Source: European Central Bank
Speech by Christine Lagarde, President of the ECB, at the People’s Bank of China in Beijing
Beijing, 11 June 2025
It is a pleasure to be back here in Beijing.
Some years ago, I spoke about how a changing world was creating a new global map of economic relations.[1]
Maps have always reflected the society in which they are produced. But in rare instances, they can also capture historical moments when two societies meet at the crossroads.
This was evident in the late 1500s during the Ming Dynasty, when Matteo Ricci, a European Jesuit, travelled to China. There Ricci went on to work with Chinese scholars to create a hybrid map that integrated European geographical knowledge with Chinese cartographic tradition.[2]
The result of this cooperation – called the Kunyu Wanguo Quantu, or “Map of Ten Thousand Countries” – was historically unprecedented. And the encounter came to symbolise China’s openness to the world.
In the modern era, we saw a similar moment when China entered the World Trade Organization (WTO) in 2001. The country’s accession to the WTO signified its integration into the international economy and its openness to global trade.
China’s entry into the WTO went on to reshape the global map of economic relations at a time of rapid trade growth, bringing significant benefits to countries across the world – particularly here in China.
Since that time, the global economy has changed dramatically. In recent years, trade tensions have emerged and a geopolitically charged landscape is making international cooperation increasingly difficult.
Yet the emergence of tensions in the international economic system is a recurring pattern across modern economic history.
Over the last century, frictions have surfaced under a range of international configurations – from the inter-war gold exchange standard, to the post-war Bretton Woods system, to the subsequent era of floating exchange rates and free capital flows.
While each system was unique, two common lessons cut across this history.
First, one-sided adjustments to resolve global frictions have often fallen short, regardless of whether deficit or surplus countries carry the burden. In fact, they can bring with them either unpredictable or costly consequences.
Such adjustments can be especially problematic when trade policies are used as a substitute for macroeconomic policies in addressing the root causes.
And second, in the event that tensions do emerge, durable strategic and economic alliances have proven critical in preventing tail risks from materialising.
In contrast to eras when ties of cooperation were weak, alliances have ultimately helped to prevent a broader surge in protectionism or a systemic fragmentation of trade.
These two lessons have implications for today. Frictions are increasingly emerging between regions whose geopolitical interests may not be fully aligned. At the same time, however, these regions are more deeply economically integrated than ever before.
The upshot is that while the incentive to cooperate is reduced, the costs of not doing so are now amplified.
So the stakes are high.
If we are to avoid inferior outcomes, we all must work towards sustaining global cooperation in a fragmenting world.
Tensions across history
If we look at the history of the international economic system over the past century, we can broadly divide it into three periods.
In the first period, the inter-war years, major economies were tied together by the gold exchange standard – a regime of fixed exchange rates, with currencies linked to gold either directly or indirectly.
But unlike the pre-war era, when the United Kingdom played a dominant global role[3], there was no global hegemon. Nor were there impactful international organisations to enforce rules or coordinate policies.
The system’s flaws quickly became apparent.[4] Exchange rate misalignments caused persistent tensions between surplus and deficit countries. Yet the burden of adjustment fell overwhelmingly on the deficit side.
Facing outflows of gold, deficit countries were forced into harsh deflation. Meanwhile, surplus countries faced little pressure to reflate. By 1932, two surplus countries accounted for over 60% of the world share of gold reserves.[5]
One-sided adjustments failed to resolve the underlying problems. And without strong alliances to contain tail risks, tensions escalated. Countries turned to trade measures in an attempt to reduce imbalances in the system – but protectionism offered no sustainable solution.
In fact, if current account positions narrowed at all, it was only because of the fall-off in world trade and output. The volume of global trade fell by around one-quarter between 1929 and 1933[6], with one study attributing nearly half of this fall to higher trade barriers.[7] World output declined by almost 30% in this period.[8]
During the Second World War, leaders took the lessons to heart. They laid the groundwork for what became the Bretton Woods system in the early post-war era: a framework of fixed exchange rates and capital controls.
This marked the beginning of the second period.
The new regime was anchored by the US dollar’s convertibility into gold, with the International Monetary Fund acting as a referee. Trade flourished during this era. Between 1950 and 1973[9], world trade expanded at an average rate of over 8% per year.[10]
But again, frictions emerged.
