17^th century: long-distance trade became viable without their support. The steady decline in transportation costs and improvements in efficiency brought about by technological advances made it easier to raise the capital needed for expeditions. The East India Companies gradually lost their monopoly and were eventually dissolved. Ideas had changed. While mercantilist thought—which linked the power of the state to the vitality of trade—dominated in the 16^th and 17^th centuries, the publication of the Wealth of Nations (1776) by Adam Smith, the father of classical economics, marked a turning point. In it, he promoted free trade and denounced monopolies and government barriers. Forty years later, David Ricardo developed the theory of comparative advantage, which has since served as the foundation for advocates of free trade.

Starting in the 19^th century, trade really began to intensify: economists, in fact, identify the period from 1870 to 1914 as the “first wave of globalisation”¹³². This development resulted from both technical and institutional factors (steamships, the growing integration of financial markets in industrialized countries facilitated by the gold standard, which stabilized exchange rates¹³³ between currencies, and the limited liability corporation structure, which became accessible to private entities.¹³⁴

After a period of decline following World War I and the economic crisis of 1929, international trade began to flourish again after World War II, driven by geopolitical, institutional, and technical factors.¹³⁵

How trade law increasingly influenced civil law

The distinction between civil law and commercial law has existed since ancient times¹³⁶ : the law governing trade with foreigners was not the same as that of the city-state.

Commercial law long remained a niche field, a marginal area of law, with civil law enjoying clear preeminence. The opening of the seas is changing the landscape.

The increase in trade across the high seas beginning in the 16^th century sparked a debate¹³⁷ regarding the legal status of this space. Very early on, the doctrine of freedom of the seas prevailed: the sea is free for all and belongs to no one; beyond a strip surrounding a country’s coastline, it is not subject to any state regulation.

Globalisation […] is the result of a split in the world: on the fringes of traditional institutions—where the individual and communal dimensions of human life had always been intertwined—a world has emerged in which individual interests alone have been allowed to prevail, without regard for collective interests.

Guillaume Vuillemey, 2022

Freedom of the seas opens up a space for trade that is virtually free of political interference—a prospect that is reflected in the evolution of the law. As Guillaume Vuillemey explains “maritime law has naturally become integrated into the frameworks inherited from commercial law. Furthermore, freed from the constraints of land, commercial law has developed numerous institutions, legal forms, and contracts that allow for the optimal exploitation of commercial opportunities on a global scale. This body of law was developed to provide tools for the more effective pursuit of private interests, with little regard for collective interests ”.

The limited liability corporation, mentioned earlier, is an example of this. Granted by governments to the East India Companies to promote long-distance expeditions, this legal status gradually became widespread throughout the 19^th century, extending to all economic activities. However, while it does indeed make it possible to raise capital for large-scale projects, that is not its only effect. By limiting investors’ potential losses to the capital they have contributed, it relieves them of responsibility for the—potentially serious—impacts of the activities of the companies in which they have invested. It allows for the maximization of private profits, while being potentially very harmful to the collective interest.

Since participants in international trade (merchants first, and multinational corporations second) are able to choose which countries to trade with—and later, in which territory to establish a presence—they can pit those countries against one another to further their own interests. States are then tempted to adapt their civil laws to attract them.

This dominance of commercial interests comes at the expense of other objectives that could be pursued. As we explain in the Essential about the winners and losers of globalisation, this dynamic is deeply unequal. The actors who benefit from this competition among states are the “mobile actors”—multinational corporations and wealthy individuals—who can arbitrage on a global scale to maximize their interests (paying less in taxes, producing under lax social or environmental standards). “Immobile actors,” rooted in local communities and national economies, pay the price (through taxes or the deterioration of public services) for the disengagement of mobile actors.

Today, this competition over standards and taxation weighs heavily on the public debate. It lies at the heart of the constant call for corporate competitiveness. It crops up in every debate on environmental or social regulations. On the tax front,this competition has led to a reduction in corporate income taxes (since corporate headquarters are more mobile than labor or real estate). Globalisation has also facilitated the use of tax havens and tax evasion, which remain very difficult to regulate.

Let’s look at three examples of competition in the social and environmental spheres.

The example of maritime trade: flags of convenience, a “market for ship nationality”

International trade is mostly seaborne

Carrying nearly 80% of traded goods, the merchant marine is the backbone of international trade. This sector, along with the rise of flags of convenience, serves as a prime example of how competition among nations to lower social and environmental standards affects businesses.

International maritime transport is essential regardless of the type of cargo: oil (carried by oil tankers), other raw materials (carried by bulk carriers), and manufactured goods (carried by container ships). That is why the growth in trade has been accompanied by an expansion of the merchant fleet.

Origins and development of flags of convenience

The rise of flags of convenience in the maritime sector has played a significant role in the weakness of the regulations governing the maritime sector.

All ships must fly the flag of a country that determines the regulations the shipowner must comply with, as well as the competent jurisdiction in the event of a dispute. Flags of convenience are provided by states that authorize ships to fly their flag in exchange for the payment of registration fees, without any actual connection between the state and the company that owns the ship. The first flags of convenience appeared in the 1920s, when U.S. shipowners began registering their ships in Panama to circumvent Prohibition and sell alcohol to their passengers.

A Greek shipowner can thus choose to register his vessel in Liberia without having any connection to that country (whether in terms of capital investment, crew, or port calls). However, Liberian law does apply—whether in matters of labor, the environment, safety, or in the event of a collision, shipwreck, or oil spill. The growth of flags of convenience has given rise to a sort of “market for ship nationality and, consequently, for the standards to which they are subject”¹⁴². They thus constitute an archetypal example of how international economic actors (in this case, shipowners) pit national standards against one another.

Profits for a few, consequences for all

Given that the very purpose of flag-of-convenience ships is to circumvent environmental and social regulations, it is clear that their rise has led to a lowering of the standards applicable to the merchant marine.

As a result, the global fleet is less safe, more polluting, and older than it would otherwise have been.

Guillaume Vuillemey, 2022

The system benefits a few stakeholders: shipowners and operators, the few countries that offer flags of convenience, and, to a lesser extent, consumers who pay less for the transportation of the products they purchase. On the other hand, the costs are borne by the public when it comes to ocean pollution, such as oil spills: it is, in fact, very difficult for a country’s judicial system to obtain compensation for an oil spill due to the complex legal structures put in place specifically to avoid liability in the event of an accident. On the social front, working conditions on ships flying flags of convenience are particularly harsh, as these ships do not respect minimum labor standards—and know they are immune from legal action by their employees.

The loosening of environmental standards to attract investment in extractive industries

Some countries rich in natural resources have adopted deliberate strategies to limit (or even fail to implement) environmental standards in order to attract foreign investors. This phenomenon is particularly evident in sectors such as oil extraction and mining, where the potential economic gains are considered to outweigh the social and environmental costs.

The Niger Delta in Nigeria: a dramatic example

At the heart of Nigeria’s oil industry, this delta has endured decades of intensive exploitation without the government imposing or enforcing serious environmental standards. Developed since the 1950s by international companies (Shell being the most prominent) and by the Nigerian government, this area covers approximately 70,000 km² —an area comparable to that of Ireland—and is home to approximately 30 million people belonging to more than 40 ethnic groups.¹⁴⁶

A study published in 2025¹⁴⁷ based on radar observations covering an area of 9,000^km² estimates that more than 13 million barrels of oil have been spilled into the delta since the start of operations, with major ecological impacts, particularly on the mangroves—which are being destroyed at a rate of more than 5,500 hectares per year.

A meta-analysis¹⁴⁸, based on 28 studies conducted between 2000 and 2024, shows that oil pollution has significant impacts on agriculture (heavy metals and nearly 240,000 oil spills contaminating 60% of arable land), on health (respiratory problems in 35% to 45% of exposed communities), and a weakening of local food systems.

