Not too long ago, globalization was seen by academics and policymakers as a powerful force bringing the world closer together and promoting economic prosperity and stability. The open flow of goods, services, money, natural resources, and people would benefit all countries and make it possible to transfer knowledge, ideas, and technology across national borders. Globalization promised to bridge divides between advanced and developing economies, binding them together in a mesh of shared interests. It seemed reasonable to assume that this would even foster geopolitical stability, as collective prosperity would incentivize countries to tamp down conflicts that could disrupt their economic relationships.

Today, this grand hope of globalization has been dashed. Globalization’s devastating effects on jobs in advanced economies have played a role in pushing many democracies, including the United States, to the precipice of anarchy. Politicians looking to take advantage of the backlash against globalization have portrayed it as a malignant force exposing their countries’ firms and workers to destructive foreign competition. The dream of integration has given way to a reality of fragmentation in which patterns of trade and capital flows mirror geopolitical alliances rather than transcend rifts between them. Far from the antidote to geopolitical rivalry it was originally imagined to be, globalization has itself become a source of dissension.

The failure of globalization to fulfill its promise of generating broad and equitable benefits has created a world in which positive-sum economic forces are less capable of countering the zero-sum forces of geopolitics than they have been since the 1990s. The aggressive jockeying between China and the United States over the past decade exemplifies this shift. The two superpowers are explicitly engaged in competition for economic and geopolitical supremacy. Without the countervailing force of mutually beneficial economic and financial linkages to prevent the competition from spiraling out of control, the relationship between the two countries has become injurious not just to Beijing and Washington but also to the rest of the world, left to suffer from the collateral damage. This fracturing relationship is emblematic of the new instability of a world order less restrained by economic integration.

The shifting nature of globalization should not occasion its obituary, however. Instead, economists and policymakers must reflect on how globalization went astray, transforming from a force that promotes cooperation to one that fuels conflict, so that they might once again productively channel its positive effects. Harnessing globalization’s potential to improve economic outcomes and lives while allaying its destructive effects is more necessary than ever to counteract the fragmentation that continues to increase the risk of dangerous interstate conflict.

International trade and financial flows began expanding rapidly around the mid-1980s as governments dismantled barriers between them. Technological developments, including the widespread use of shipping containers and improvements in trade logistics, lowered transportation costs and boosted international commerce. The notion of a unified global marketplace for goods and services, in which each country would be able to specialize in whatever it was relatively better at producing, no longer seemed far-fetched. A broad consensus emerged that commercial interests keen to build global supply chains and sell their products and services worldwide would serve as the glue binding the world closer together.

The arrangement tied together advanced and emerging market economies in a web of mutually beneficial relationships. Foreign demand for goods helped many emerging-market countries build up their manufacturing sectors, which swelled their middle classes. As trade expanded, many of these countries ran trade surpluses as they exported more than they imported. Meanwhile, some rich countries, including Australia, Spain, the United Kingdom, and, most notably, the United States, began borrowing money from the rest of the world to finance their trade deficits.

But not everyone appreciated the way that globalization rearranged the domestic economies of wealthy countries. The large aggregate benefits generated by free trade were not distributed equally; some labor-intensive industries such as footwear, furniture, and textiles were decimated, while others were forced to retrench under the pressure of foreign competition. Opening U.S. automobile markets to imports from Japan in the 1970s, for example, brought significant benefits to American consumers in the form of more choices and lower prices. But it didn’t seem that way to autoworkers........

© Foreign Affairs