Political of multinational corporations

Multinational corporations (MNCs) have become central actors in the organization of global capitalism. Their activities extend beyond production and trade into the political sphere, where they influence state behaviour, shape institutional regimes, and restructure the distribution of power across the international economy. The internationalization of production, often mediated through global value chains (GVCs), has altered not only how goods and services are created but also how economic interests translate into political preferences.

The rise of MNCs must be understood against successive transformations in the world economy. In the decades following the Second World War, host states often restricted foreign investment through nationalization, performance requirements, or strict joint-venture rules. From the late 1970s onward, however, developing countries shifted from import-substitution industrialization to export-oriented strategies, competing to attract foreign capital. This marked what Oatley describes as the onset of the "competition for capital," in which governments actively sought to position themselves as hospitable environments for multinational investment.

At the same time, the international trading system was reshaped by the proliferation of preferential trade agreements (PTAs) and bilateral investment treaties (BITs). Scholarship in international political economy—ranging from Helen Milner’s analysis of industries and regional blocs to Leonardo Baccini and Andreas Dür’s work on PTAs—has shown that large firms in capital-intensive sectors with cross-border supply chains have been key promoters of such agreements. Preferential liberalization is therefore not simply a state-led strategy but also a corporate one, driven by the need to secure economies of scale, protect investments, and reinforce competitive advantages.

These dynamics have transformed domestic politics in advanced economies. Traditional models of trade preferences, built on the opposition between import-competing and export-oriented sectors, no longer capture reality. As Ian Osgood demonstrates, firms integrated into GVCs derive benefits from sourcing cheaper inputs abroad, making them advocates of liberalization even when facing import competition. Producers have thus become consumers within global networks, expanding the coalition in favour of free trade while leaving smaller firms more vulnerable and often protectionist.

Yet the governance of international investment remains fragmented. Unlike the multilateral system of the World Trade Organization (WTO), investment is regulated through a dense but decentralised network of BITs. As Elkins, Guzman, and Simmons have argued, these treaties overwhelmingly protect property rights while limiting host states’ regulatory autonomy. The number of investor–state disputes has multiplied, raising concerns about "regulatory chill," particularly in developing countries where legal systems are less robust.

A final layer of complexity arises from the changing geography of investment. The rapid expansion of outward FDI from emerging economies, especially China, has provoked new defensive measures in the United States and Europe, including investment screening and restrictions on acquisitions in strategic sectors. What was once a North–South dynamic—capital-exporting developed states versus capital-importing developing states—is increasingly a triangular contest involving emerging powers as both investors and competitors.

This text explores these dynamics through three main questions. First, how do MNCs drive and benefit from regional integration and the spread of preferential agreements? Second, how has the competition for capital shaped the regulatory environment of investment, and with what consequences for developing states? Third, how are advanced economies adapting to the rise of emerging-market MNCs? The answers to these questions converge on a broader debate: whether international production reinforces the hierarchical structure of global capitalism or whether it enables some developing countries to upgrade and emerge as peer competitors to advanced economies.

The Political Issues Raised by the Internationalisation of Production

The internationalisation of production turns firms into rule-makers as much as rule-takers. Once activities span multiple jurisdictions, corporate strategies intersect with public authority at three levels: the design of trade and investment regimes, the distribution of gains and losses within domestic economies, and the management of security and strategic concerns. The resulting politics is not an epiphenomenon of economics. It is constitutive of how markets are built, maintained, and contested.

A first issue concerns who benefits from integration and why these actors mobilise for specific institutional designs. Industries characterised by high fixed costs and increasing returns to scale, such as automobiles, semiconductors, pharmaceuticals, and certain segments of heavy machinery, gain from larger unified markets. For these firms, the reduction of tariff and non-tariff barriers delivers volume, standardisation, and cost compression. The completion of the European Single Market illustrates the logic. Automotive and consumer durables producers lobbied to remove technical standards that fractured demand along national lines. The removal of border checks, mutual recognition of standards, and competition rules that limited state aid produced a setting in which firms could concentrate production into fewer, larger plants and reorganise supplier networks across the customs union. The outcome was not simply more trade. It was a strategic reallocation of production and a consolidation of firms capable of operating at the scale that global competition demanded.

A complementary mechanism operates through global value chains. Where firms can modularise production and source intermediate inputs across borders, efficiency-seeking foreign direct investment becomes a route to competitiveness. The North American automotive corridor after NAFTA created a regional platform in which design, high-value components, and capital-intensive processes remained in the United States and Canada, while labour-intensive assembly and selected component production expanded in Mexico. Preferential rules of origin and investment protections stabilised these cross-border linkages. The political consequence is that a subset of large firms within exposed sectors becomes supportive of liberalisation, not because foreign competition disappears but because offshoring and input sourcing allow them to re-optimise cost structures. Smaller, domestically focused firms without the organisational capacity to coordinate cross-border supply chains face a different calculus. They remain more likely to seek protection from import competition, stricter enforcement of anti-dumping rules, or targeted subsidies. Firm-level heterogeneity within sectors thus replaces older, sector-wide alignments over trade.

