Author: Editorial Board, ANU
Today the global trade system faces three systemic challenges. None are new, but strategic competition between China and the United States has brought a dangerous edge to each of them.
The first is the dramatic shift in the composition of international economic interaction. When the Bretton Woods system was first set up, global trade was overwhelmingly in physical merchandise. Over time, the importance of services trade and, in the past few decades, data flows, has left large parts of global trade under regulated or uncovered by global rules entirely. While this is a long-standing issue, the increasing weight of China in the digital economy has caused major angst in Western countries, some of which have gone as far as banning Chinese companies from building key infrastructure like 5G.
The second, related challenge is the increasing imbrication of national security and economic policy. The two have never been entirely divorced, but in recent years the use of economic weapons to extract political outcomes, particularly by China and the United States, has risen markedly. Article XXI of the GATT always allowed countries to impose restrictive measures for genuine national security reasons. The exemption was never intended to be a blanket one, though: there was an implicit agreement not to overstep the mark that stopped the rules of the GATT and then the WTO from being shredded in the name of national security. Donald Trump’s…