Despite efforts to monitor the environment using new technologies (remote sensing, artificial intelligence), environmental monitoring¹⁴⁹ remains insufficient to prevent spills. In practice, remediation efforts are often slow, piecemeal, or nonexistent, especially in historically affected onshore areas. Legal proceedings are underway regarding corporate liability¹⁵⁰, highlighting the environmental and human consequences of oil exploitation in the Niger Delta and the lack of meaningful environmental regulations.

Mining concessions in the Amazon: a cause of deforestation

While agriculture and livestock farming are the leading causes of deforestation in the Amazon¹⁵¹, mining also plays a role.

The surge in applications for mining concessions in protected areas and on Indigenous lands illustrates the growing pressure from mining companies to exploit metal deposits (nickel, copper, cobalt, etc.). Some companies have filed hundreds of permit applications in conservation areas of the Brazilian Amazon—sometimes in areas that overlap with protected areas or Indigenous territories—at a time when climate and social challenges are intensifying.

According to the World Resources Institute’s report Undermining Rights: Indigenous Lands and Mining in the Amazon (2020), active mining concessions covered nearly 128 million hectares, or about 18% of the Amazon. Furthermore, both legal and illegal mining activities encroached on more than a thousand Indigenous territories (covering 45 million hectares, representing nearly 20% of Indigenous lands) despite legal protections, particularly in Brazil, where mining on these lands is prohibited by law. Finally, the report also warns that mining increases deforestation in these areas and causes significant pollution.

Launched in 2023, the Amazon Mining Watch scientific initiative monitors deforestation linked to gold mining in nine countries in near real time¹⁵² that make up the Amazon basin: by the end of 2025, nearly 500,000 hectares of Amazon rainforest had been affected by mining development (including approximately 40,000 additional hectares in 2025).

In addition, by 2025, more than 220 protected areas and/or Indigenous territories (covering more than 14,000 hectares)¹⁵³ were subject to new mining activities. This suggests a high proportion of illegal mining, as it is most often prohibited in these territories.

Such practices can be explained in part by competition among nations: countries seek to attract investment in extractive sectors by offering more flexible regulatory frameworks, expedited permitting, and less restrictive oversight. In this context, environmental regulation becomes a competitive factor rather than a safeguard, with globalisation amplifying an environmental “race to the bottom.”

Free-trade zones: tax and social competition as a strategy to attract investment in the context of globalisation

It was starting in the 1970s that “free zones” began to proliferate. This generic term refers to a territory in which businesses enjoy special status that deviates from the standard regulations in effect in the rest of the country: reduced taxes, no customs duties, less protective labor laws, etc. They vary in size: from small, strictly defined areas with no resident population to territories covering hundreds or even thousands of km²—in which case they are referred to as “special economic zones” (SEZs). They also encompass different types of activities: zones designed to facilitate commercial logistics, more or less specialized manufacturing, service zones, and so on.

Their proliferation is indicative of ongoing competition among countries and regions seeking to attract businesses and investors in the context of globalisation.

Statistics on free trade zones are difficult to find, both because of the lack of a classification system (see box) and the scarcity of regular publications on the subject.

Take, for example, the 2019 edition of UNCTAD’s World Investment Report. The authors note that, as of 2018, more than 147 countries had legislation establishing special economic zones, compared to just 29 in 1975. During the same period, the number of SEZs rose from 79 to more than 5,400 (with an additional 500 SEZs in the planning stages at the time of the report’s publication).

In his book Apocalyptic Capitalism (2025), historian Quinn Slobodian, shows that these “zones of exception” have proliferated to the point of becoming the norm in global governance, embodying a logic of competition among territories to lower taxes, relax labor laws, and limit regulatory constraints.

It traces how these areas have gradually been integrated into governments’ strategies to attract investment while circumventing or fragmenting national regulations. Open to international capital, they offer significant tax advantages, effectively weakening the ability of governments to uniformly regulate economic development across their entire territory and reducing their tax revenues.

From a social perspective, these zones can also lead to a race to the bottom in social standards. Companies located in SEZs often benefit from greater flexibility under labor laws, with weaker protections for workers or the absence of strong labor unions, which enhances their competitiveness but undermines working conditions. In some cases, these zones have been described as places where wages and protections fall well below national standards, creating segmentation within the domestic labor market and social competition between zones and external territories.

Trade globalisation is contributing to the breach of planetary boundaries

The globalisation of trade has had significant negative impacts on the climate and global ecosystems. It is certainly not possible to unequivocally attribute all instances of exceeding planetary boundaries to globalisation, particularly because it has contributed to the growth of a development model that ignores these boundaries. Nevertheless, we will attempt to analyze this contribution by distinguishing the direct impacts of trade flows themselves from the indirect impacts, which are of two kinds, as we will see.

Estimating the impact of international trade in goods and services on planetary boundaries

Productive activities that give rise to international trade in goods and services rely on the extraction and processing of natural resources. They also generate pollution, as does the resulting consumption of these products. They therefore have an impact on planetary boundaries.¹⁵⁹

In an article published in 2025¹⁶⁰, several economists sought to identify what that impact was for five of the nine planetary boundaries.

Not surprisingly, the pressure exerted by goods traded internationally is distributed unevenly around the world.

As the authors note, “consistent with previous studies¹⁶¹, we found a significant gap between high-income countries and low- and middle-income countries: demand for imports of final consumption goods from the former leads to a deterioration of Earth system processes in the latter.”

Low- and middle-income countries in East Asia and the Pacific—led by China—fall between these two groups, as they are both importers and producers of goods that contribute to pressure on planetary boundaries.

The study thus shows that a significant portion of the pressures on planetary boundaries is linked to global value chains¹⁶² and current forms of international trade. However, one cannot automatically conclude from this that international trade itself is the driving force behind all of these pressures.

The direct impact of trade is evident in international freight and passenger transportation services. For the majority of goods and services traded, however, it is more difficult to determine to what extent trade contributes to these impacts rather than merely shifting them geographically.

Direct impacts of trade globalisation: the example of international transport

Globalisation has led to an increase in the international transport of goods and people, which has direct consequences for the environment. It should be noted here that transportation is both a prerequisite for and an integral part of international trade, since transportation services are commercial services.

Most forms of transport rely on fossil fuels, which have an impact on the climate and the environment

The burning of fossil fuels leads to the emission of greenhouse gases, which cause global warming.

Emissions from international aviation and maritime transport totaled 1.4 GtCO₂-eq¹⁶⁵. To estimate emissions from transportation related to international trade, emissions from road transport must be added (since rail emissions are negligible).

According to the International Energy Agency¹⁶⁶, freight transport by heavy-duty trucks and passenger transport by bus emitted approximately 2.3GtCO₂. A conservative estimate suggests that at least between half and two-thirds of these vehicles cross a border or transport goods unloaded from ships.

In total, GHG emissions from international freight transport thus range between 2.5GtCO₂-eq and 3GtCO₂-eq, representing approximately 5% of global emissions. This result is largely due to the very low carbon intensity¹⁶⁷ of maritime transport, which accounts for nearly 80% of the volume of goods transported.

The use of various modes of transport has many other environmental impacts.

The combustion of fossil fuels emits gases (sulfur dioxide, nitrogen oxides, fine particulate matter) and heavy metals¹⁶⁸ that pollute the air, water, and soil. This is particularly true for maritime transport, which uses heavy fuel oil, one of the dirtiest fuels in the world.¹⁶⁹

In addition to these pollutants, there are fine particles from the brake pads of land-based vehicles (buses, trucks, cars, and trains), as well as pesticides that may be used to control weeds along roadsides and railroad tracks.

Maritime transport is a major source of ocean pollution from hydrocarbons (degassing operations¹⁷⁰, shipwrecks, and oil spills), and biological pollutants (from the discharge of ballast water in ports¹⁷¹), and chemicals and waste (containers that have fallen overboard¹⁷²).

The construction of transport fleet and infrastructure also has environmental consequences

The construction of ships, airplanes, trucks, buses, and trains requires raw materials (metals, energy, water) and generates greenhouse gas emissions as well as other forms of pollution. As the global merchant fleet grows, so do the environmental impacts associated with shipbuilding.

