It's NOT international trade. Don't be fooled.

Many people around the world understand that our modern era of globalisation is one in which international trade is between countries. We also tend to believe that such trade involves the indisputable benefit of greater freedom to engage in the act of purchasing and of selling goods and services between peoples of different nations. For example, Tom Palmer from the Cato Institute questions the understanding of people who are unhappy with this vast expanse of trade by asking “Should American wheat farmers be allowed to buy cell phones from people in Finland? Should Ghanian weavers be allowed to sell the shirts and pants they make to German autoworkers?”.[1]

The reality of international commerce paints a vastly different picture, however. Giant multinational corporations dominate the area of international exchange and a very large share of world ‘trade’ is actually between branches of these same corporations. In North America trade associated with U.S. parent multinationals or their foreign affiliates accounted for 54 percent of U.S. exports of goods and 36 percent of imports.[2] Forty percent of trade between the US and Canada in 1998 was intra-corporate.[3]. “Forty percent of the US-Europe trade is between parent firms and their affiliates, and in respect of Japan and Europe, it is 55 per cent; with regard to US-Japan trade, it is 80 %.”[4]


This intra-corporate form of trade appears to be increasing at a rapid rate. In 2005 “U.S. imports between U.S. MNCs and others increased 13.5 percent, and imports between U.S. parents and foreign affiliates increased 8.6 percent.”[5]

John Ralston Saul highlights this new phenomenon in his book ‘The Collapse of Globalism’. He asks why such an “astonishing and continuous expansion in trade [does] not produce broad economic growth, spread wealth and reduce unemployment”[6] There is good reason for alarm. The form of economic growth experienced today is associated with rising productivity rather than increased employment. Real wages have dropped for workers and sources of taxation revenue for one government after another have declined to a point where regressive taxations regimes have now been imposed on domestic populations and public services have been cut back significantly.

Saul also asks whether the trade between subsidiaries of the same transnational corporations should be counted as trade at all. Then he goes on and adds a few other important queries. Does intra-corporate trade actually have the effect of trade? Why are profits rarely made at each stage of movement? Saul then asserts that these large firms actually intend to create losses in order to avoid taxation; this form of international commerce – unrelated to market competition - makes it possible.

Giant corporations produce goods in countries where governments provide cheap labour and lax (or non-existent) environmental regulations. That’s how they make goods where their constituent parts are put together at the lowest possible cost and then sold as a final product at the highest possible price somewhere else. If we add ‘transfer pricing’ to that strategy[7] and throw in escalating concentration of industry through mergers and acquisitions; well, what have we? I think we have a recipe for global economic meltdown!

1 'Globalization is Grrrreat!' by Tom G Palmer, Senior Fellow, Cato Institute. Cato's Letter - a quarterly message on liberty
Fall 2002, Volume 1 - Number 2

2 United States Bureau of Economic Analysis (USBEA) . As quoted from the ‘Monthly Trade Bulletin’ Volume 3 Number 10

3 United States Bureau of Economic Analysis (USBEA) . As quoted from the Trade Bulletin’ Volume 3 Number 10‘Monthly

4 General Concept of Transfer Pricing
By: Khurram Khan. [t-price.pdf]

5 United States Bureau of Economic Analysis (USBEA) . As quoted from the Trade Bulletin’ Volume 3 Number 10‘Monthly

6 ‘The Collapse of Globalism – and the reinvention of the word’ by John Ralston Saul. Viking Press, published 2005. Page 142.

7 where multinational corporations arbitrarily set unrealistic prices in transactions between parent and affiliates in order to reduce taxes and tariffs, avoid exchange controls and optimize profits.