Multinationals and geopolitics
America’s gunboat capitalism will make the world poorer
And Donald Trump’s use of companies as a tool of state will make it no safer
For much of modern history, multinational enterprises have acted hand in glove with the state.
Britain and the Netherlands were bankrolled by their East India companies, and provided military and diplomatic support in return.
Germany’s Krupp and Japan’s Mitsubishi aided industrialisation while their governments secured mines and markets abroad.
American interventions helped oil firms secure foreign resources.
Then for a spell, starting in the 1980s, governments stepped back and multinationals spread, unconstrained, across the globe.
Today, however, gunboat capitalism is back.
When the bosses of many of the world’s biggest companies assemble in the Swiss mountain resort of Davos next week, a preoccupation will be the stunning intrusion of governments into their cross-border dealings.
As war has returned to Europe and authoritarian China has become more assertive, politicians have redrawn the map for global business, setting out where multinationals can and cannot operate.
America’s president, Donald Trump, is taking things further.
He sees companies as a useful tool to enhance state power.
He has urged American oil bosses to return to Caracas or face retribution, pressed defence firms to stop buying back shares, and demanded that tech companies selling advanced processors to China share a cut with his government.
This return of state meddling will have destabilising consequences for Western multinationals, which make about $23trn in annual sales, $2.4trn in profit and employ millions across the globe.
It will mean a less prosperous world—and not necessarily a safer one.
The shifting geopolitical order is already reshaping Western multinationals, as our Briefing sets out.
Tariffs, subsidies and sanctions have steered capital away from places including China and Russia, and towards home markets.
In 2016 American multinationals did 44% of their capital spending domestically; today the share is 69%.
Foreign sales have fallen in real terms, while those made at home have risen.
The retreat is more striking still in industries that governments often regard as “strategic”, such as software, drugs and carmaking.
As Jamieson Greer, Mr Trump’s trade representative, tells us on our Inside Geopolitics show this week, the heyday of globalisation is not coming back.
The future is likely to hold yet more state involvement.
The allure of commercial riches motivated Mr Trump’s toppling of Nicolás Maduro in Venezuela and is guiding his efforts to secure a truce between Russia and Ukraine.
But Mr Trump is also binding business closer to the state.
His administration has taken stakes in a clutch of mining companies and a struggling chipmaker; its National Security Strategy, published last month, says it will continue to do so.
The more America champions its own businesses and penalises others, the more it becomes rational for other countries to support their own enterprises.
What will the new world of gunboat capitalism involve?
For a start, it will be more costly and less efficient—and that matters more than in the past, because today’s multinationals are a far bigger part of modern economies.
America’s global leviathans account for more than a fifth of domestic private-sector employment, two-fifths of physical investment and three-quarters of profits.
This heft is a function of the vast infrastructure that moves goods and information around the planet, which has made it simpler to do business across borders, raising profits for shareholders and lowering prices for consumers.
When companies are forced to allocate capital on geopolitical lines, they become less productive, reducing prosperity for all.
Already there is evidence that multinationals are losing profitability compared with firms that operate only domestically.
We examined the return on invested capital of Western non-financial firms with sales over $10bn for 2023 and 2024.
In seven out of nine industries, multinationals’ returns trailed those of domestic rivals.
In many of these areas, the gap between domestic and global firms has widened since 2018-19.
Such hefty costs could still be worth paying, if they kept countries safer.
As authoritarian regimes around the world become more aggressive, democracies face an urgent need to spend more on defence.
Likewise, a hit to chipmakers’ profits might be a reasonable price to pay if an embargo prevented an adversary from making a technological leap that would translate into a big difference in military might.
The secret is to intervene wisely.
Yet Mr Trump’s approach is beset by problems.
For a start, it focuses on the wrong sources of strength.
Commercial prowess is no longer about securing access to the most oil or other natural resources.
Instead it comes from innovation and intangible capital, which help push out the frontiers of technology and make products indispensable to consumers.
But with his war on science and immigration, Mr Trump is weakening the prospects for innovation.
What is more, intervention is muddled, seemingly by design.
America’s policy on selling semiconductors to China has zigged and zagged, depending on who has the president’s ear.
The risk is that every decision becomes open to lobbying, if not outright graft.
And because uncertainty over policy gives the administration what it most craves—maximum leverage—businesses cannot make plans.
More gunboats, less butter
Given the president’s proclivities, it is hard to see the Trump administration overcoming those flaws.
The deeper question, therefore, is whether other governments could do better—whether, in fact, successful gunboat capitalism could become part of any country’s competitive advantage.
This newspaper is sceptical, and not just because of America’s overwhelming military power.
As the golden age of globalisation dims, the lesson to remember is that governments create rents; rents distort markets; and distorted markets make countries poorer and their citizens less enterprising.
The allure of gunboat capitalism is that it offers both prosperity and security.
The reality is that it will bring neither.
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