Institutional design reflects these preferences. Preferential trade agreements that reach beyond tariffs to investment, intellectual property, standards, and services embed precisely those provisions that matter for cross-border production. Investment chapters with protections against direct and indirect expropriation, fair and equitable treatment clauses, and access to investor–state dispute settlement reduce the uncertainty that can jeopardise sunk costs in complex value chains. Rules-of-origin disciplines shape how regional production networks are configured, as seen in autos where content thresholds structure supplier geography. Regulatory cooperation and mutual recognition provisions lower the fixed costs of multi-jurisdictional compliance. These are not generic pro-trade instruments. They are targeted devices that stabilise corporate strategies by aligning legal infrastructures with the requirements of fragmented production.

A second issue concerns how these regimes redistribute power and policy space across actors. The absence of a comprehensive multilateral investment framework has yielded a dense network of bilateral investment treaties that largely codify protections for investors while offering weaker guarantees for the regulatory autonomy of host states. The result is an asymmetric adjudicatory landscape. In the World Trade Organization, only states can bring cases against states. In investment arbitration, individual firms can initiate claims directly against governments. Well-known disputes in energy, extractives, and tobacco control policies have signalled to policymakers the legal risks associated with tightened regulation. Whether this produces a systematic “regulatory chill” is debated, but ministries and legislatures regularly factor potential treaty exposure into the design and sequencing of new measures, especially in countries with limited litigation capacity. In parallel, developing countries have adopted divergent strategies. Some have terminated or rebalanced older treaties, updated model BITs to clarify standards, or channelled disputes to domestic courts. Others have doubled down on treaty signing to signal credibility to investors in the face of domestic institutional constraints.

A third issue is distributional and territorial within advanced economies. The gains from international production are not evenly spread across regions and skill groups. Metropolitan areas with dense ecosystems of design, engineering, finance, and producer services capture complementary rents from coordination and innovation. Communities dependent on routine manufacturing face exposure unless re-specialisation or supply chain anchoring occurs. The political geography that follows is familiar. Coalitions centred on globally integrated firms, tradable services, and consumers tend to support openness and regulatory cooperation. Coalitions centred on import-competing producers and regions with limited absorptive capacity tend to oppose further integration or demand conditionalities that slow or redirect it. These coalitions are not static. Exchange rate movements, energy prices, technological shocks, and episodic crises such as supply chain disruptions can shift alignments by altering where adjustment pressures land.

A fourth issue links production to competition policy and market structure. Scale and integration can produce efficiency gains that lower prices and expand variety, but they can also consolidate market power. The European Commission’s merger control and state-aid frameworks, and the renewed antitrust debate in the United States, represent attempts to reconcile openness with competitive market structures. The policy tension is straightforward. If firms need scale to compete in global markets, overly restrictive merger policy may blunt competitiveness. If concentration weakens pass-through of efficiency gains to consumers or forecloses entry, permissive policy can entrench dominant positions. This balance is increasingly tested in digital and data-intensive sectors where network effects interact with global scope.

A fifth issue arises at the intersection of economics and security. The growth of outward FDI from emerging economies, particularly in strategic technologies and infrastructure, has prompted advanced economies to reassess openness. Investment screening mechanisms in the European Union and its member states, and tighter reviews by the Committee on Foreign Investment in the United States, aim to evaluate acquisitions for risks to critical capabilities, data access, and supply chain resilience. Telecommunications equipment, robotics, semiconductor equipment, and ports have become salient domains. These measures do not replace the liberal investment order but qualify it by carving out zones of heightened scrutiny. The political logic is a familiar one. Where the distributional and security externalities of foreign control are judged significant, states reassert discretion even at the cost of some investment deterrence.

Examples clarify these dynamics. In telecommunications, restrictions on designated vendors for next-generation networks reconfigure procurement and standard-setting coalitions. In robotics, a high-profile acquisition of a German industrial automation firm by a Chinese buyer catalysed reforms to screening thresholds and sectoral coverage. In energy, disputes over phase-out policies for nuclear or coal-fired power and the redesign of feed-in tariff schemes have generated arbitration claims that test the boundary between legitimate public policy and compensable investor expectations. In agro-food, investment in land and processing facilities has raised questions about food security, water rights, and local development promises, prompting host states to add performance requirements or renegotiate concession terms.

