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The return of great-power rivalry is having a profound impact on economic globalization. Economic weapons such as sanctions, export controls, and tariffs have again become central features of the international economy. After decades of deep integration, globalization has stalled and the world economy appears to be fragmenting.
This development was difficult to predict just a decade ago. Economists long understood globalization primarily as the consequence of technological and economic progress, including falling transportation costs and advances in communication technologies and logistics. If these forces were the primary drivers of globalization, integration should continue to deepen today. Instead, the opposite appears to be happening. Technology continues to advance, yet globalization has lost momentum.
What explains this slowdown? The missing piece is geopolitics. Globalization is shaped not only by technology and market forces, but also by the international political order. That order shapes who trades with whom, the level and composition of capital flows, and whether firms are willing to make long-term commitments across borders.
Globalization and geopolitics are closely linked
In recent work with Fernando Broner, Alberto Martín, and Josefin Meyer, we formalize this idea through the concept of hegemonic globalization. Our starting point is simple: trade and geopolitical alignment reinforce one another over time. Political alignment between countries lowers many of the frictions that make cross-border exchange difficult, from regulatory differences and institutional incompatibilities to uncertainty about future market access. Countries therefore trade disproportionately with geopolitical partners.
When a hegemon dominates the global economy, countries have incentives to align politically with the hegemon and its allies because alignment increases the gains from trade. In doing so, they often adopt rules, institutions, and policies that move them closer to the hegemonic coalition, even when these differ from their own preferred policies.
The larger the hegemon’s bloc becomes, the more attractive it is to align with the hegemon, and the larger the global gains from trade become, a form of strategic complementarity. The result is hegemonic globalization: deep economic integration sustained by a dominant power and the coalition organized around it. The idea echoes Charles Kindleberger’s notion of hegemonic stability: globalization is easier to sustain under hegemony. Our contribution is to formalize this mechanism and bring it to the data using a new dataset of more than 70,000 international treaties.
The historical record is broadly consistent with this view. The two great eras of globalization of the past two centuries unfolded under a dominant power, Britain in the nineteenth century and the United States after 1945. Periods of contested leadership, by contrast, have generally been associated with greater fragmentation—think of the period between World Wars I and II. We also find that political alignment tends to precede economic integration. Countries first move closer politically and institutionally, and then trade more.
The post–Cold War era provides perhaps the clearest example of hegemonic globalization. The United States stood at the center of a broad and unusually stable coalition of countries. Alliances were durable, market access was broadly secure, and the rules governing international exchange appeared likely to persist. The hidden achievement of this order was not only more trade but also greater predictability. Firms could build supply chains spanning continents because they could make reasonably confident assumptions about the future political environment. Globalization, which accelerated after the 1980s, was therefore not only the product of technological change but also of an unusually stable geopolitical order.
US-led hegemonic globalization is over
The era of US-led hegemonic globalization is now ending. The rise of China, the resurgence of international conflict, and growing tensions among major powers all point toward a more multipolar world.
The main consequence of such a shift to multipolarity is the erosion of the stable geopolitical alignments that support exceptionally deep economic integration. As US hegemonic influence weakens, trade becomes less concentrated around a single political coalition and more fragmented across competing blocs. Governments become less willing to align politically, increasing the scope for interventions in trade and investment decisions. Global gains from trade decline, as does aggregate welfare.
The resulting losses are not distributed evenly. Perhaps surprisingly, we predict that the largest losers are the incumbent hegemon and the countries most closely aligned with it.
Under hegemonic globalization, these economies enjoyed unusually favorable conditions for integration because they operated within the most predictable political environment and under rules closely aligned with their own preferences. Their firms invested heavily in supply chains, their financial sectors became deeply interconnected, and their economies specialized in ways that would have been difficult in a less stable geopolitical setting. As the geopolitical foundations of that system weaken, the gains from deep integration weaken as well, especially for countries in the hegemon’s closest circle.
The largest relative winners are countries whose political preferences and institutions are closer to the rising hegemon than to the incumbent one. Under a multipolar order, these countries no longer need to align as closely with the incumbent hegemon in order to access lucrative markets. As new powers rise, new coalitions emerge around them, attracting a larger share of trade and investment. The growing economic integration between China and many countries across Asia and Africa illustrates this process.
Commerce and conflict frequently coexist
The end of hegemonic globalization does not mean the end of globalization itself. History shows again and again that cross-border trade and geopolitical rivalry can coexist.
This point is illustrated in John Shovlin’s fascinating book Trading with the Enemy. Shovlin shows how eighteenth-century Britain and France repeatedly combined commercial integration with strategic rivalry. The two powers fought wars, competed for colonies, and frequently viewed one another as existential threats. Yet neither side was willing to abandon the gains from trade for long. Commercial ties and supporting trade agreements were repeatedly rebuilt even after periods of intense conflict. Shovlin’s deeper contribution is to show that commerce and conflict are not always opposing forces. Trade created wealth, but that wealth intensified struggles over markets, empire, and influence.
Trade survived not only the wars of the eighteenth century but also the much larger conflicts and tensions of the twentieth. In the two decades before World War I, globalization reached unprecedented levels, despite the fact that great-power rivalry was quickly escalating. Even during the world wars, trade did not disappear altogether. Significant cross-border exchange persisted, in particular through neutral countries, intermediaries, and informal channels. Commerce and conflict can go hand in hand.
