Trésor-Info - Publications de la direction générale du Trésor - United-States

Geopolitical Fragmentation of Trade

2025-11-06T00:00:00+01:00

At a time of heightened geopolitical tensions, economic exchanges between nations are increasingly governed by a bloc-based approach. We are witnessing a reorganisation of trade between groups of geopolitically aligned countries, i.e. a geopolitical fragmentation of trade.

According to our estimates covering a period preceding the second Trump administration, the fragmentation between blocs of military allies is more marked than between diplomatically aligned countries or countries maintaining close economic cooperation. This fragmentation began with the annexation of Crimea in 2014 and accelerated with Russia’s invasion of Ukraine in 2022.

Since 2010, the military allies of the United States have increased their imports from other US-allied countries by around 40%, while imports from Russia’s military allies have decreased by 80% compared with trade between or with countries not belonging to either of these blocs (see Chart opposite).

Fragmentation can stem from strategies that address legitimate concerns, such as reducing unwanted dependencies. However, trade fragmentation would be less economically efficient than the free allocation of resources.

Similarly, reduced trade diversification could undermine the resilience of our economies. Lastly, fragmentation could hamper our ability to tackle global challenges such as the green transition and development.

Lessons from Past Industrial Policies

2025-02-13T00:00:00+01:00

Industrial policies aimed at the creation and development of specific sectors have made a comeback against a backdrop of a mounting number of crises, trade tensions, an accelerating innovation race and the imperative of combating climate change (see Chart on cover page). A study of policies in eight advanced and catching-up countries from 1945 to 2000 provides useful insight into the conditions determining their success or failure.

Industrial policy had similar aims in all countries studied: (i) growth and competitiveness; (ii) support for major transitions (energy, space, etc.); (iii) strategic autonomy and sovereignty; and (iv) support for declining sectors.

Although different models of industrial policy exist, most countries have intervened in a targeted manner in specific sectors. The catching-up countries (Japan followed by South Korea and China), France and the United Kingdom – up to the 1980s – directly intervened in the development of industrial production capacities. In the United States, sector measures were decentralised and limited to R&D support and government procurement in military and high value-added sectors.

The advanced countries’ sector-specific measures focused on emerging sectors with high stakes in defence- and sovereignty (aviation, energy and space in the post-war period followed, as in the catching-up countries, by electronics and IT). The catching-up countries initially focused on mature, but high-growth-potential mid-tech sectors (automobiles, chemicals and shipbuilding) and then on high-tech sectors (primarily electronics and IT).

International sector-specific industrial policy experiences provide useful insight for shaping today’s policies. For example, the success of both export aid conditional on performance in South Korea and the precise specification of ambitious technological goals in US development contracts suggests that setting high commercial and technological performance targets is a factor for success.

Implementation of Monetary Policy in the Euro Area and the United States

2024-03-26T00:00:00+01:00

Monetary policy refers to the decisions made by a central bank to influence the cost and supply of money in a given economy. The primary mandate of the European Central Bank (ECB) is to maintain price stability while the United States Federal Reserve’s (the Fed) dual mandate is to ensure stable prices and maximum employment. On the price stability front, both of these central banks have set a 2% inflation target over the medium term.

Policy rates are generally the main instrument used by central banks to carry out their mandate. Policy rates are interest rates applied by central banks to the loans they grant to commercial banks and to the deposits they receive. These rates have an impact on the real economy in a myriad of ways: interest rates, asset prices and the exchange rate.

For the past fifteen or so years, the Fed and the ECB have adjusted the way their monetary policy is implemented to cope with various crises: the 2008 financial crisis, the 2010 European sovereign debt crisis, the COVID-19 pandemic in 2020 and, most recently, an inflation shock in 2021 exacerbated by Russia’s invasion of Ukraine in 2022.

In order to handle the fallout from these crises and circumvent the zero lower bound, the ECB and the Fed have adopted a range of new “unconventional” instruments, such as asset purchase programmes (quantitative easing) to influence long-term rates as well, forward guidance on rate expectations, longer-term refinancing operations to bolster bank lending and negative deposit facility rates.

The stances taken by the Fed and the ECB in their policies had been similar since 2008, except during a period between 2015 and 2019 when the Fed normalised its policy by raising its rates while the ECB maintained a low-rate policy. The ECB tended to have a more delayed response to the first few crises than the Fed, but it managed to adapt its instruments just as quickly and robustly to deal with the pandemic.

Soaring inflation in the wake of the pandemic, which has been significantly above the Fed and ECB inflation targets since 2022, has driven the two central banks to tighten monetary policy rapidly (see Chart).

The Market for Safe Assets

2023-08-29T00:00:00+02:00

The holding of so-called “safe” assets, and the market for these securities more broadly, play a key role in maintaining financial stability. Yet there is no consensus as to how these assets are defined because the “safety” of a security depends on a number of different characteristics such as its stability, counter-cyclicality and liquidity, how transparently it is valued, and how solid its fundamentals are. The relative importance of these aspects varies according to investor preferences and financial-market conditions.

By examining how different asset classes perform against different safety criteria, it is possible to identify a universe of assets that can be considered “safe”, and to analyse developments in the market for these assets over the past two decades.

The supply of safe assets grew sharply in the 2010s, owing in part to sovereign bond issues. However, these assets became less readily available as central banks, especially in Europe, embarked on bond-buying programmes as part of a broader package of unconventional monetary policy measures. Despite increased supply, safe assets remained hard to come by throughout this period, as demand surged in both Europe and the United States, owing largely to the introduction of tighter prudential requirements in the wake of the 2008 financial crisis.

Globally, the market imbalance caused by these opposing forces has been partly redressed since the COVID-19 crisis of 2020, owing in large part to sovereign debt issues intended to fund pandemic support packages, which have had the effect of bringing the supply of safe assets into closer alignment with demand.

Looking ahead, the market could be affected by a number of major structural trends. Factors that could impact supply include the reshaping of the safe assets landscape amid the green transition, debt sustainability issues, rating downgrades and reform of the international monetary system. Meanwhile, demand could be influenced by developments such as the roll-back of unconventional monetary policy measures and changes to regulatory standards, especially those relating to non-bank financial institutions (NBFIs).