Finally, the politics of international production feeds back into the multilateral order. For proponents of regionalism as a building block, deep preferential agreements pilot regulatory solutions that can later be multilateralised. For critics, cumulative preferentialism fragments rule-making and hardens exclusionary blocs. Both dynamics are visible. Elements of digital trade, customs facilitation, and services disciplines have diffused beyond their original regional settings. At the same time, divergent approaches to data localisation, platform liability, and industrial subsidies signal increasing regime competition. MNCs navigate these tensions by tailoring compliance architectures to the strictest applicable regime, lobbying for interoperability where feasible, and relocating marginal activities when regimes prove incompatible with their models.

Taken together, these issues show why the politics of international production is an arena of continuous bargaining. States seek growth, resilience, and policy autonomy. Firms seek stability, scale, and predictable rules. Coalitions form and reform around how those aims are prioritised and the instruments chosen to pursue them. The resulting settlements are contingent. They reflect the sectoral composition of an economy, the organisational capacities of firms, the credibility of legal systems, and the salience of security concerns at a given moment. This contingency is not a weakness of the framework. It is the mechanism through which international production becomes a structured, governable, and contested feature of the global economy.

MNCs and the New Regionalism

The phenomenon often described as the “new regionalism” cannot be understood without recognising the role of multinational corporations as both beneficiaries and architects of preferential liberalisation. Whereas early integration projects were primarily state-driven, the late twentieth century saw regional blocs increasingly shaped by the imperatives of international production. International political economy scholarship, beginning with Helen Milner’s Industries, Governments, and Regional Trade Blocs (1997), established that industries with increasing returns to scale and high levels of intra-firm trade are structurally predisposed to support regional integration. This insight is foundational: it links corporate microeconomics—how firms seek to lower costs and secure inputs—to the macro-politics of regional trade agreements.

Two mechanisms drive this alignment. The first is the pursuit of economies of scale. Capital-intensive industries, such as automobiles, chemicals, or electronics, reduce unit costs as production volume increases. Expanding market access through preferential trade agreements allows firms to consolidate production in fewer plants, exploit longer production runs, and spread fixed costs more efficiently. European integration provides a clear example. The completion of the Single Market in the 1980s and 1990s dismantled technical barriers that had fragmented national markets, enabling firms such as Volkswagen, Siemens, and Michelin to reorganise their operations at a continental scale. The political pressure for integration came not only from governments but from corporations that recognised the costs of fragmented production in an era of rising competition from American and Japanese rivals.

The second mechanism is the rise of global value chains. Efficiency-seeking investment drives firms to locate different stages of production across jurisdictions according to factor endowments—labour, skills, infrastructure, or logistics. Preferential agreements that reduce tariffs on intermediate goods, provide investment protections, and codify rules of origin directly facilitate such strategies. North America after NAFTA illustrates the logic. US manufacturers shifted labour-intensive assembly to Mexico while maintaining higher-value functions at home, taking advantage of lower wages while retaining preferential access to the US market. Tariff elimination and investment provisions stabilised these production networks, embedding MNC strategies within the legal fabric of the agreement.

Empirical work confirms the corporate imprint on regionalism. Carey Chase’s Trading Blocs (2005) demonstrated statistically that tariffs are eliminated most rapidly in industries with large economies of scale and high intra-firm trade, precisely those sectors dominated by MNCs. Leonardo Baccini and co-authors (2018) further show that PTAs disproportionately reduce tariffs on intermediate goods rather than final goods, a pattern that reflects the logic of value chains rather than consumer markets. This bias towards intermediate inputs reveals the extent to which preferential liberalisation serves the interests of firms operating across borders, stabilising supply chains and lowering costs in ways that traditional trade theory does not capture.

The politics of new regionalism is therefore not industry-wide but firm-specific. Large, globally integrated corporations lobby for preferential agreements, while smaller, domestically oriented firms within the same sector may remain indifferent or even hostile. This “firm-level heterogeneity” explains why, for example, major automakers strongly supported NAFTA while many small US component suppliers opposed it. In IPE terms, the winners from regionalism are those firms that can leverage scale and cross-border production networks, while the losers are those unable to restructure operations in line with the opportunities created by liberalisation.

Beyond efficiency, preferential agreements serve as instruments of competitive discrimination. Mark Manger’s Investing in Protection (2009) showed that US firms used NAFTA not only to integrate with Mexico and Canada but also to secure advantages vis-à-vis European and Japanese competitors in those markets. Similarly, the EU–South Korea Free Trade Agreement gave European firms preferential access that disadvantaged US and Japanese rivals. This discriminatory logic underscores the geopolitical as well as economic character of regional blocs: they are as much about excluding third parties as about integrating members.

