Piketty on unequal exchange

[Young Master Smeet]

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

“Abstract. This paper constructs a new database on global trade flows and the world
balance of payments (including goods, services, income and transfers) covering 57
core territories (48 main countries + 9 residual regions) over the 1800-2025 period.
This allows us to analyze patterns of global imbalances, current account surplus/deficit
and net foreign wealth accumulation over more than two centuries. We quantify the
role of colonial transfers and low commodity prices (due to forced labor and other
factors) in the build-up of Europe’s foreign wealth during the 1800-1914 period. We
compare this experience to the global imbalances which developed during the 1970-
2025 period. We stress the persistent role of unequal bargaining power and terms of
exchange and the need for collective rules. We also provide counterfactual simulations
on foreign wealth accumulation under alternative trade & monetary regimes.”

“Finally, an even more striking difference between the two peaks is that Europe was
able to build a very large positive position without ever running trade surpluses over
the entire 1800-1914 period. As we shall see, initial accumulation of foreign wealth was
to a large extent made possible by colonial transfers (which we might also call colonial
extraction).2 These transfers took the form of either one-off tributes (like the large slave
debt imposed by France on Haïti in 1825 or the opium war debt imposed by Britain on
China in 1842) or permanent transfers of tax revenues from the colonies to the
metropolis (like those imposed by the British in India or the Dutch in Indonesia between
1800 until the 1930s-1940s). This made it possible for Europe to start accumulating
foreign wealth and to receive larger and larger capital income payments from the rest
of the world. These income payments reached enormous proportions in the late 19th
century and early 20th century, which allowed European powers not only to finance
their enormous trade deficit – around 3-4% of GDP on average between 1880 and
1914, i.e. approximately as much as the US between 1990 and 2025 – but also to keep
accumulating wealth in the rest of the world. In contrast, the positive foreign wealth
accumulation of the recent decades looks more standard – and closer in spirit to what
economics textbooks describe. I.e. the countries with positive foreign wealth in 2025 –
either Japan, China or oil countries – are those which have accumulated large trade
surpluses since the 1970s-1980s.”

The story might be old, but having the data readily to hand might be useful, and the use of counterfactual modelling sounds interesting 9I still need to dig into that).

[Author]

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