In particular, the United States had shifted from initially running balance of payments surpluses to persistent deficits. At the heart of this shift was the role of the US dollar as the world’s reserve currency and source of liquidity for global trade.
While US deficits provided the world with vital dollar liquidity, those very same deficits strained the dollar’s gold convertibility at USD 35 per ounce, threatening confidence in the system.
By the late 1960s, foreign holdings of US dollars – amounting to almost USD 50 billion – were roughly five times the size of US gold reserves.[11]
Ultimately, these tensions proved unsustainable as the United States was unwilling to sacrifice domestic policy goals – which generated fiscal deficits – for its external commitments.
The Bretton Woods system ended abruptly in 1971, when President Nixon unilaterally suspended the US dollar’s convertibility into gold and imposed a 10% surcharge on imports.
The goal behind the surcharge was to force US trading partners to revalue their currencies against the dollar, which was perceived as being overvalued.[12] As in earlier periods, this was a one-sided adjustment – though now aimed at shifting the burden onto surplus countries.
Crucially, however, the downfall of Bretton Woods unfolded within the context of the Cold War. Countries operating under the system were not just trading partners – they were allies.
And so, everyone had a strong geopolitical incentive to pick up the pieces and forge new cooperative agreements that could facilitate trade relationships, even in moments of pronounced volatility.
We saw this several months after the “Nixon Shock”, when Western countries negotiated the Smithsonian Agreement.
This agreement was a temporary fix to maintain an international system of fixed exchange rates. It devalued the US dollar by over 12% against the currencies of its major trading partners and removed President Nixon’s surcharge.[13]
And we saw a strong geopolitical incentive at work again with the Plaza Accord in the 1980s – an era of floating exchange rates and free capital flows – when deficit and surplus countries in the Group of Five[14] sat down to try and resolve tensions.
Of course, neither agreement ultimately succeeded in addressing the root causes of tensions. But critically, the risk of a broader turn toward protectionism – which was rising at several points[15] – never materialised.
The contrast is telling.
Both the inter-war and post-war eras revealed that one-sided adjustments cannot sustainably resolve economic frictions – whether on the deficit or surplus side.
Yet the post-war system proved far more resilient, because the countries within it had deeper strategic reasons to cooperate.
Frictions threatening global trade today
In recent decades, we have been moving into a third period.
Since the end of the Cold War, we have seen the rapid expansion of truly global trade.
Trade in goods and services has risen roughly fivefold to over USD 30 trillion.[16] Trade as a share of global GDP has increased from around 38% to nearly 60%.[17] And countries have become much more integrated through global supply chains. At the end of the Cold War, these chains accounted for around two-fifths of global trade.[18] Today, they account for over two-thirds.[19]
Yet this globalisation has unfolded in a world where – increasingly – not all nations are bound by the same security guarantees or strategic alliances. In 1985 just 90 countries were party to the General Agreement on Tariffs and Trade. Today, its successor – the WTO – counts 166 members, representing 98% of global trade.[20]
There is no doubt that this new era has amplified the benefits of trade.
Some originally lower-income countries have experienced remarkable gains – none more so than China.
Since joining the WTO, China’s GDP per capita has increased roughly twelvefold.[21] The welfare impact has been equally profound: almost 800 million people in China have been lifted out of poverty, accounting for nearly three-quarters of global poverty reduction in recent decades.[22]
Advanced economies, too, have benefited, albeit unevenly. While some industries and jobs have faced pressure from heightened import competition[23], consumers have enjoyed lower prices and greater choice. And for firms able to climb the value chain, the rewards have been substantial – especially in Europe.
Today, EU exports to the rest of the world generate more than €2.5 trillion in value added – nearly one-fifth of the EU’s total – and support over 31 million jobs.[24]
But the weakening alignment between trade relationships and security alliances has left the global system more exposed – a vulnerability now playing out in real time.
According to the International Monetary Fund, trade restrictions across goods, services and investments have tripled since 2019 alone.[25] And in recent months, we have seen tariff levels imposed that would have been unimaginable just a few years ago.
This fragmentation is being driven by two forces.
The first is geopolitical realignment. As I have outlined in recent years, geopolitical tensions are playing an increasingly decisive role in reshaping the global economy.[26] Countries are reconfiguring trade relationships and supply chains to reflect national security priorities, rather than economic efficiency alone.