Concrete cases demonstrate the interplay of these dynamics. In Europe, the 1985 White Paper and the subsequent Single European Act responded to corporate lobbying from the European Round Table of Industrialists, a coalition of CEOs from major firms demanding a unified market. In North America, firms in autos, electronics, and textiles mobilised to shape NAFTA’s rules of origin, ensuring that benefits accrued to regional suppliers rather than third-country competitors. In Asia, regional production networks centred on Japanese and later Chinese MNCs have given rise to “production blocs” where trade agreements reinforce supply chains already structured by corporate investment decisions.

The literature converges on a clear conclusion: preferential liberalisation moves hand in hand with the rise of MNC activity and GVCs. The greater the weight of cross-border production, the stronger the corporate push for agreements that codify and expand it. The politics of regionalism is thus inseparable from the strategies of MNCs, and its institutional outcomes are best understood as the legal codification of firm interests.

The implications are significant. Preferential agreements are not stepping stones or stumbling blocks to multilateralism in the abstract; they are institutional artefacts of the way MNCs restructure production. They broaden markets, embed investment protections, and reshape domestic politics by creating new coalitions in favour of liberalisation. But they also fragment the global system, as blocs are designed to privilege specific corporate networks over others. In this sense, the new regionalism reveals the dual role of MNCs: agents of integration within regions and agents of fragmentation across the global order.

The Transformation of Trade Politics

The expansion of multinational production has altered the structure of trade politics in advanced economies, displacing older sectoral alignments with firm-level coalitions shaped by participation in global value chains. Classical models of trade preferences, derived from the Stolper–Samuelson and Ricardo–Viner frameworks, assumed that trade politics could be mapped either onto factoral cleavages (labour versus capital, skilled versus unskilled) or sectoral divisions (import-competing versus export-oriented industries). While these models captured the distributional consequences of trade in the mid-twentieth century, they fail to account for the complexity introduced by cross-border production.

The critical shift lies in the fact that producers have become consumers within global supply chains. Ian Osgood (2018) demonstrates that firms embedded in GVCs derive benefits from the ability to source cheaper or higher-quality intermediate inputs abroad. This alters their political preferences. An automaker, for example, may lose market share to imports of foreign-assembled vehicles, but at the same time it gains from importing low-cost components that lower its production costs. The same logic applies to electronics, pharmaceuticals, and apparel, where inputs are sourced globally. In such cases, the firm’s interest in preserving open trade for inputs outweighs its interest in restricting competition in final goods. This realignment transforms the political coalitions that underpin trade policy: large MNCs favour liberalisation, even in traditionally import-competing industries, while smaller firms remain protectionist.

Empirical evidence supports this. In the United States, surveys of corporate lobbying show that trade policy positions cannot be predicted by sector alone. Large firms integrated into global supply chains—General Motors, Boeing, or Apple—lobby for tariff reductions on intermediates and for investment protections abroad, even when facing import competition at home. Smaller firms, particularly those producing for the domestic market, often advocate for safeguard measures or anti-dumping actions. The heterogeneity of preferences within sectors undermines the classical dichotomy of “exporters versus import-competers,” complicating the domestic politics of trade.

The proliferation of preferential trade agreements reflects this transformation. As Leonardo Baccini and Andreas Dür (2015) argue, PTAs are increasingly designed to include “behind-the-border” provisions—on investment, intellectual property, standards, and services—that respond directly to MNC needs. For example, the EU–Mexico FTA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) contain extensive investment chapters and regulatory cooperation mechanisms that stabilise value-chain operations. These provisions go far beyond tariff reduction, embedding corporate interests into the legal architecture of trade regimes.

The political consequences are twofold. First, liberalisation coalitions have broadened. As more firms benefit from open trade in inputs, the constituency for protection has shrunk relative to earlier decades. This explains why major liberalisation initiatives—NAFTA, the Uruguay Round, China’s accession to the WTO—could secure support from influential business actors even in sensitive sectors. Second, distributional conflicts have shifted from sectoral to intra-sectoral lines. Within the US steel industry, for instance, large integrated producers with international operations may oppose tariffs that raise their input costs, while smaller mills producing solely for the domestic market demand them. Similar divergences exist in agriculture, where large agribusinesses favour export market access and imports of cheap feed, while smaller producers resist import competition.

Crises reveal the depth of these new alignments. The debate over tariffs in the United States during the Trump administration showed that many of the most vocal opponents of protectionism were not service providers or exporters of high-tech goods, but manufacturers reliant on imported steel, aluminium, and components. The tariffs fractured traditional political coalitions, pitting small domestic producers against globally integrated firms within the same industries. This illustrates how the internationalisation of production has redefined trade politics at its core.