The same applies to the construction of transport infrastructure¹⁷³ which, in addition, contributes to land sealing, the fragmentation of ecosystems, and the destruction of ecologically sensitive sites.

Between 2011 and 2025, the number of ships in the global merchant fleet increased by 35% (from 83,000 to 112,500 ships). If the fleet is measured based on the size of the ships rather than just their number, the increase is more than 75%.

International transport is largely unregulated

Around the world, the aviation and maritime sectors benefit from particularly favorable tax and regulatory regimes: reduced fuel taxes, exemptions from VAT or corporate income taxes, and special provisions in climate agreements.

Taken individually, states are ill-equipped to regulate international transportation and address its negative impacts. In a context of global market liberalization, trade flows can, for example, be rerouted to avoid ports or airports that are too costly. More fundamentally, the rise of flags of convenience within the global merchant fleet provides an excellent example of how multinational corporations pit nations against one another to drive down social and environmental standards.

The indirect environmental impacts of globalisation

As we have seen previously, a significant portion of the pressures on planetary boundaries is linked to global value chains and current forms of international trade. While certain impacts can be directly attributed to international trade (particularly transportation), it is more difficult to do so for others. Indeed, without trade, many importing countries would be forced to carry out the relevant activities on their own soil, thereby relocating the impacts to their own territory.

However, several factors suggest that international trade increases pressure on planetary boundaries and on populations, beyond the transportation sector alone.

• Hide this pollution from my sight: people in importing countries are far removed from the pollution and harm caused by the products they consume. These problems occur in poorer countries, which are often undemocratic, with weak environmental protections and limited capacity for their populations to speak out and seek redress for the harm they have suffered.
• The vicious cycle of overproduction and overconsumption: in many sectors, economies of scale¹⁷⁵ are so significant that selling the entire output requires access to international markets. Companies like Shein and Temu could never have gotten off the ground without access to Western markets. The very low prices resulting from economies of scale, as well as low labor costs and lax environmental, health, and safety standards, are factors driving overconsumption.
• Blackmail by Multinational Corporations: Market Power¹⁷⁶ The immense power of multinational corporations at the head of global value chains allows them to pit governments against one another to secure the most favorable social and environmental conditions—and thus the lowest prices. This exerts downward pressure on standards where they exist, while preventing progress in countries where they are already weak or nonexistent.

Below, we provide a few examples from various sectors.

Deforestation

Surprisingly, there are few studies on the impact of international trade on deforestation. The most recent study¹⁷⁷, published in 2022, which focuses only on the period 2011–2015, estimates that 90% of tropical deforestation is attributable to agriculture. Of this agriculture-related deforestation, slightly more than half is linked to production¹⁷⁸ of which about a quarter is attributable to international demand.

As a result, forests are being converted into farmland to meet international demand for palm oil for the agribusiness sector, as well as to produce biofuels and to supply chocolate, coffee, rubber, and soybeans—which are used in the form of oilseed meal to feed livestock in Europe and China.

Indonesia exports massive quantities of palm oil and paper pulp¹⁷⁹ from plantations that have replaced natural forests. Between 2001 and 2019, the country’s forest area decreased by 11% (9.79 million hectares), of which 32% (3.09 million hectares) were converted to oil palm plantations and 10% to plantations (acacia and eucalyptus) for pulp production.

By creating demand in forested countries to convert their forests into farmland, globalisation thus appears to be one of the causes of deforestation. Multinational corporations also play an important role in this process by exerting pressure on governments. This is the case, for example, with the four grain giants—known as the ABCD (Archer Daniels Midland, Bunge, Cargill, and Louis Dreyfus)—which are pushing for soybean exports¹⁸⁰. We should also mention the case of the meat-processing company JBS¹⁸¹ (named after its founder, José Batista Sobrinho), whose 2021 carbon footprint was estimated at 421 MtCO2-eq¹⁸² (equivalent to Total’s energy emissions across all scopes). Its current slaughter capacity is 75,000 cattle, 14 million poultry, and 147,000 pigs per day. It exerts demonstrable pressure on public authorities to support the destruction of the Amazon rainforest. Its influence, particularly political, is clearly the result of globalisation.

Accidental pollution caused by industrial accidents

Since the dawn of the Industrial Revolution, industrial disasters have been all too common¹⁸³ : mining tailings dam failures, nuclear accidents, chemical spills, and oil spills. They result from accidents, incompetence, negligence, or safety failures—and very often, from inadequate regulations. They result in deaths, injuries, destruction of the biosphere, and significant property damage. Very often, these industrial disasters are part of global value chains, particularly when it comes to the exploitation of natural resources.

Take, for example, the disaster that occurred in early 2025 in Zambia, a country coveted by China, among others, for its copper resources in particular. A tailings dam owned by Sino-Metals Leach Zambia (a subsidiary of the state-owned China Nonferrous Metals Industry Group) collapsed in early 2025, releasing approximately 50,000^m³ of acidic waste into the Kafue River. However, about 60% of Zambia’s 20 million inhabitants live in the Kafue River basin and depend on it for fishing, irrigation, and industrial water supply. The river provides drinking water to approximately five million people, including those in the capital, Lusaka.

As a result of this massive pollution, the city of Kitwe, which has a population of about 700,000, was forced to completely suspend its drinking water supply. The spill also caused an ecological disaster, resulting in widespread fish deaths and the destruction of crops along the riverbanks.

Institutions and international law prioritise trade at the expense of the environment

The current architecture of international institutions stems largely from World War II. It is characterized by the predominance of economic, financial, and trade institutions, in the wake of the traumas of the war and the 1929 crisis. While financial institutions have begun to take environmental concerns into account, this is not at all the case in the trade sector. As for those institutions created specifically to address environmental issues, they play a secondary role due to a lack of financial resources and the power to enforce their decisions.

The United Nations system was slow to incorporate environmental issues

Environmental issues now feature prominently in the UN’s discourse and agenda, as evidenced, for example, by the adoption of the Sustainable Development Goals at the United Nations General Assembly in September 2015.

That was not the case originally. According to Article 1 of the United Nations Charter, the objectives of the UN are: “To maintain international peace and security” and “to achieve international co-operation in solving international problems of an economic, social, cultural, or humanitarian character, and in promoting and encouraging respect for human rights and for fundamental freedoms for all without distinction as to race, sex, language, or religion“.

Furthermore, the environmental institutions within the United Nations system do not carry the same weight as the economic institutions and serve primarily as forums for data generation and exchange.

There is no high-level international organisation dedicated to the environment

The United Nations Conference on the Environment (also known as the Earth Summit), held in Stockholm in June 1972, marked the emergence of environmental issues within the United Nations system. In particular, it led to the creation of the United Nations Environment Programme (UNEP), which coordinates United Nations activities in the field of the environment and assists countries in implementing environmental policies.

Despite its important role, UNEP does not hold a very high status within the UN system. It is merely a UN program, and its resources are limited relative to the scope of its mission¹⁸⁶.

Conversely, eleven of the fifteen¹⁸⁷ specialized agencies (see box above) of the UN are dedicated to financial or economic issues. Some of these agencies have, since their inception, incorporated environmental issues, with varying degrees of commitment¹⁸⁸. A proposal for a World Environment Organization was conceived in the 2000s and championed by NGOs, prominent figures, and politicians¹⁸⁹ but it is currently at a standstill.

The international legal framework on the environment

The international institutional framework for environmental protection is therefore based primarily on international treaties¹⁹⁰, most of which have been concluded under the auspices of the UN or one of its specialized agencies. The EcoLex database on environmental law contains more than 500 multilateral treaties¹⁹¹ in force. Not all of them are of the same legal standing, and some do not have environmental protection as their primary purpose, such as the Antarctic Treaty (1959) or the United Nations Convention on the Law of the Sea (1994).