These historical experiences may prove a useful guide to the twenty-first century. The challenge facing governments and firms today is not rapid deglobalization, but how to navigate a less stable international order. Previous generations learned how to trade in times of war, rivalry, and shifting alliances. A crucial part of that adaptation is paying closer attention to geopolitical shifts and shocks.
Albert Hirschman and the attention problem
One of the hidden benefits of hegemonic globalization was that it reduced the need to constantly monitor geopolitical developments. This point was emphasized by the late Albert Hirschman, the intellectual father of the line of research we now call geoeconomics. In his 1978 essay Beyond Asymmetry, he highlighted a simple but powerful idea: exercising influence requires attention. And attention is costly. Dependencies must be monitored, relationships managed, and economic pressure continuously adjusted to changing circumstances.
Under hegemonic globalization, firms and governments could treat the geopolitical environment as relatively fixed, because alliances were broadly stable and the rules governing economic exchange appeared durable. Many strategic questions had already been answered.
As the global political order and the associated rules become less reliable, firms, governments, and investors are forced to place greater weight on geopolitical risk and build redundancies and security hedges. Resources that could otherwise be devoted to innovation, production, and investment are redirected toward risk management and contingency planning.
Hirschman’s insight is increasingly relevant today. A world without stable alliances is not merely more uncertain. It is also more information-intensive. States seeking to wield economic influence must devote considerable attention to detail. Every sanctions regime requires monitoring, every export restriction requires enforcement, every coalition requires maintenance, and every exception requires evaluation.
The targets of economic pressure face similar challenges. They too must monitor policy developments, identify vulnerabilities, anticipate restrictions, and adapt their economic relationships accordingly.
A more fragmented international system requires greater investments in information, expertise, and attention—both by those who wield geoeconomic weapons and by those target them.
The costs of paying attention
The costs of paying more attention to geopolitical rivalry are not distributed evenly. The United States starts with an important advantage. As a superpower, it developed a large intellectual ecosystem devoted to understanding international power, security, and strategy, including the economic dimensions of power and coercion. This ecosystem extends from intelligence agencies and government departments to think tanks, universities, consultancies, specialized research centers, and influential publications. Institutions such as RAND, CSIS, Brookings, and the Council on Foreign Relations help shape global debates on international affairs and employ large numbers of researchers and analysts focused on geopolitical developments. Few institutions in continental Europe match their resources or international influence.
This asymmetry reflected the structure of the international system. The United States had to study the world because it was responsible for managing it. Many smaller countries did not.
The largest adjustment may therefore be required in middle powers such as Germany, France, Italy, Japan, South Korea, Canada, Australia, and other European countries. These economies benefited enormously from the informational advantages provided by the postwar order. They could rely on a stable alliance system and a broadly predictable geopolitical environment. Free-riding was not limited to defense, but extended to the informational infrastructure of the American-led order. There was simply little need to build a large intellectual network focused on geopolitical rivalry, and firms could concentrate on their core business instead. That privilege is disappearing.
In line with Hirschman’s argument, middle powers in the 2020s need to invest heavily in geoeconomic intelligence, expanding their expertise across the full toolkit of geoeconomic policy, including sanctions, supply-chain risks, technology dependencies, critical minerals, financial chokepoints, and industrial policy. A few dozen additional analysts in government ministries and firms will not suffice. What is required is a much broader intellectual infrastructure capable of integrating economics, security, technology, and geopolitics. Alongside its military buildup, Europe needs much stronger geoeconomic capabilities.
Geoeconomic overstretch?
The United States faces a different challenge. Its current informational advantage could become a burden. The traditional concern for empires is military overstretch. A more fragmented world with active use of economic weapons raises the possibility of another form of overstretch: geoeconomic overstretch. The United States is better prepared than most countries to navigate that world, but it also carries a much higher burden of managing it. Sanctions regimes, export controls, investment restrictions, industrial policy partnerships, and strategic supply chains all require information, monitoring, and attention.
Hirschman anticipated this tension. Large powers possess greater leverage, but they also face greater demands on their attention. In Beyond Asymmetry, he argued that the hegemon must divide its attention across many relationships, whereas smaller states can concentrate their efforts on a single partner or adversary. Smaller countries, moreover, often have stronger incentives to understand the dominant power than the dominant power has to understand them.
As the United States increasingly targets both adversaries and allies with geoeconomic tools, the demands on its policy infrastructure will continue to grow. And as smaller powers develop geoeconomic capacities of their own, the informational advantage the United States long enjoyed begins to erode.
Eventually, the burden of designing, calibrating, and enforcing geoeconomic instruments across many targets may exceed what the United States can sustain. Either way, the costs of international trade are likely to remain higher than they were under the stable geopolitical conditions of the 1990s or 2000s. Beyond the immediate cost of tariffs, sanctions, or supply chain disruptions, those doing business across borders will have to devote far greater resources to anticipating geopolitical shifts and shocks and to building buffers against them.
Under US-led globalization, firms and governments could abstract from politics to an unusual degree. In a more fragmented world, that becomes increasingly difficult. The transition to multipolarity therefore imposes costs that standard accounts of globalization rarely capture. The world economy will have to operate with less alignment, more political friction, and more geoeconomic stress.
Christoph Trebesch is professor at the Kiel Institute for the World Economy. He founded the Kiel Geoeconomics Initiative and the widely cited Ukraine Support Tracker.