The European Union provides a further case. Here, large firms operating across member states have been consistent supporters of deepening the Single Market and external liberalisation. The European Round Table of Industrialists played a central role in shaping the 1992 programme, while today firms in pharmaceuticals, aerospace, and consumer goods push for comprehensive agreements with Asian and American partners. By contrast, small and medium enterprises (SMEs) often express concern about regulatory burdens, foreign competition, and asymmetric benefits. The EU’s SME advocacy policies and adjustment funds reflect these tensions, which stem from the uneven ability of firms to adapt to global production networks.

The broader implication is that trade politics has become increasingly complex, fragmented, and firm-driven. State preferences cannot be inferred from national factor endowments or sectoral structures alone; they emerge from the aggregation of heterogeneous corporate interests shaped by global production. This shift not only complicates the formation of coherent trade strategies at the domestic level but also alters international bargaining dynamics. Negotiators must balance the demands of firms deeply embedded in GVCs, which push for deeper commitments, with the demands of domestically oriented firms and workers, which push for limits and safeguards.

In short, the internationalisation of production has transformed trade politics from a contest between sectors into a contest between firms within sectors, mediated by their position in global value chains. The consequence is a political economy in which large MNCs consistently support liberalisation, while smaller firms and vulnerable communities remain the residual defenders of protection. This structural change has far-reaching consequences for the stability of trade regimes and the legitimacy of globalisation.

The Politics of International Investment

Unlike trade, which is institutionally anchored in the multilateral framework of the World Trade Organization, foreign direct investment (FDI) operates within a fragmented and decentralised regime. The global investment order is constituted primarily by bilateral investment treaties (BITs) and investment chapters within preferential trade agreements. These instruments, rather than a universal multilateral body, provide the legal infrastructure through which multinational corporations secure protections for their cross-border assets.

The asymmetry of this regime is striking. BITs overwhelmingly codify investor rights—guarantees of fair and equitable treatment, protection against expropriation, free transfer of profits—while offering few enforceable obligations for corporations. The proliferation of such treaties, from fewer than 500 in the 1980s to over 3,000 today, reflects what Beth Simmons, Zachary Elkins, and Andrew Guzman (2006) described as a “diffusion process” driven less by coordinated state strategy than by competition for capital. Governments, particularly in developing economies, adopt BITs in the belief that credible commitments to protect investors will attract FDI inflows.

Yet the empirical record complicates this assumption. While some studies show a correlation between BITs and FDI, the evidence is inconsistent. Emerging economies often sign treaties in contexts of financial crisis or declining capital inflows, using them as signals of openness. However, whether BITs themselves drive investment remains contested. What is clear is that they strengthen the legal position of corporations, allowing them to bypass domestic courts and directly challenge host states through investor–state dispute settlement (ISDS).

The rise of ISDS has transformed the political economy of regulation. Corporations have successfully challenged a wide array of public policies—environmental standards, health regulations, taxation measures—arguing that such measures violate treaty commitments. High-profile disputes include Philip Morris’s arbitration against Australia’s plain packaging laws and Vattenfall’s case against Germany’s nuclear phase-out. These disputes illustrate how investment law constrains the regulatory autonomy of advanced as well as developing economies, generating what critics term “regulatory chill”: the deterrence of policy innovation for fear of litigation.

The asymmetry is particularly acute in developing economies. States with limited legal capacity face significant disadvantages in arbitration, both in terms of cost and expertise. Awards can run into the billions, imposing fiscal burdens that exceed the budgets of public programmes. In Africa and Latin America, ISDS cases have targeted natural resource policies, including attempts to increase royalty rates or impose local content requirements. The effect is to limit the ability of governments to capture rents from resource extraction and to use them for development.

Host states have not remained passive. Over the past decade, there has been a wave of renegotiations, withdrawals, and reforms. South Africa terminated several of its BITs in the 2010s, replacing them with domestic legislation that affirms investor protections while asserting constitutional supremacy. India conducted a review of its treaties and adopted a new model BIT that narrows investor rights and requires exhaustion of domestic remedies before arbitration. At the multilateral level, UNCTAD has documented a growing trend towards “rebalancing,” though progress remains uneven.

At the same time, advanced economies have sought to insulate themselves from the very regime they promoted. The European Union, following public backlash during the Transatlantic Trade and Investment Partnership (TTIP) negotiations, has proposed replacing ISDS with a permanent investment court system to increase transparency and accountability. Canada and the EU incorporated such provisions in CETA, though their implementation remains contested. The United States, once a major architect of the regime, has become more cautious, reflecting domestic concerns over sovereignty and the costs of arbitration.

