by Steven Knauss and Pascal Jollivet-Courtois[1]
After decades of frustratingly slow progress in tackling the environmental crisis at the planetary level, the 2010s finally witnessed some significant advances in the fight against climate change, both technologically -- with accelerations in the deployment of key renewable technologies such as batteries, solar and wind power -- and socially, with the fight against climate change catapulting to a place of prominence on the societal and political agenda, as symbolized by key moments such as the 2015 Paris Accords and the 2019 adoption of the European Green Deal.
Just a few years on, however, and the situation looks quite different. Despite the warnings of the scientific community becoming, if anything, more alarming than ever, the ecological transition must now compete for its place at the top of the political agenda with politically pressing items ranging from affordability and competitiveness to the AI race and renewed geopolitical competition.
This latter development -- geopolitical competition -- represents the most significant rupture with the climate of the 2010s; not only does it heighten the importance of the other issues, it also profoundly disrupts the institutional stability upon which the limited environmental progress of the 2010s was constructed.
Historically, moments of acute geopolitical competition have tended to produce rapid institutional change, as previously autonomous domains of social life become increasingly subordinated to the exigencies of full-spectrum great-power competition. One such example is what Robert Blackwill and Jennifer Harris term geoeconomics, or the subordination of economic incentives such as revenue, profit, and loss to geopolitical considerations.
Our paper is interested in the complex interaction between this geoeconomic turn, state-corporate relations, trade patterns, and environmental arbitrage. At the state level, while the environmental politics of most notably the United States and China are fully enmeshed in this new institutional dynamic, this is arguably no less true for the European Union. Yet corporate actors, while forced to pay careful attention to this shifting climate, nonetheless maintain sufficient room to manoeuvre and pursue strategies that maintain their autonomy from state policies in what Henrique Choer Moraes and Mikael Wigell call “corporate geoeconomics.” The interaction between this multi-layered mutation of the global trade regime will determine to what extent entangled environmental and security objectives may win out over profit-oriented arbitrage strategies, with important consequences for the transition itself.
To shed light on these novel dynamics, we trace the spatial reconfiguration of global value chains in the European Union and the United States between 2014 and 2023 at the sectoral level. Our aim is to see to what extent lead firms restructure their supplier networks -- or to what extent new hubs emerge that reroute the supply chains across multiple sectors -- to more closely align their global activities with state-level environmental and geoeconomic objectives. Employing Seth Schindler and Steve Rolf’s concepts of aligners versus hedgers and adapting them to firm environmental strategies, we expect to see hedgers -- lead firms that seek to avoid geopolitical alignment and maintain their autonomy from state-level geoeconomics -- continue to pursue profit-oriented logic in the global organization of their supply chains, including environmental and labour arbitrage, seeking to minimize costs by sourcing intermediates from regions with less stringent environmental regulations and lower unit labour costs. Aligners, on the other hand -- lead firms seeking to align their global operations more closely with state objectives -- are expected to increasingly reorient their supply chains away from environmental arbitrage and toward geoeconomic de-risking to comply with state geoeconomic and environmental priorities.
Methodologically, we use standard input-output techniques (the Leontief inverse) to trace total intermediate products from 62 countries around the world that end up in final products of 35 different sectors ultimately sold or produced in the European Union and the United States. We then categorize, for each sector, which countries increased or decreased their provision of intermediate products for the European Union, and separately, for the United States, between 2014 and 2023. Since such increases or decreases can occur for multiple reasons, we follow the method of Xiang Gao, Geoffrey J. D. Hewings, and Cuihong Yang to net out changes due to technological change or due to the uneven growth of final demand over time to isolate changes due to spatial reallocation. Finally, we compare the country-level increases or decreases due to spatial reallocation with hedging-style indicators such as the evolution and level of the country’s unit labour costs or environmentally related tax revenue, as well as with a country’s geopolitical alignment.
Our results, which at this stage remain provisional, are more consistent with ongoing hedging, including continued environmental arbitrage, than they are with the geoeconomic alignment of global value chains. Particularly in the European Union, it is the low level of environmentally related taxation rather than its percentage change throughout the period studied that is most strongly associated with countries with bigger increases in intermediate product provision due to spatial reconfiguration. This indicates that while the sourcing of global value chains for the European Union and the United States remains favourable to “the lowest environmental bidder,” there does appear to be a certain amount of inelasticity with respect to increases in environmental taxation. One interesting hypothesis that could be explored in the future concerning this inelasticity would be that global lead firms from the European Union and the United States may benefit from oligopsony buyer power, constraining local suppliers to absorb the costs of increased local environmental taxation. Our study, however, is unable to confirm this hypothesis in its current state.
Of course, there are important limitations to our contribution, most importantly that we are trying to investigate a nascent phenomenon whose contours are still taking shape. If indeed a new geoeconomic order were to consolidate, we would expect a lag of several years between its first manifestations at the level of changing state-level objectives, the institutional changes that follow, and ultimately, the response in global trade patterns. To the extent that led firms consider emerging geopolitical and environmental objectives to be fleeting political phenomena unlikely to be maintained over time, they would be more likely to pursue a hedging strategy until the consolidation of the new order became more evident over time, increasing the lag even further between shifts in state-level objectives and global trade patterns. Our study should therefore be considered an initial effort to consider these issues on a cross-country and cross-sectoral scale. Whether the intermingling of geoeconomic and environmental state policies will ultimately weaken the logic of the lowest environmental bidder in the years to come remains to be seen.
References:
Blackwill, R. D. & Harris, J. (2016). War by other means: Geoeconomics and Statecraft. Harvard University Press.
Choer Moraes, H., & Wigell, M. (2022). “Balancing dependence: the quest for autonomy and the rise of corporate geoeconomics.” In The Political Economy of Geoeconomics: Europe in a Changing World (pp. 29-55). Cham: Springer International Publishing.
Gao, X., Hewings, G. J., & Yang, C. (2022). “Offshore, re-shore, re-offshore: what happened to global manufacturing location between 2007 and 2014?” Cambridge Journal of Regions, Economy and Society, 15(2), 183-206.
Schindler, S., & Rolf, S. (2024). “Geostrategic globalization: US–China rivalry, corporate strategy, and the new global economy.” Globalizations, 1-18.
[1] Technological University of Compiègne / Sorbonne University Alliance, France