Among the key documents are the three United Nations framework conventions adopted following the Second Earth Summit held in Rio in 1992: on climate change, on biological diversity, and on combating desertification. Each has a secretariat hosted by the UN and regularly organizes COPs (Conferences of the Parties), where the States Parties to the convention negotiate new commitments.

The Climate Conferences (COPs) have resulted in two landmark agreements: the Kyoto Protocol in 1997 and the Paris Agreement in 2015. We should also mention the Montreal Protocol on Substances that Deplete the Ozone Layer, adopted in 1987 and amended by the Kigali Amendment (2016), which calls for the phase-out of hydrofluorocarbons (HFCs)¹⁹².

In France in 2017, a civil society coalition launched a draft Global Pact for the Environment to affirm the right to a healthy environment alongside the two international covenants on civil and political rights and on economic, social, and cultural rights. The process was blocked in 2019 by a coalition of countries, including the United States and Brazil¹⁹⁵ and resulted only in a declaration in 2022.

There is, therefore, indeed an international legal framework on the environment. Given the results in the fight against global warming and the loss of biodiversity, one cannot help but conclude that this framework remains inadequate.

Environmental issues are a relatively new topic for major financial institutions

The IMF and the World Bank were established by the Bretton Woods Conference in 1944

The goal of the Bretton Woods Conference was to establish a stable international monetary system and to promote reconstruction and economic development. Although 44 nations participated in the negotiations, the Bretton Woods agreements bore the distinct mark of the two main protagonists, the United States and the United Kingdom.

In monetary terms, they result in a system centered on the U.S. dollar, which is nominally pegged to gold¹⁹⁶. All other “major” currencies were defined by a system of fixed exchange rates against the dollar. The dollar’s supremacy on the international stage dates back to Bretton Woods, a dominance that did not end with U.S. President Richard Nixon’s 1971 decision to end the fixed exchange rate regime (and the dollar’s link to gold). The dollar remains the leading currency in international trade.

The Bretton Woods Agreements provided for the establishment of two institutions that would later be incorporated into the United Nations system.

The International Monetary Fund is responsible for ensuring the stability of the international monetary system, monitoring the risks of financial crises, and assisting countries in difficulty (for a long time, in exchange for harsh and not always effective structural adjustment programs…).

The International Bank for Reconstruction and Development (IBRD), which is now part of the World Bank Group¹⁹⁷, was originally established to finance the postwar reconstruction of Europe and Japan. Today, it focuses on fighting poverty (through aid, financing, and advice to countries in need) and is developing climate finance initiatives.

Since the governance of these institutions stems largely from the financial contributions of their member states, the United States plays a dominant role in them.

A belated recognition of environmental issues

The IMF and the World Bank have the ability to provide aid or loans to countries and can therefore influence economic policies by requiring the adoption of certain measures. This is precisely what the Washington Consensus reflects.

This consensus has gradually eroded, and approaches have become less dogmatic. In addition, the Bretton Woods institutions have begun to take environmental and climate issues into account. The World Bank established an environmental division in 1980. Its commitment strengthened following the 1992 Earth Summit in Rio. Today, it funds numerous climate-related projects, including the reduction of greenhouse gas emissions, the energy transition (renewable energy, energy efficiency), and adaptation to climate change (water management, agricultural resilience). It launched a Climate Change Action Plan in 2016 (renewed in 2021 and 2025), setting goals for integrating climate considerations into its financing. It should also be noted that most regional and national development banks have likewise integrated environmental issues—particularly climate-related ones—to varying degrees.

The IMF began addressing climate issues following the signing of the Paris Climate Agreement (2015), which prompted it—like many financial institutions—to take into account systemic financial risks related to climate change.

Since 2021, the IMF has stepped up its efforts by assessing the impact of climate-related disasters on countries’ economic stability, encouraging the implementation of carbon taxes to limit GHG emissions, and by establishing, in 2022, a Trust Fund for Resilience and Sustainability to help vulnerable countries address structural challenges such as climate change and pandemics.

Since 2025, under the leadership of Donald Trump, the U.S. administration—which is the largest contributor to the IMF and the World Bank—has been asking these two institutions to backtrack on these issues, which it considers to be outside their mandate.²⁰²

The Environmental Impact of International Trade: A Non-Issue

Free trade lies at the heart of the prevailing view of what trade should be: within this framework, environmental regulations are seen as obstacles.

A bit of history: from the creation of the GATT to the WTO

Drafted during the United Nations Conference on Trade and Employment (Nov. 1947–March 1948), the Havana Charter established an International Trade Organization (ITO) to complement the international economic governance system resulting from the Bretton Woods agreements. Since the Charter was never ratified due to opposition from the U.S. Congress, the OIC never came into being. Its scope was broader than that of the institutions that ultimately emerged (GATT and the WTO): its aim was not only to promote trade liberalization but also to foster development, preserve employment, and ensure a balanced balance of payments.²⁰³

Trade negotiations conducted in parallel led, in October 1947, to the signing by 23 countries of the General Agreement on Tariffs and Trade (GATT)²⁰⁴. Based on a free-trade philosophy, this agreement established a number of rules governing international trade in goods²⁰⁵ as well as 45,000 tariff concessions²⁰⁶ covering one-fifth of world trade. Its primary goal is to eliminate tariff and non-tariff “distortions” to trade²⁰⁷.

The provisional organization that emerged from this initial agreement served as the framework for multilateral trade negotiations for nearly 50 years. The various GATT rounds gradually expanded the scope of sectors affected by trade liberalization.

The Uruguay Round (1986–1994), the last round of negotiations to produce results, led to the creation of the World Trade Organization (WTO) with the signing of the Marrakesh Agreement.

Established in 1995, the WTO—which had 166 members in 2024—is responsible for promoting the implementation, administration, operation, and achievement of the objectives of the Multilateral Trade Agreements²⁰⁸ concluded by its members and to settle disputes that may arise between them.

The absence of environmental issues

The WTO’s primary focus is the expansion of international trade and free trade. Environmental issues are of secondary importance and are often even viewed as “excuses” for erecting trade barriers.

In dispute resolution, it is up to the government that takes environmental concerns into account to demonstrate that it is not doing so for “protectionist” reasons or to favor its own goods. Legally speaking, the issues to be addressed are, of course, more specific and require a closer look, but the basic principle remains the same.

As we explain in the Preconceived Idea on multilateralism and free trade, the establishment of the WTO also marked the peak of multilateralism, which has been in steady decline ever since. Instead, regional and—above all—bilateral trade agreements have proliferated, as have investment protection treaties. In these treaties, environmental and social issues essentially have the same status as in WTO agreements: measures implemented by governments in the name of these issues are viewed with suspicion, as pretexts for hindering trade and free trade. Furthermore, these treaties regularly include provisions for recourse to private arbitration tribunals²⁰⁹, which, as in the Energy Charter Treaty, regularly issue rulings unfavorable to governments pursuing climate policies.

Winners and losers of globalisation

Globalisation is often portrayed as a driver of growth and progress for all. The promise—to improve people’s well-being, increase economic efficiency, and reduce inequalities among nations—has been partially fulfilled. One billion people have been lifted out of poverty in China and other Asian countries, while the cost of many consumer goods has fallen in developed economies, improving the purchasing power of some households.

However, contrary to the long-held belief that globalisation automatically creates winners everywhere, it also produces losers. The reason is simple: overall economic gains are distributed neither spontaneously nor equitably. On a global scale, it has upended major geopolitical balances and given rise to new power dynamics. Within countries, globalisation has created or exacerbated inequalities (see Essential 8.4).

A New Global Landscape

At the national level, the assessment of the benefits of globalisation has traditionally been based on indicators such as GDP growth and the current account balance²¹⁰ or the country’s attractiveness to foreign investment. It should be noted that these indicators provide no information on many essential issues: the internal distribution of gains (in terms of purchasing power and employment), their long-term sustainability, and losses or vulnerabilities (such as exposure to climate change, dependence on finite natural resources, and the destruction of one’s own environment).

From this very incomplete perspective, we can identify three categories of countries.