The global distribution of capital further complicates the picture. Outward FDI from emerging economies—China in particular—has expanded dramatically, reversing traditional North–South patterns. Chinese firms now invest heavily in Africa, Latin America, and even advanced economies, often backed by state-owned enterprises and sovereign wealth funds. This has triggered defensive responses in Europe, North America, and Australia, where governments have established screening mechanisms for foreign acquisitions in “strategic sectors” such as energy, telecommunications, and defence. The Committee on Foreign Investment in the United States (CFIUS), once a relatively obscure body, now reviews hundreds of transactions annually. The EU adopted a framework for investment screening in 2019, and similar debates have unfolded in Japan and Canada.

The politics of international investment is therefore characterised by paradox. On one hand, corporations enjoy unprecedented legal protections for their cross-border activities, entrenched in thousands of treaties. On the other hand, the legitimacy of this regime is increasingly contested, as states seek to reclaim regulatory space and as rising powers disrupt established flows of capital. Investment governance reflects both the deep entrenchment of neoliberal legal principles and the fragility of political consent to those principles.

In sum, the regulation of international investment reveals the dual movement of the contemporary global economy: institutional deepening in the form of expansive investor protections, and political backlash in the form of state-led rebalancing. Multinational corporations remain the principal beneficiaries, but their authority is no longer uncontested. The outcome is an unsettled equilibrium in which capital retains significant mobility and leverage, but governments experiment with strategies to recalibrate the balance between openness and sovereignty.

Outward FDI and Strategic Screening

The geography of international investment has been reconfigured over the past two decades by the rise of emerging-market multinationals. Outward FDI flows from China, India, Brazil, South Africa, and other economies of the Global South have expanded rapidly, eroding the traditional North–South hierarchy in capital mobility. Among these, China stands out as the central driver of change. Its outward FDI, negligible in the 1990s, reached more than USD 2 trillion in stock value by the early 2020s, spanning infrastructure, energy, telecommunications, logistics, and advanced technology sectors.

This expansion has had three major consequences. First, it has intensified competition for assets in strategic industries. Chinese state-owned enterprises (SOEs) and sovereign wealth vehicles, such as the China Investment Corporation, have pursued acquisitions across Europe, North America, and Africa, often with the backing of state policy initiatives like the Belt and Road Initiative (BRI). High-profile purchases—such as ChemChina’s acquisition of Syngenta, Lenovo’s takeover of IBM’s personal computing division, or COSCO’s stakes in European ports—illustrate the scale and ambition of this outward push.

Second, it has blurred the line between commercial and geopolitical investment. Advanced economies have grown increasingly concerned that acquisitions in sensitive sectors such as telecommunications, semiconductors, and critical infrastructure could be leveraged for strategic influence or intelligence gathering. Huawei’s contested role in 5G networks exemplifies this dynamic, where investment and procurement decisions are framed not only in economic terms but also as matters of national security.

Third, it has triggered an institutional response in the form of investment screening mechanisms. The United States’ Committee on Foreign Investment in the United States (CFIUS) has expanded its mandate, particularly after the 2018 Foreign Investment Risk Review Modernization Act (FIRRMA), which broadened review criteria to cover minority stakes, real estate near sensitive facilities, and emerging technologies. Europe, long a laggard in this domain, established its first coordinated framework for FDI screening in 2019, enabling member states to share information and conduct joint reviews. Australia, Canada, and Japan have also tightened their regimes, reflecting a broader recalibration of openness to foreign capital.

The politics of screening highlight the shifting balance between liberal and mercantilist logics in international political economy. For decades, advanced economies promoted the free movement of capital as part of a neoliberal consensus, assuming that investment inflows, regardless of origin, enhanced efficiency and growth. The rise of Chinese FDI has disrupted this consensus by reintroducing concerns about ownership, control, and strategic vulnerability. In effect, screening mechanisms re-politicise investment, making it a domain of national security policy rather than pure economic governance.

This shift has been particularly pronounced in Europe. Cases such as the attempted acquisition of Aixtron, a German semiconductor firm, by a Chinese investor in 2016 (blocked after US intervention), or COSCO’s growing stakes in Piraeus port, have sparked debates about dependency on foreign capital and the erosion of technological sovereignty. The European Union’s 2019 framework stops short of creating a supranational veto power, but it reflects a new willingness to coordinate restrictions. France, Germany, and Italy have expanded their lists of “strategic sectors,” extending screening beyond defence and energy to include artificial intelligence, robotics, and biotechnology.

