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.