• The structural winners of globalisation are the countries that have been able to internalize the benefits of international openness by developing endogenous productive capacities, specializing in high-value-added sectors, and establishing institutions capable of coordinating market openness, industrial policy, and a minimum level of social stability. However, as we will see in Essential 8.4, globalisation has not benefited everyone in these countries.
• “Intermediate” countries whose economies are based on static advantages (low wages, natural resources, position in value chains)—without sufficient structural transformation. Globalization may have benefited them, but these gains are precarious: a social uprising or a natural disaster can have a lasting impact on the country’s economic situation.
• The structural losers of globalisation are those countries that remain trapped in low-productivity specializations, characterized by weak institutional and redistributive capacity, and for which trade liberalization tends to reproduce—or even exacerbate—economic and social imbalances.

China, the US, and the EU are coming out on top in the great game of globalisation

China: From “the world’s factory” to a systemic power

China is undeniably the big winner of contemporary globalisation. Its gradual integration into the global economy—accelerated by its accession to the WTO in 2001—enabled it first to become the world’s manufacturing hub, and then to transform itself into a leading industrial, technological, and geopolitical power.

This success is certainly based on well-identified factors: an abundant and low-wage workforce, social discipline imposed by an authoritarian regime, lax environmental and health regulations for several decades, and an undervalued currency. But these elements are merely the backdrop to a far more decisive phenomenon: a state strategy²¹¹ deliberate, methodical, and consistent state strategy explicitly aimed at national power and sovereignty.

While many Western economists²¹² had predicted a lasting specialization in low-value-added segments, China is now a key player in strategic sectors: steel and advanced metallurgy, digital technology, artificial intelligence, batteries, electric vehicles, solar panels, civil nuclear power, shipbuilding, aviation, space, and the defense industry. It controls entire segments of global value chains²¹³, including upstream segments, through access to critical raw materials.²¹⁴

The United States: Financial and technological dominance; military power and soft power

The United States, already in a position of strength before the major turning point of globalisation, consolidated its global dominance²¹⁵. Their power rests on control of the central levers of the global economy: the dollar occupies a central place in the international monetary system, giving the United States a considerable advantage in terms of financing and the external deficit. Major American technology companies dominate the digital sector, data, and artificial intelligence, contributing directly to the country’s military and strategic superiority while creating strong dependencies among their partners and allies, particularly in Europe. Added to this is an unparalleled capacity for cultural influence, which reinforces the appeal of the American model and its soft power.

The European Union: winning, despite being trapped by free trade

The European Union (EU) is undeniably one of the major beneficiaries of globalisation. Today, it is one of the most influential players in international trade, with a massive internal market and strong export capacity (of goods, services, and capital). It is the largest sender and recipient of foreign direct investment²¹⁶. It plays a major role in international institutions and in shaping the norms of globalisation.

However, due to a particularly dogmatic interpretation of free trade, globalisation has created numerous vulnerabilities and dependencies within the EU. The extreme openness of the European market has exposed producers to increased competition from low-wage countries, particularly in Asia, leading to the partial deindustrialization of certain regions. The rejection of any common and ambitious industrial policy has hindered the emergence of strategic sectors in the digital and low-carbon technology fields, leading to dangerous dependencies. Significant dependence on energy and raw material imports, as well as exposure to climate risks and disruptions in global value chains²¹⁷, limit its economic sovereignty. Finally, imbalances among member states—north versus south, long-standing members versus new members from the East—generate social and political tensions that threaten its very existence.

GDP growth and staggering levels of inequality: the case of India

Globalisation has, in particular, led to the emergence of a group of countries known as the BRICS²¹⁸ —originally four major emerging economies (Brazil, Russia, India, and China), grouped under this acronym by economists—which, during the 2010s, formed a diplomatic bloc to exert influence on economic and political relations dominated by the United States and the EU.

India has followed an interesting trajectory among the countries that have benefited globally from globalisation²¹⁹. With a relatively closed, state-controlled economy until the 1990s, India has integrated into globalisation primarily through the services sector, particularly in information technology, IT services, and the outsourcing of functions (back-office operations, software development, and engineering).

Cities such as Bangalore, Hyderabad, Pune, and Chennai have become key hubs in global value chains²²⁰ for digital services. By drawing on a large pool of skilled, English-speaking workers, this specialization has contributed to sustained economic growth since the 1990s and to the emergence of an urban middle class.

However, the benefits of this integration remain highly concentrated. The vast majority of jobs are in the informal sector²²¹—that is, without contracts, with low wages, and virtually no social protection. Social, regional, and educational inequalities are among the highest in the world.²²²

We are more unequal today than we were during the British era.

Amit Thorat, economist, 2024²²³

Globalisation has thus reinforced a dual economy, in which high-tech hubs integrated into the global market coexist with a large number of workers who have little connection to these dynamics.

Globalisation’s losing nations: marginalisation, dependence, and structural vulnerabilities

The “losing” nations are those whose integration into the global economy has taken place on fragile, dependent, or unequal terms, and for whom trade liberalization has not gone hand in hand with development. This is particularly true of countries whose integration into globalisation depends heavily on the exploitation and export of their natural resources. We explore this point in depth in the preconceived idea about the impact of globalisation on developing countries. Let’s take a closer look at South America here.

Latin America: between deindustrialization and financial dependence

Latin America occupies an intermediate—but overall disadvantageous—position in globalisation. Following a phase of import-substitution industrialization²²⁴, many countries underwent a liberal shift, opening their economies widely to trade and financial flows in the 1980s and 1990s, under pressure from institutions such as the IMF promoting the Washington Consensus²²⁵ —and, in some cases, facilitated by the rise to power of dictators more or less directly supported by the United States.

This opening up has often led to premature deindustrialization²²⁶. Unable to compete with Asia on costs or technology, several countries refocused on exporting raw materials (soybeans, minerals, oil), temporarily benefiting from the commodities “supercycle”²²⁷ in the 2000s.

Countries such as Argentina and Venezuela illustrate the limitations of this model: heavy dependence on global markets, macroeconomic instability, vulnerability to price shocks, and internal redistributive conflicts. Mexico, although integrated into North American value chains, remains largely confined to low-value-added segments.

Finally, it is worth noting that the expansion of legal international trade has also facilitated the growth of illicit trafficking (particularly in drugs and weapons), which has severely affected certain countries in the region.

[The current political approach] remains rooted in a fatalistic stance, influenced by ultraliberal rhetoric: “We have no choice; if we want goods to move as quickly as possible, we must regulate as little as possible.” This is a short-sighted and harmful view. It ignores the fact that the illegal economy is intertwined with the legal economy and directly impacts it.

Clotilde Champeyrache, economist, 2025²²⁸

Globalisation has thus exacerbated economic volatility and social inequalities, without fostering sustainable productive transformation.

The Divide Between Mobile and Non-Mobile actors

In most countries, globalisation has been accompanied by a marked increase in social and regional inequalities. While certain social groups have seen their incomes and opportunities rise, others have suffered lasting losses in terms of employment, wages, and economic security.

French economist Guillaume Vuillemey²²⁹ offers a particularly illuminating framework for understanding this dynamic, based on the distinction between “mobile” and “non-mobile” actors. Mobile actors are individuals or companies that can move easily on a global scale, choose among different tax, legal, and social systems, and thereby maximize their private interests. Immobile actors, by contrast, are those who depend on a given territory for their business activities, income, and access to public services and social protection.

This contrast reflects not only a difference in income but also a fundamental asymmetry of power. Mobile actors can benefit from public goods (infrastructure, institutional stability, a skilled workforce) without contributing proportionally to them, while non-mobile actors bear the bulk of the tax and social burden.

Multinational corporations and the ultra-wealthy are the undisputed winners of globalisation

Their size, financial resources, and mobility enable multinational companies²³¹ to take full advantage of open markets. They can relocate their operations and organize their value chains²³² on a global scale, and optimize their tax situation by arbitraging between different national tax systems. In Key Point 5, we show how they pit regions against one another to their own advantage.