Emerging markets themselves have adapted to this environment. Chinese firms, aware of growing resistance, have increasingly turned to greenfield investments, joint ventures, and minority stakes to circumvent scrutiny. They have also redirected capital flows toward regions with fewer restrictions, particularly Africa and Latin America, where regulatory barriers are lower and governments are eager for infrastructure financing. This shift reinforces patterns of dependency and asymmetry in the Global South, while simultaneously deepening geopolitical tensions in the Global North.

The broader literature situates these dynamics within a debate over the weaponisation of interdependence. As Henry Farrell and Abraham Newman (2019) argue, the same networks that enable global flows of capital and goods can be exploited for strategic leverage. Investment screening is one manifestation of this logic: advanced economies are no longer passive recipients of capital but active gatekeepers, recalibrating openness in line with strategic priorities. In doing so, they acknowledge that capital is not fungible in purely economic terms—its origin, ownership, and purpose matter politically.

What emerges is a paradoxical structure. On the one hand, the global economy is marked by unprecedented levels of cross-border capital mobility, with firms from both North and South seeking to acquire strategic assets abroad. On the other hand, the politics of investment has become increasingly restrictive, securitised, and contested. The outcome is a differentiated regime: open in some sectors and regions, guarded in others, and deeply conditioned by the geopolitical identities of investors.

In this sense, outward FDI from emerging economies—especially China—has done more than redistribute flows of capital. It has unsettled the normative foundations of the international investment order. Where once the presumption was that capital should move freely and protections should be granted symmetrically, the presumption now is that investment must be scrutinised, managed, and, in some cases, prohibited. This tension between openness and security will continue to define the politics of international investment in the decades ahead.

Fragmentation and Contested Legitimacy

The transformations traced in trade and investment politics culminate in a structural condition of fragmentation. The global economy no longer rests on a single coherent institutional framework, as it did in the post-war decades under the Bretton Woods order. Instead, it is organised through overlapping, partially competing, and asymmetrical regimes. The World Trade Organization, once the anchor of multilateral liberalisation, has been effectively paralysed since the collapse of the Doha Round and the disabling of its Appellate Body. Investment is governed not by a universal institution but by a patchwork of bilateral treaties, preferential trade agreements, and domestic screening laws. Financial governance, while formally coordinated through the IMF and the Basel process, is increasingly subject to regional differentiation and discretionary state intervention.

This fragmentation has two principal drivers. First, the rise of multinational corporations and global value chains has shifted the demand for governance from universal tariff reduction toward issue-specific protections: intellectual property, investment arbitration, regulatory harmonisation, digital standards. These demands are not uniformly shared across states, leading to coalitions of the willing in preferential trade agreements like the CPTPP or the EU–Japan Economic Partnership Agreement. Second, the diffusion of economic power to emerging economies has undermined the ability of advanced economies to impose uniform rules. China, India, Brazil, and South Africa all engage selectively with global regimes, accepting some rules, rejecting others, and experimenting with alternatives.

The result is what John Ruggie once termed “fragmented multilateralism”: a system where authority is dispersed across multiple forums, producing both flexibility and incoherence. On one level, fragmentation enables experimentation and adaptation. Countries dissatisfied with multilateral deadlock can pursue plurilateral initiatives, as with the WTO’s Joint Statement Initiatives on e-commerce or investment facilitation. On another level, it erodes predictability and legitimacy. Firms must navigate an increasingly complex legal environment where obligations and protections vary by treaty, jurisdiction, and sector. States confront a world in which commitments are uneven and dispute settlement mechanisms may conflict.

The legitimacy problem is compounded by the distributional asymmetries embedded in this fragmented order. The legal architecture of investment protection has disproportionately favoured capital-exporting states and multinational corporations, constraining the policy space of developing economies. The backlash against ISDS reflects this perception: critics argue that the regime privileges corporate property rights over public welfare, undermining democratic sovereignty. Similarly, the proliferation of “deep” trade agreements with extensive behind-the-border provisions has been criticised for privileging multinational firms at the expense of labour and environmental protections.

Examples abound. The North American Free Trade Agreement (NAFTA), celebrated by business coalitions, was consistently opposed by labour unions concerned about job losses and wage stagnation. The Transatlantic Trade and Investment Partnership (TTIP) negotiations collapsed amid public protests over regulatory harmonisation and investor arbitration. In Africa, the Economic Partnership Agreements negotiated by the EU with regional blocs have faced resistance on the grounds that they restrict industrial policy options. Each of these cases illustrates the widening gap between the institutional architecture of globalisation and the political constituencies needed to sustain it.

Fragmentation also heightens geopolitical contestation. Competing rule-making projects reflect broader struggles for influence: the United States’ Indo-Pacific Economic Framework, the EU’s Global Gateway initiative, and China’s Belt and Road all use economic agreements to embed geopolitical alignments. These projects are not merely commercial; they are instruments of strategic positioning, reinforcing Farrell and Newman’s insight into the weaponisation of interdependence. The global economic order is thus not only fragmented but also politicised, as states increasingly use economic instruments to pursue security objectives and ideological competition.

