In this fourth edition of Current Accounts, the Hinrich Foundation's podcast on global trade, Research Fellow Stewart Paterson speaks with Naoise McDonagh, Senior Lecturer in the School of Business and Law at Australia’s Edith Cowan University, on the national security calculus driving decoupling and the crucial role of legal contestability of such measures undertaken by the US and China against each other.

China’s heft in the global trading system fueled its rise to a stature that is challenging US hegemony throughout the world. The rivalry now has become enmeshed in national security interests and its impact is shaking the multilateral trading system. In many ways, the tensions resemble those of the Cold War between the US and Soviet Russia – but for one key difference, says McDonagh. 

During the Cold War, there was almost complete separation between the rival giants. But since China joined the World Trade Organization in 2001, the contesting superpowers are among the most closely integrated economies in history.

Geopolitical confrontation and economic disentanglement between Beijing and Washington have been far more consequential in a painful, near-anarchic reshaping of global networks. The drastic change in relative power between superpowers led to sharply spiraling risks. And there’s no global policeman any longer, McDonagh says, as the US turns against the multilateral governance frameworks it created. 

As both economies invoke national interests, the legal interpretation of the term in the world’s rules-based organizations has become a key measure of its ability to come to terms with the geopolitical changes – not least at the WTO. 

States “are not going to allow an impingement of their national security, and so it is just not going to work for them to bow down to a legal interpretation, because national security issues are too important,” McDonagh says. “So that is why the WTO did not want to rule on this. People will not adhere to it, and that undermines the credibility of the system.”

As nations struggle to figure out the new fissures created by decoupling, Paterson and McDonagh contemplate the abyss in this Current Accounts podcast.

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