Globalisation has also fostered economies of scale²³³ , leading to high levels of concentration in many sectors. The financial sector (banks, insurance, investment funds, trading, etc.), the digital sector, logistics, and international transportation are particularly affected. These companies benefit from the infrastructure and human capital provided by governments, while often contributing far less—proportionally speaking—than their size would suggest (whether in terms of revenue, profits, or workforce) to the funding of public goods.

We detail the extent of the profits (both financial and in terms of power) reaped by multinational corporations in Essential 9.

The ultra-wealthy²³⁴ are also the major beneficiaries of globalisation. In fact, part of their enormous financial wealth comes from their stakes in the capital of multinational corporations, which grow as a result of rising stock prices or dividend payments. The liberalization of capital flows has also enabled them to develop strategies to avoid paying taxes. Their dominant role in the management of many large companies (particularly in media empires), combined with the influence their wealth affords them, enables them to shape public policy to their advantage, particularly regarding wealth and inheritance taxes.

“Non-mobile” actors bear the brunt of globalisation and suffer the consequences

At the other end of the spectrum, even in countries generally considered to have benefited from globalisation (see Essential 8.1), “small” economic actors have in fact suffered as a result. Let us illustrate this point with the examples of the United States and China.

Inequality and the erosion of workers’ power

The United States

The industrial regions of the Midwest and the Northeast, the famous Rust Belt²³⁵, have lost millions of manufacturing jobs since the 1980s due to the combined effects of international competition (the arrival of cheaper products on the market), automation, and offshoring (due to competition among states over tax rates and wages by multinational corporations).

The work of David Autor, David Dorn, and Gordon Hanson²³⁶ shows that in the United States, China’s accession to the WTO in 2001 caused a massive shock to certain industrial regions. Workers who lost their jobs due to competition from Chinese imports often experienced a lasting deterioration in their circumstances: lower wages for those who found new jobs, withdrawal from the labor market for others, and increased social vulnerability.²³⁷

More generally, the United States has experienced increased social polarization in recent decades, marked by a high concentration of income and wealth. For example, the richest 10 % now account for nearly 1.8 times as much income as the poorest 40 %, a gap far wider than in many other developed economies²³⁸. Wealth inequality is also particularly pronounced: the wealthiest hold the vast majority of national wealth, while the bottom half of the population owns only a marginal share. This concentration is associated with significant disparities in life expectancy and health across socioeconomic groups²³⁹ . All of this fuels a deep division in American society, with heightened tensions between regions and social classes, marked political divides, and rifts over issues such as health care, education, and prospects for social mobility.

China

China’s success has been accompanied by marked regional disparities between the export-oriented coastal regions and the inland provinces, as well as growing social inequalities.

Nearly 800 million people have been lifted out of extreme poverty²⁴⁰ since 1980, by working in factories producing goods for Western countries and, increasingly, for the domestic market. China is, however, one of the most unequal countries in the world: the Gini coefficient²⁴¹ stands at around 0.5²⁴², is much higher than in European countries.

Let’s limit ourselves to a few other highlights. Numerous reports²⁴³ indicate that hundreds of thousands Uighurs are being held in labor camps in the Xinjiang region. The Chinese government officially describes these centers as“vocational training” programs designed to combat“religious extremism.” Investigations show that many detainees are subjected to forced labor in industries such as textiles, agriculture (cotton, tomatoes), and electronics.

More generally, in China, in certain industries—particularly electronics and textiles—working conditions are very difficult : high production rates , dormitory-style housing, and restrictions on breaks. The “9-9-6” work culture (9 a.m. to 9 p.m., 6 days a week) is common in tech companies. Unions are controlled by the government through the All-China Federation of Trade Unions (ACFTU) and therefore have no real power.

Small and medium-sized enterprises benefit little from globalisation

Whether or not companies are able to take advantage of market liberalization depends on several structural factors: the company’s size, its industry, its technological positioning, its access to financing, its integration into production networks, and its ability to integrate into global value chains. The “mobile” versus “immobile” distinction proposed by Guillaume Vuillemey applies to firms and overlaps quite significantly with the size criterion.²⁴⁴

Smaller businesses are generally more vulnerable

The Work of the OECD²⁴⁵ shows that the likelihood of exporting, innovating, and withstanding international competition increases significantly with company size. Globally, very few microenterprises (very small enterprises, with fewer than 10 employees) export directly, unlike the majority of large firms, with medium-sized enterprises (MSEs) occupying an intermediate position.Although they participate little or not at all in international trade, VSEs are nonetheless particularly vulnerable to the indirect effects of globalisation: competitive pressure on prices, rising rents and land costs in attractive areas, and increased national and local taxes weighing on locally based businesses due to revenue losses resulting from tax evasion by multinational corporations

The role of the industry sector

Domestic industrial firms producing standardized goods—such as textiles, furniture, or undifferentiated intermediate components—have been particularly vulnerable to increased competition from low-wage countries. Empirical studies show that a surge in imports from low-wage countries exerts strong downward pressure on the prices of manufactured goods, leading to reduced profit margins and the exit of certain firms from the market. For example, a study published in 2013²⁴⁶ covering 110 manufacturing industries in Europe shows that a 1% increase in the market share of imports from low-wage countries results in a decline in European producer prices of approximately 3% and a significant reduction in manufacturing employment due to the closure of the least competitive firms.

In the services sector, the situation is mixed. Non-tradable services (food services, personal services, local crafts) are not directly exposed to international trade, but are affected indirectly through territorial polarization and declining purchasing power in deindustrialized regions. Furthermore, as businesses rooted in a specific region, they are indirectly affected by tax evasion by multinational corporations, which shifts the burden of national taxation onto non-mobile businesses.

Conversely, some service-sector SMEs (IT, engineering, design, consulting) have taken advantage of the development and widespread adoption of digital tools to outsource part of their operations to countries with lower wages and/or more favorable tax rates.

Integration into Global Value Chains: an ambivalent opportunity

A growing number of SMEs are subcontractors integrated into global value chains led by large multinational corporations. This integration can offer stable business opportunities, access to international markets, and technology transfers. However, it often places SMEs in a position of dependence. The contracting companies capture the bulk of the value added, impose strict constraints on prices, deadlines, and standards, and can quickly relocate their orders. As a result, many industrial SMEs find themselves trapped in low-value-added segments, with little ability to move up the value chain.

Rethinking Globalisation

Globalisation cannot be understood as either a zero-sum game or a uniformly beneficial process. It has enabled certain nations to consolidate (or, in the case of China, to regain) their power on the international stage. It has benefited certain individuals and companies (generally the most “mobile” ones), but it has also produced lasting losers, most often among the “immobile” ones, who are dependent on a specific territory, sector, or resource. Finally, it should be emphasized that the planet itself is also one of the major losers of globalisation has it has accelerated and amplified the exploitation of natural resources and pollution (see Essential 6 on planetary boundaries).

Understanding the Mechanisms at Work—Economic, Social, Territorial, and Institutional²⁴⁷ —is a necessary condition for rethinking public policy. Without redistribution, without industrial policy, and without governance of natural resources, the benefits of globalisation are concentrated, to the detriment of social and political cohesion. Rethinking globalisation does not necessarily mean rejecting it, but rather seeking to make it a more equitable and sustainable process.

Globalisation has increased the power and profits of multinational corporations

During the second half of the 20^th century, globalisation was accompanied by a rise in the power of multinational corporations (or transnational corporations, TNCs).²⁴⁸

Economic and technological developments, combined with changes in the regulatory and institutional framework, have strengthened the market power of dominant players, who have thrived on the weakening of countervailing forces (both public and civil society) and even on the co-optation of public regulations. Across all sectors, markets are becoming more concentrated.

Leading Global Value Chains²⁴⁹ increasingly complex global value chains, multinational corporations are taking advantage of the growing fragmentation of production to locate operations where it is most advantageous—that is, where labor laws and environmental protections are weakest—and to shift profits to where they are taxed the least. The excessive market power of the largest players leads to rent-seeking capitalism.

