How should we analyze the new wave of trade tensions that gripped the world in 2025? To better understand the issues at stake, the World Inequality Lab recently published a historical study on global trade and financial imbalances since 1800, titled « Unequal Exchange and North-South Relations: Evidence from Global Trade Flows and the World Balance of Payments 1800-2025. »

Several conclusions are clear. In general, the idea of spontaneously balanced and harmonious free trade does not stand up to scrutiny. Since 1800, there have been massive and persistent imbalances, and a repeated tendency by dominant powers to abuse their position to impose terms of trade that favor them, at the expense of poorer countries.

What is new about the current crisis is that the United States has been losing its grip on global power and now finds itself in a situation of unprecedented financial fragility. That explains the aggressiveness of the Trump administration. However, giving in to demands, as the Europeans have just done on military budgets (which are largely transfers to the US defense industry) or on multinational taxation, is the worst possible strategy. It is time for Europe to shake off its complacency and join forces with democracies of the Global South to rebuild the commercial and financial system in support of a different model of development.

First, let us remember that trade flows have never been higher than they are today. Total exports (and imports) now amount to around 30% of global gross domestic product (GDP), with 7% for raw materials (agricultural, mining and fossil fuels), 16% for manufactured goods and 7% for services (tourism, transport, consulting, etc). By comparison, trade flows were about 7% of global GDP in 1800, 15% in 1914 and 12% in 1970 (of which 4% was for raw materials, 5% for manufactured goods and 3% for services). The increase observed since 1970 has been dizzying across all sectors – with a material footprint and environmental damage that we are only beginning to realize. It is often pointed out that world trade has stabilized as a percentage of global GDP since the 2008 crisis. This is true, provided one specifies that it is a stabilization at the highest level ever recorded in history.

Let us turn to the imbalances. The basic fact is well known: Between 1990 and 2025, the US ran an average annual trade deficit (goods and services combined) of about 3% to 4% of its GDP. The country’s surpluses in services have been much too small to offset enormous deficits in manufactured goods. This fact sometimes provokes disbelief: How can the dominant power permanently run a trade deficit? In reality, this is the historical norm. From 1800 to 1914, the European powers – led by the United Kingdom – ran permanent trade deficits. Surpluses in manufactured goods and shipping were far outweighed by the vast flows of raw materials from the rest of the world (cotton, wood, sugar, etc), even though these were poorly compensated. Between 1880 and 1914, the continent’s major powers (UK, France, Germany) posted average annual deficits of the same order of magnitude as those of the US between 1990 and 2025.

The difference is that European powers then held overseas possessions that generated huge annual revenues – equivalent to 10% of GDP for the UK and more than 5% for France. That allowed them to easily finance their trade deficits while continuing to accumulate debts around the world.

By contrast, the US’s overseas assets have never generated sufficient income to offset its deficits, leaving the country with an unprecedented level of external debt. The world’s dominant military power could soon find itself having to make substantial, long-term interest payments to the rest of the world, something never before seen in history. This is the source of Trumpist anxiety and his followers’ desperate attempts to extract wealth from the rest of the world, by force if necessary.

One argument used to justify such extortion is that the country provides a free global public good: a stable currency and a sound financial system. The rest of the world thus accumulates assets in dollars – public debt and equities – which drive up the value of the greenback and feeds the US trade deficit. In reality, the dollar has already brought the US much more than it should have. The argument is nonetheless worth considering, especially since it could lead to solutions very different from those advocated by Trumpists.

In practice, the massive surpluses of oil-producing countries in recent decades are primarily explained by their success in tripling prices in the 1970s while the rest of the world continued to consume fossil fuels regardless of future consequences. The industrial surpluses of China, Japan and Germany can be explained in part by excessively low wages and a choice to hoard wealth abroad, fueled by a sense of vulnerability to the international financial system and the absence of a global reserve asset.

In the face of global imbalances, the right response would be to establish a common currency indexed to the main currencies, allowing the world to break free from the dollar and improve terms of trade for poorer countries, all with the aim of funding a more balanced and sustainable development model. Let us hope that Trump’s brutality at least accelerates this realization.