https://wid.world/news-article/unequal-exchange-and-north-south-relations/

Are today’s trade and current account imbalances unique in history? Are international economic relations characterized by self-correcting market mechanisms, or by persistent imbalances and power relations between nations? What does this mean for collective regulation and the organization of the international monetary system and global trade rules?

In a new study, Gastón Nievas and Thomas Piketty examine patterns of global imbalances, current account surplus/deficit and net foreign wealth accumulation over more than two centuries. They also present “counterfactual simulations” exploring how these dynamics might have evolved under alternative trade and monetary regimes.

The study draws on a new database wbop.world tracking global trade flows and the balance of payments (goods, services, income, and transfers) across 57 core territories (48 main countries + 9 residual regions) from 1800 to 2025.

KEY FINDINGS

1800-1914: How colonial transfers and low commodity prices enabled Europe’s initial accumulation of foreign wealth

• Between 1800 and 1914, Europe has owned a rising fraction of the rest of the world. On the eve of World War 1, Europe’s foreign wealth – i.e. net foreign assets owned by European residents in the rest of the world – reached about 70% of Europe’s GDP (30% of World’s GDP), while all other parts of the world had a negative foreign asset position.
• Europe was a manufacturing superpower fed by the primary commodities of the rest of the world. More than half of global primary commodity production was exported to Europe. While Europe exported manufactured goods like British textiles, these surpluses were far smaller than its deficits in primary commodities.
• Europe sustained current account surpluses situation due to the invisible flows of its balance of payments – trade in services, foreign income and foreign transfers:
  • Surplus in services was largely driven by maritime transport activities (freight, insurance, trading services) controlled by European countries, particularly Britain.
  • Foreign transfers included one-off tributes (e.g., France’s 1825 slave debt imposed on Haiti; Britain’s opium war indemnity from China in 1842) and permanent transfers of colonial tax revenues (e.g., from India to Britain or Indonesia to the Netherlands). These payments were crucial in covering early trade deficits and enabling further wealth accumulation.

1800-1914 vs. 1970-2025 – How the “first” and “second” globalizations periods compare

• The geography of creditor and debtor regions has changed over two centuries. Between 1914 and 1950, Europe’s foreign assets vanished. They were partly replaced by foreign assets owned by the US between 1920 and 1970 and later by oil countries (particularly in the Middle East) and especially by East Asia (especially Japan and China) since the 1970s-1980s.
• No country or world region has ever received foreign income inflows approaching the magnitude of Europe’s in the 19th century. In 1914, only a few European powers (Britain, France, Germany, the Netherlands) held significant foreign wealth; others were net debtors. As a share of world GDP (rather than regional GDP), their dominance was unparalleled – for example, East Asia’s foreign assets in 2025 are much larger than those of oil countries as a share of world GDP, but still far below Europe’s 1914 levels.
• In contrast, the U.S. has accumulated a massive net foreign debt – from +1% of GDP in 1970 to -58% in 2025. Even with the “excess yield” earned on its foreign assets (about +29% of 2025 GDP over the 1970-2025 period), this “exorbitant privilege” has not offset persistent trade deficits.
• Today, financial transfers mostly flow from North to South, particularly through private remittances, rather than from South to North, via colonial transfers. For instance, Subsaharan Africa received very large cumulated net transfer inflows between 1970 and 2025 (the equivalent of +64% of its 2025 GDP), approximately as much as the cumulated foreign income outflows (-55%).

1800-2025 – How small shifts in bargaining power and terms of exchange could have completely reversed global wealth hierarchies

• Without colonial transfers between 1800 and 1914 the geography of wealth would have been radically different in 1914, Europe would have had a very large debt, while South & South-East Asia (and to a lesser extent Latin America) would have cumulated significant foreign wealth.
• A 20% increase in commodity prices between 1800 and 1914 – a change smaller than the value of unpaid forced labor in cotton production and other primary commodities – would have made regions like South & Southeast Asia and Latin America major creditors, and turned Europe into a net debtor by 1914. The effect exceeds even the repeal of colonial transfers.
• A 20% increase in commodities prices from 1970 to 2025 period – very moderate compared to the very low market exchange rates of many global South countries – could turn Sub-Saharan Africa into a larger creditor than East Asia by 2025.
• If poorer countries reinvested these extra revenues in human capital, and rich countries financed their losses through reduced consumption at the top, the result could be quasi-complete productivity convergence between poor and rich countries over the 1800-2025 period.