Multinational companies dominate international trade

The influence of multinational corporations on global trade is not a new phenomenon

During the Industrial Revolution, the emergence of multinational corporations addressed two main needs:

• to ensure the supply of exotic goods (coffee, tea, tropical fruits, spices, precious stones, etc.) to European countries and then to the United States, as well as raw materials for the manufacturing industry (such as fabric for the textile industry).
• increase production to take advantage of economies of scale (see box below), and sell off surpluses when production exceeds the absorption capacity of domestic markets. This reality is reflected in the idea that, with the Industrial Revolution, Western countries shifted from a supply-driven economy to a demand-driven economy.

Hyper-globalisation has cemented the dominance of multinational firms

Global exports today are dominated by very large companies, most of them TNCs [transnational corporations]. Large firms have become the most relevant actors in international trade.

UNCTAD, 2018

Today, international trade takes place primarily within their networks of subsidiaries, contractual partners, service providers, and external suppliers. According to UNCTAD, trade involving multinational corporations accounted for 80% of total trade in 2010 (30% of which was intra-group trade).

Export markets are highly concentrated, meaning they are dominated by a small number of companies.

As can be seen in the following graph, for all the countries considered, in 2014, 57% of national exports were generated by just 1% of exporting companies.

Finally, this very high level of market concentration is accompanied by a faster increase in profits than in revenue at the top of the multinational corporate hierarchy. This trend reflects the success of the rent-seeking strategy (see next section) that goes hand in hand with the growth in these firms’ market power.

The increase of multinationals’ market power and the rise of rent-seeking capitalism

Starting in the 1980s, as we will see, the combination of certain economic and technological factors and favorable changes in the institutional and regulatory environment—which was particularly conducive to multinational corporations—led to an increase in market power²⁵³ of multinational corporations.

This enabled them to implement strategies to maximize their profits, based on erecting more barriers to entry for new players, pitting governments against workers, and outsourcing risks (see Essential 9.3).

Broadly speaking, rents refer to income derived solely from the ownership and control of assets, rather than from innovative entrepreneurial activity and the productive use of labour.

UNCTAD, 2017

Economic and technological factors that increase the market power of large multinationals

The dramatic decline in transportation costs, along with the emergence of information and communication technologies, has greatly contributed to the development of global value chains by reducing costs and facilitating the coordination of complex production chains involving a large number of participants.

High-tech sectors have grown in importance within production structures; however, economies of scale and network effects (see box) are strong in these sectors, making it more difficult for new players to enter the market.

Intangible assets (see box below) have become increasingly important on companies’ balance sheets.

By definition, these assets are intangible: they can therefore be located anywhere. The only factor that matters is the location of the entity that owns them. This characteristic provides multinational corporations with a very powerful tool for arbitrating between different jurisdictions: it has greatly facilitated tax avoidance practices by TNCs, thereby placing them in a more favorable position than their domestic competitors (see Essential 9.3).

Such practices are not new, as illustrated by Nestlé’s pioneering example: as early as 1926, the multinational established its subsidiary API in the Swiss canton of Glarus, which had a favorable tax regime, and registered its patents and trademarks there. API then charged royalties for their use to the group’s foreign subsidiaries located in countries with higher tax rates.²⁵⁵

However, they have become widespread as a result of hyper-globalisation.

Multinational companies have capitalised on the success of neoliberal theories to shape the institutional and political environment in their favour

The behavior of multinational corporations is determined by the regulations of the jurisdictions in which they operate, as well as by their ability to shape those rules and adapt to them.

As explained in Essential 2, the neoliberal shift of the 1980s was characterized by changes in public policy that favored multinational corporations: financial deregulation, free movement of goods, services, and capital, “flexibilisation” of labor markets, lax enforcement and subsequent dismantling of antitrust laws²⁵⁹ whose very purpose is to prevent any single company from dominating a market.

By giving multinational corporations significant leeway to locate their operations and profits wherever they choose, these policies have strengthened their bargaining power vis-à-vis governments and unions—and thus their ability to shape the regulatory environment to their advantage— which they do not hesitate to do, through extensive lobbying, threats of relocation, or warnings of negative impacts that would ripple through the entire economy if they were subjected to too many “restrictions.”

Multinational corporations are taking advantage of these favorable developments in international and national regulatory frameworks to strengthen their market power:

• market manipulation (and in particular price manipulation) to discourage or prevent new companies from entering the market: this is the case, for example, with Amazon, whose dominance over e-commerce infrastructure (marketing platform, delivery logistics, payment service) allows it to favor its own products²⁶² ;
• strategic use of intellectual property provisions (see the section below);
• the acquisition of small, innovative companies to gain control of their innovations or eliminate a potential competitor (there are many examples in the digital and medical research sectors);
• public-sector predation²⁶³ in the context of public procurement or large-scale privatizations (which have often served to consolidate the positions of already dominant players or to create private monopolies²⁶⁴).

Focus on the anti-competitive use of intellectual property rights (IPR)

Adopted in 1995, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) establishes minimum standards for the protection of intellectual property that each WTO member state must guarantee to the others.

Six years later, the Doha Declaration marked a growing awareness of the dangers of overly strict intellectual property protection regimes. The signatories agreed that the TRIPS Agreement“should not prevent Members from taking measures to protect public health” and reaffirmed the rights of countries to use the flexibilities provided for in the agreement for this purpose²⁶⁵.

Despite the Doha Declaration, the IPR regime has only grown stronger. Most of the free trade agreements concluded in recent decades contain IP protection provisions that are stricter than those of the TRIPS Agreement: extension of obligations (such as extending patent terms beyond 20 years), restrictions on the use of flexibilities, and the introduction of new measures²⁶⁷. Added to this is a trend toward expanding IPRs into new areas (patents on life forms, financial and commercial methods, etc.)

While discussions on international trade focus on reducing tariff and non-tariff barriers to trade²⁶⁸, in reality, the increased IP protection advocated by multinational corporations raises intangible barriers to competition.

Indeed, many practices of large companies demonstrate just how much the intellectual property rights (IPR) system serves as a tool to increase their market power²⁶⁹. One example is “patent thickets²⁷⁰” or the filing of “blocking patents²⁷¹.” By safeguarding their technological leadership, these practices allow multinational corporations to reap profits from innovations without having to worry about competition.

Not only are most patents useless, but they do nothing to protect genuine innovations. Rather, they are part of an arms race.

Michele Boldrin and David K. Levine, 2013²⁷²

Transnational corporations are pitting regions against one another

While the growth of multinational corporations may initially have been driven by a desire to secure supply chains or to produce as close as possible to markets, hyper-globalisation is changing the game.

As noted earlier, the opening of goods and capital markets, advances in transportation and digital technology, and the growing importance of intangible assets in the economy have given multinational corporations the means to fragment global value chains to an extreme degree²⁷³.

This allows them to locate their operations and profits in jurisdictions where it is most advantageous, and to minimize (or even eliminate) operational and legal risks by using subcontractors.

Ultimately, TNCs are indeed “mobile actors.”²⁷⁴ Increasingly disconnected from the regions in which they operate, they reap significant benefits from globalisation without bearing the human and environmental consequences of their activities.

Setting up business where it is most favourable: pitting governments and workers against each other

Multinational corporations divide their operations into smaller segments (related to design, production, and marketing) in order to locate them where it is most advantageous. The primary objective is no longer so much to produce within a particular territory or to secure a supply chain, but rather to take advantage of differences between countries. They therefore choose their locations based on various factors: commercial or industrial interests, political and regulatory stability, the cost of labor and energy, the level of social security contributions and taxes, potential government subsidies, the quality of infrastructure, the strictness and enforcement of standards, and so on.

Furthermore, the extremely complex legal structure of multinational corporations (MNCs), as well as the location of their intangible assets, is driven far more by trade-offs between jurisdictions (particularly in terms of regulation and taxation) than by operational objectives related to production (see box below).

