Current Accounts: The Hinrich Foundation Trade Podcast
National interest: Inside the US and China’s disintegrating relationship
Published 16 May 2023
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 trade restrictions taken by the US and China against each other.
Tune in to the fourth episode of the Hinrich Foundation’s podcast series here:
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 the ongoing reshaping of global networks. The drastic change in relative power between superpowers has 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.
Here’s an excerpt of Naoise McDonagh's conversation with Current Accounts:
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Stewart Paterson: |
Now, it cannot have escaped many people’s notice that national security considerations have always been pretty intertwined with trade. But in recent years, we seem to have seen quite a dramatic escalation in the number of national security-related issues that have raised their head and their severity in terms of their impact on the free flow of goods services around the world. Why do you think that is? |
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Naoise McDonagh: |
History is replete with nations getting into conflict over resources, over geopolitical positions, and so forth. So, every government's core task is actually national security, to protect the state, protect its borders and boundaries. Now, we often do not think about that in long periods of peace, but ultimately, that is the backdrop for all governments. And then the last point would be: nations are rational actors, right? So, they are aware of risks, and they respond accordingly. And we know that every nation has a large military capacity, particularly big states. And so, the reason they have those is because of future uncertainty.
So, what has happened in the recent few years is that these background tensions that were kind of put aside in the 2000s between the US and the new rising power, China, have actually come to a boiling point since 2016, and that has infected the whole system in a way. China has gained a lot of power, it has developed economically, it has engaged in military build-up, it has put people on edge. It has claimed territory in the South China Sea, it is pushing nations around. And so, countries are responding, including the US, which has large interest in that region. So, this is heavily geopolitical in origin. |
Tune into the Hinrich Foundation’s podcast series for insights on international trade.
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Stewart Paterson is a Research Fellow at the Hinrich Foundation who spent 25 years in capital markets as an equity researcher, strategist and fund manager, working for Credit Suisse, CLSA and most recently, as a Partner and Portfolio Manager of Tiburon Partners LLP.
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Author
Naoise McDonagh
Naoise publishes original research on international business and trade issues, including how domestic regulation, international trade agreements and geopolitics impact the international business environment. In addition, he teaches courses on international business at the undergraduate and postgraduate levels in ECU's School of Business and Law.
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