24 November 2025, NIICE Commentary 11960
Dr. Md. Abdul Latif
The architecture of the Polycentric Trading System better reflects the diffusion of economic power, especially toward the Global South. But architecture is only half the story. The harder question is political: who gets to write the rules, whose interests prevail, and how can overlapping centres of power be managed fairly? Polycentric trade governance holds out the promise of greater flexibility, pluralism, and inclusion, yet it also sharpens competition over norms, legitimacy, and institutional control.
This commentary explores the political dilemmas at the core of this transition—where power and rules collide—and their practical implications for both major powers and smaller economies.
External Political Pressure-State Security Trumps Efficiency
For much of the postwar era, trade policy centred on efficiency, comparative advantage, and welfare gains. Today, security and geopolitics lead. The U.S.–China relationship makes this clear. Export controls on advanced chips, investment screening, and friend-shoring aim less at market access than at technological dominance and national security. The same logic drives tariff hikes, sanctions, critical minerals policy, and supply chain diversification.
In a polycentric order, this shift has two effects:
- First, it fragments governing coalitions. Countries are pushed to align with U.S.- or China-led security priorities even when their economic interests favour access to both.
- Second, it makes compromise politically costly. Any move to harmonise rules or integrate supply chains can be portrayed domestically as “weakness” or “dependence” on a rival.
As a result, the logic of security often overrides the logic of efficiency. Even when all actors would gain from interoperable standards or predictable dispute settlement, leaders face strong incentives to prioritise strategic advantage over cooperative rule-making. Managing a polycentric system under such conditions is less a technocratic challenge than a test of political courage.
Internal Political Pressures- Distributional Conflicts and Populist Dilemma
Polycentric trade governance also collides with domestic political realities. Trade integration creates winners and losers within each society. Export-oriented firms, skilled workers, and urban consumers typically gain from new agreements and diversified markets. In contrast, workers in import-competing sectors, small producers, and some regions absorb the adjustment costs through job losses, wage pressures, or business closures. In many democracies, short electoral cycles and rising populism hinder efforts to cushion these shocks:
- Governments face strong pressure to adopt visible protectionist measures—tariffs, local content rules, subsidies—even when these undermine long-term competitiveness.
- Complex plurilateral agreements, digital trade rules, or sustainability standards are easily portrayed by critics as threats to jobs or national sovereignty.
In more centralised political systems, fears of social unrest can likewise limit ambitious liberalisation or regulatory reform.
On both external and internal fronts, the political dilemma is clear: polycentricism widens negotiating venues and enables more tailored arrangements, but also compels governments to make and defend complex commitments while managing domestic distributional conflict.
The Politics of Regulatory Sovereignty
A third dilemma is the tension between regulatory sovereignty and common rules. Major powers increasingly use trade policy to export their preferred regulatory models. The European Union promotes its standards on data protection, AI, the environment, and competition through trade agreements and tools such as the Carbon Border Adjustment Mechanism (CBAM). The United States relies on digital trade provisions and security-driven controls, while China advances its own models via Belt and Road Initiative (BRI), digital infrastructure, and standards initiatives.
For emerging economies such as India, Brazil, and South Africa, regulatory choices have become central to development strategy and national identity. Accepting far‑reaching commitments on data flows, platform regulation, or green subsidies is no longer seen as a technical matter but as a question of sovereignty.
This generates a clear tension:
- Interoperable rules lower transaction costs and allow firms to operate across multiple markets.
- Political incentives push governments to export their own model rather than compromise, especially when domestic audiences are wary of external interference.
In a polycentric system, the contest is thus less about tariffs than about whose rules become the global benchmark. Without mechanisms for mutual recognition, minimum common standards, or shared monitoring, regulatory competition risks hardening into incompatible blocs—especially in digital trade and climate-related measures.
Fragmented South, Fragmented Voice
Polycentric trade governance is often seen as an opportunity for the Global South to gain influence, but its internal interests are highly diverse. This diversity makes cohesive Southern coalitions and shared negotiating positions hard to sustain. For example:
- African states disagree over the pace of tariff reductions and digital rules under the African Continental Free Trade Area (AfCFTA).
- Within BRICS and its expanded membership, geopolitical tensions and divergent economic models impede agreement on trade and financial reform.
This creates a political dilemma: Southern actors seek a fairer trading order but struggle to define and defend a common rules set. In a polycentric system where bargaining power depends on coalition building, this fragmentation blunts the Global South’s collective voice, even as its economic weight increases.
Governing a Polycentric System: What Politics Does It Require?
If the core dilemmas are political, the solutions must be political as well. Several priorities stand out.
First, some areas of trade must be insulated from zero-sum security logics. States will not abandon national security, but they can agree on “guardrails,” including:
- clearer criteria for export controls and sanctions,
- transparency on critical minerals policies, and
- crisis communication channels between major hubs.
These measures will not end rivalry, but they can reduce the risk that every trade tool becomes a weapon of strategic competition.
Second, domestic losers must be addressed systematically. Social protection, active labour market policies, and regional development strategies are not optional; they are preconditions for sustaining open, rules-based trade. Without them, each new agreement or standard will fuel backlash and render cooperative governance politically unsustainable.
Third, building flexible frameworks for regulatory interoperability is essential. Rather than insisting on full harmonisation, governments can adopt approaches such as mutual recognition where possible, the establishment of minimum core standards on environment, labour, and data protection, and the use of experimental “regulatory sandboxes” in emerging areas such as AI. Taken together, these measures can lower political resistance while still keeping markets effectively connected.
Fourth, coordination platforms within the Global South should be strengthened. Forums such as AfCFTA, ASEAN, BIMSTEC, and the African Union can function not only as trade blocs but also as venues for prior consultation and joint positions before engaging with larger powers. Over time, this can help Southern actors move from rule takers to co-designers of norms.
Conclusion: Choosing Politics Over Drift
Polycentric trade governance is now the reality of global commerce: several hubs set rules in parallel, reflecting diffused power. This shift marks not just more economic weight in the Global South but a bigger change in political authority. The issue is whether this system is steered or merely endured. If great-power rivalry overrides economic sense, domestic losers go unprotected, regulatory sovereignty is weaponised, and the Global South fails to organise, the order will grow more fractured, not fairer.
Yet polycentricism also creates agency: more partners, arenas, and scope to test rules. A fairer, more efficient system will hinge less on formal design than on leadership—leaders who build coalitions, level with citizens, and accept that in an interdependent world, lasting rules must be negotiated, not imposed. Between power and rules, the future of the trading system will be shaped not just by economics, but by politics.
Dr. Md. Abdul Latif is the Additional Director at the Bangladesh Institute of Governance and Management (BIGM), Bangladesh.