The ability of multinational corporations to relocate their operations (and to move their intangible assets almost at will) allows them to pit governments against one another, leading to a race to the bottom in tax, social, and environmental standards. The steady decline in corporate tax rates around the world since the 1980s is a good example of this.

Multinational corporations are able to influence the formulation of economic policies. Because of their economic and financial clout, the number of jobs they provide, and their ability to fund lobbyists, they often play a dominant role in employer organizations, where they exert significant influence over the organizations’ demands. This can result in legislative or regulatory changes that benefit multinational corporations but not necessarily the affected regions, whether in terms of employment, infrastructure, public services, or, of course, the environment.

Mid-sized companies, small and medium-sized enterprises (SMEs), and very small businesses have far fewer human and financial resources to advocate for their interests. They are more dependent on local communities and more vulnerable to sanctions they might face from government agencies or policymakers.

Finally, when they have plans to set up operations, multinational companies can pit different regions against one another. Recognizing these projects as potential sources of jobs and economic revitalization, national and local elected officials are often willing to go to great lengths to attract businesses. The range of incentives is vast. Nearly 2,300 public programs benefit businesses in France²⁷⁵ in the form of grants, financial guarantees, equity investments, and tax and social security exemptions—all of which are available at every stage of a company’s life cycle: startup and acquisition, growth, and times of financial difficulty.

Minimising risks and avoiding responsibility

The globalisation of companies and the fragmentation of value chains allow multinational corporations to outsource activities that generate the least added value or involve the most risk.

By outsourcing entire segments of their operations to suppliers and subcontractors, they replace ownership ties with contractual ties. They reduce their fixed costs and capital expenditures and shift the costs and risks associated with fluctuations in their order backlog onto others.

In the pharmaceutical industry, for example, multinational companies are increasingly outsourcing research and its risks, which does not prevent them from reaping the benefits of its successes. This is the case with Pfizer, which is a co-owner of the patents developed by BioNTech, a startup founded by Ugur Sahin and Ozlem Türecci, the inventors of the mRNA vaccine, which received funding from the German government (375 million euros) and the European Commission (100 million euros²⁷⁶). Without having borne the risks associated with the research, the company will benefit from an extraordinary windfall²⁷⁷ for 20 years.

Outsourcing some production-related tasks also helps reduce costs by fostering competition among suppliers without having to deal with the challenges and risks associated with managing employees. Apple had 164,000 employees in 2024 (with revenue of $391 billion, or more than 2 million euros per employee, which is considerable). Since iPhones are manufactured by the massive Taiwanese company Foxconn (1.2 million employees), Apple is not legally liable for the social and environmental issues related to their production. NVIDIA, the giant in GPU chips used for generative AI, surpassed a market capitalization of $4,000 billion in 2025, with estimated revenue of $125 billion and only 36,000 employees.²⁷⁸

The problems arising from the contradiction between the power that transnational corporations (TNCs) wield over their supply chains—particularly by demanding low prices—and their lack of legal accountability for their suppliers’ working conditions or environmental impacts have been highlighted by numerous scandals. The collapse of the Rana Plaza building in Bangladesh in April 2013, which left more than 1,100 dead and twice as many injured²⁷⁹ is one of the most iconic examples, as it led to progress in the area of multinational corporate accountability (see box). The building housed several garment factories, employing a total of about 5,000 people who worked for various international clothing brands.

Finally, it should be noted that the absence of legal liability is not limited to the chain of subcontractors but also applies within multinational corporations themselves. This is due to the principle of limited shareholder liability²⁸², parent companies cannot be held financially liable for the activities of their subsidiaries²⁸³ even when they own 100% of their capital.

Thus, despite the scale of the 1984 Bhopal disaster and its human toll, Union Carbide faced only a minor financial penalty. Its CEO, Warren Anderson, was never held accountable. Dow Chemical, which acquired Union Carbide for $11 billion in 2001, has consistently refused to accept any responsibility in this matter. Among many examples worldwide, we can also cite Shell’s oil operations in Niger or Chevron’s operations in the Amazon region of Ecuador²⁸⁴.

International trade is useful but cannot be an end in and of itself

The growth of international trade in goods and services is consistently presented as a primary and legitimate goal of public policy. However, while trade is beneficial, it is important to remember that it must serve the public interest.

What is the purpose of trade?

From the perspective of a given country, international trade serves two purposes.

Procuring goods and services needed (or wanted) by the population

There are two possible scenarios.

• Either these goods and services are not available in the country—or are in short supply. This is the case with raw materials. For example, France has no oil or natural gas and lacks many metals and minerals, as well as certain agricultural products (such as coffee, chocolate, and exotic fruits). This is also true of certain manufactured goods that have never been produced—or have been produced only on a limited scale—in the country. France, and Europe more broadly, play a very limited role, for example, in the manufacture of digital goods (computers, smartphones, semiconductors, etc.).
• Either they are “produced more cheaply²⁸⁵” elsewhere; this is how China became the “world’s factory” by producing goods in almost every sector that are cheaper than those made in the West.

Finding markets for domestic productions

Companies may seek to expand their sales beyond their home country. This is particularly true in sectors where economies of scale²⁸⁶ are significant: the domestic market of a single country—unless it is as vast as China, the United States, Russia, India, or Brazil—cannot absorb the production volumes needed to recoup the investment.

This first step (selling abroad) leads to a second one (manufacturing abroad). This is how multinational corporations establish production capacity (or services) in third countries to sell their products directly on the market of that country. This approach by multinational corporations is not necessarily aligned with the interests and international trade policies of their home countries.

Balancing imports and exports?

At the macroeconomic level, one might think that, in principle, a country cannot sustainably import more goods and services than it exports, but this is not always true. The balance of payments²⁹², a key component of national accounts, is specifically designed to show how the current account deficit²⁹³ can be financed. This can be done through:

• capital income (from foreign investments),
• foreign investment within its territory,
• the indebtedness of various economic actors (though this is not an option available to all countries, and is not sustainable, with few exceptions).

The United States, whose trade deficit—which has been growing for 30 years—reached $100 billion in 2024, is a special case. The dollar’s special status since World War II shields the U.S. from any risk of payment refusal by exporters to the U.S. To better understand the link between currency and trade, see Essential 4.

Trade cannot be an end in itself

Trade thus makes it possible to pool production and sales among different countries, whether to acquire products that are not available domestically or to sell surplus goods in foreign markets.

The challenge, as is almost always the case in economics, is to keep the indicator at an acceptable level.

Avoiding dependence on strategic products

The COVID pandemic and the invasion of Ukraine have clearly highlighted some of Europe’s dependencies. EU citizens thus discovered that surgical masks and even common medications like acetaminophen were manufactured in China or India, which led to shortages during the first months of the health crisis. The invasion of Ukraine has highlighted the risks of relying on undemocratic countries for energy: the European Union imports more than 70% of the energy it consumes. We can also cite numerous other critical raw materials, such as rare earth elements, which are used in green transition technologies (particularly batteries), the digital industry, and even weapons. The value chain for these metals is entirely dominated by China, making them a strategic weapon in international power dynamics²⁹⁴.

Fighting environmental and social dumping

Presented as inherently beneficial, international trade is often a tool aimed at increasing the power of private actors. In particular, the recurring discourse in France and Europe about the need for the European economic area to be conducive to corporate competitiveness (by limiting social and environmental constraints) primarily reflects the interests of multinational corporations. Admittedly, these companies do create jobs, but that is not their primary concern, and their ties to local communities are weak. By pitting states or regions against one another, these companies evade their social and environmental responsibilities.

Looking at the economic cycle as a whole

Buying cheaper products is certainly beneficial to consumers, but not to producers and their employees. If consumers prefer to buy a toy“made in China,” they are creating jobs (and transferring foreign currency) in China. The widespread adoption of this behavior is problematic: domestic production—and the jobs it creates—will decline, unemployment will rise, and the savings consumers realize on their purchases will be partially offset by increases in taxes and fees and/or the loss of public services.