For multinational corporations, fragmentation generates both opportunities and risks. On one hand, the multiplicity of regimes allows firms to engage in “forum shopping,” exploiting favourable treaties, jurisdictions, or arbitration panels. On the other hand, regulatory uncertainty, inconsistent dispute outcomes, and politicised investment screening increase costs and undermine predictability. For states, fragmentation reduces the capacity to manage systemic shocks collectively. The uneven responses to the 2008 financial crisis and the COVID-19 pandemic demonstrated the limits of fragmented governance in coordinating stimulus, supply chain resilience, or equitable vaccine distribution.

The structural consequence is a global economy marked by what might be termed institutional drift: the persistence of old frameworks alongside the emergence of new, with no clear mechanism for consolidation. The WTO continues to exist but lacks enforcement capacity. BITs proliferate even as states experiment with alternative models. Financial regulations oscillate between international coordination and unilateral tightening. The system does not collapse, but nor does it resolve into coherence. It drifts, shaped by corporate strategies, state competition, and public backlash.

This drift does not imply stasis. Rather, it reflects the dynamic instability of a system in which institutions, interests, and ideas are misaligned. The legitimacy of globalisation remains contested, yet no single alternative has emerged to replace it. Instead, we observe a pluralisation of orders: liberal agreements among advanced economies, state-led initiatives anchored in China, hybrid experiments in Africa and Latin America. The future of the global economy lies not in a universal regime but in the negotiation of coexistence among competing and overlapping institutional spheres.

Conclusion

The contemporary global economic order is defined less by coherence than by tension. Multinational corporations operate as the principal agents of integration, embedding production and finance into transnational networks that transcend the jurisdictional authority of individual states. Their demand for predictability and protection has been institutionalised in an extensive but uneven legal architecture: thousands of bilateral treaties, preferential agreements, and regulatory harmonisation projects. Yet these structures, far from constituting a stable order, have deepened asymmetry and provoked backlash.

Trade demonstrates the paradox clearly. Where multilateral liberalisation through the WTO has stalled, regional and bilateral agreements have proliferated. These “deep” agreements provide corporations with protections for intellectual property, investment, and standards alignment, but at the cost of transparency, inclusivity, and legitimacy. Investment regimes, meanwhile, entrench a unilateral bias: corporations gain enforceable rights to challenge state policy, while states themselves are constrained in their regulatory autonomy. Arbitration cases targeting public health, environmental protection, and natural resource governance reveal how deeply private power penetrates public authority.

Emerging economies have further unsettled this balance by becoming not only hosts to FDI but major sources of outward capital. The global geography of investment is no longer defined by a one-way flow from North to South. Instead, Chinese, Indian, and Brazilian firms acquire assets across Europe, North America, and Africa, triggering defensive responses in advanced economies. Investment screening regimes—once peripheral—now sit at the centre of national security policy, re-politicising the governance of capital flows.

These dynamics converge in fragmentation. No singular authority structures the global economy. Instead, overlapping and sometimes contradictory regimes compete for relevance. States oscillate between liberal commitments and mercantilist controls. Corporations navigate the gaps and contradictions, engaging in forum shopping or shifting capital toward less restrictive jurisdictions. Civil society, meanwhile, contests the distributive consequences of these regimes, mobilising against agreements perceived to privilege capital over labour, environment, or democracy.

What emerges is not collapse but drift: an unsettled equilibrium in which institutions persist without consolidating into coherence. The global economy functions through partial regimes, selective alignments, and asymmetrical bargains. Multinational corporations retain mobility and leverage, but their authority is increasingly contested. States experiment with recalibration, sometimes reinforcing openness, sometimes reclaiming sovereignty. The outcome is a system that is both integrated and fractured, resilient and unstable.

The political economy of this order is defined by contradiction. Capital remains transnational, but regulation is increasingly national and securitised. Firms depend on global value chains, but states insist on strategic screening and industrial policy. Institutions multiply, but legitimacy erodes. This contradiction ensures that globalisation endures not as a singular project, but as a contested terrain where authority is negotiated, resisted, and redefined.

In this light, the politics of multinational corporations and international economic regimes cannot be understood as a linear story of liberal expansion. It is instead a cyclical process of deepening integration and recurrent contestation, of institutional innovation and political backlash. The drift of the system—its fragmentation and instability—is not an aberration but its defining characteristic. The global economy is sustained not by coherent governance, but by the constant renegotiation of authority between states, corporations, and societies.