The second force is the growing perception of unfair trade – often linked to widening current account positions.
Current account surpluses and deficits are not inherently problematic, particularly when they reflect structural factors such as comparative advantage or demographic trends.
But these imbalances become more contentious when they do not resolve over time and create the perception that they are being sustained by policy choices – whether through the blocking of macroeconomic adjustment mechanisms or a lack of respect for global rules.
Indeed, while in recent decades the persistence of current account positions has remained fairly constant, the dispersion of those positions – that is, how widely surpluses and deficits are spread across countries – has shifted significantly.
In the mid-1990s current account deficits and surpluses were similarly dispersed within their respective groups: both were relatively evenly distributed among several countries.[27]
Today, that balance has changed. Deficits have become far more concentrated, with just a few countries accounting for the bulk of global deficits. In contrast, surpluses have become somewhat more dispersed, spread across a wider range of countries.
These developments have recently led to coercive trade policies and risk fragmenting global supply chains.
Making global trade sustainable
Given national security considerations and the experience during the pandemic, a certain degree of de-risking is here to stay. Few countries are willing to remain dependent on others for strategic industries.
But it does not follow that we must forfeit the broader benefits of trade – so long as we are willing to absorb the lessons of history. Let me draw two conclusions for the current situation.
First, coercive trade policies are not a sustainable solution to today’s trade tensions.
To the extent that protectionism addresses imbalances, it is not by resolving their root causes, but by eroding the foundations of global prosperity.
And with countries now deeply integrated through global supply chains – yet no longer as geopolitically aligned as in the past – this risk is greater than ever. Coercive trade policies are far more likely to provoke retaliation and lead to outcomes that are mutually damaging.
The shared risks we face are underscored by ECB analysis. Our staff find that if global trade were to fragment into competing blocs, world trade would contract significantly, with every major economy worse off.[28]
This leads me to the second conclusion: if we are serious about preserving our prosperity, we must pursue cooperative solutions – even in the face of geopolitical differences. And that means both surplus and deficit countries must take responsibility and play their part.
All countries should examine how their structural and fiscal policies can be adjusted to reduce their own role in fuelling trade tensions.
Indeed, both supply-side and demand-side dynamics have contributed to dispersion of current accounts positions we see today.
On the supply side, we have witnessed a sharp rise in the use of industrial policies aimed at boosting domestic capacity. Since 2014, subsidy-related interventions that distort global trade have more than tripled globally. [29]
Notably, this trend is now being driven as much by emerging markets as by advanced economies. In 2021, domestic subsidies accounted for two-thirds of all trade-related policies in the average G20 emerging market, consistently outpacing the share seen in advanced G20 economies.[30]
On the demand side, global demand generation has become more concentrated, especially in the United States. A decade ago, the United States accounted for less than 30% of demand generated by G20 countries. Today, that share has risen to nearly 35%.
This increasing imbalance in demand reflects not only excess saving in some parts of the world, but also excess dissaving in others, especially by the public sector.
Of course, none of us can determine the actions of others. But we can control our own contribution.
Doing so would not only serve the collective interest – by helping to ease pressure on the global system – but also the domestic interest, by setting our own economies on a more sustainable path.
We can also lead by example by continuing to respect global rules – or even improving on them. This helps build trust and creates the foundation for reciprocal actions.
That means upholding the multilateral framework which has so greatly benefited our economies. And it means working with like-minded partners to forge bilateral and regional agreements rooted in mutual benefit and full WTO compatibility.[31]
Central banks, in line with their respective mandates, can also play a role.
We can stand firm as pillars of international cooperation in an era when such cooperation is hard to come by. And we can continue to deliver stability-oriented policies in a world marked by rising volatility and instability.
Conclusion
Let me conclude.
In a fragmenting world, regions need to work together to sustain global trade – which has delivered prosperity in recent decades.
Of course, given the geopolitical landscape, that will be a harder challenge today than it has been in the past. But as Confucius once observed, “Virtue is not left to stand alone. He who practices it will have neighbours”.
Today, to make history, we must learn from history. We must absorb the lessons of the past – and act on them – to prevent a mutually damaging escalation of tensions.
In doing so, we all can draw a new map for global cooperation.
We have done it before. And we can do it again.
Thank you.
