The restrictions by the Biden administration on the sale of semiconductor chips and the equipment to manufacture them represent a new stage in the division between China and the U.S. The belief that increased trade would lead to a convergence of Chinese and U.S. interests faded years ago. The history of globalization shows clearly that the chances of Chinese as well as Russian acceptance of a liberal order overseen by the U.S. were unlikely, and a struggle for control inevitable.

The study of hegemonic power can be used to illustrate how discord can arise over the distribution of the global benefits of economic growth. MIT economic historian Charles Kindleberger made the case in The World in Depression, 1929-1939 that international economic prosperity needs a nation to provide leadership. The duties of the hegemonic power include maintaining an open market for imports from countries in distress, providing long-term capital and acting as a lender of last resort. More generally, the hegemonic country provides the public good of rules that govern international transactions and ensures compliance to them by other nations.

Great Britain was the hegemonic power of the 19^th century and its dominance lasted until the first World War. This was a period of rapid growth for the European countries and Britain’s “offshoots,” i.e., Canada, the U.S., Australia and New Zealand. The shared economic prosperity made the outbreak of a war among the industrial powers seem unlikely. Norman Angell made the case in The Great Illusion, first published in 1909, that the costs of a war among the industrial powers were so great that they would deter their governments from engaging in conflict.

But the predominance of Britain during this period was being questioned by the U.S. and Germany.  Each country had leaders—President Theodore Roosevelt in the U.S. and Kaiser Wilhelm II in Germany—who made clear that they would not accept subordinate positions. The Germans were particularly resentful of their inability to match the size of Britain’s colonial empire, as the colonies had largely been claimed before Germany’s emergence as a nation in 1871after its defeat of France in the Franco-Prussian War.

Graham Allison of Harvard’s Kennedy School wrote about these tensions, and the British response, in his Destined for War: Can America and China Escape Thucydides’s Trap? The “trap” that Allison draws from the work of the Greek historian Thucydides is the confrontation that arise when a rising power threatens a ruling one. Thucydides wrote about the Peloponnesian War between Athens and Sparta, which occurred when Sparta responded to what it saw as a threat to its dominance of the Greek states by the growing Athenian empire.

In the 19^th century, Britain was the dominant power facing challenges from other nations. British statesmen decided that Germany posed a more immediate security threat, and accommodated U.S. demands in the Western Hemisphere without surrendering their own interests. But Britain also built up its already powerful battle fleet and created an alignment with France and Russia, the Triple Entente, to counter a German threat.

This deterrence was not enough to avoid the breakout of World War I. The costs of the war hindered Britain’s ability to resume its hegemonic role, and the U.S. was not willing to take its place. As a result, Kindlerberger claimed, the economic crisis of the 1930s was deeper and more extended than it would have been if an international hegemon had been present. The response of the U.S. in creating the United Nations, the International Monetary Fund, and other multilateral organizations after World War II showed that by that time it had learned the lesson of the need for international institutions.

Allison presents other examples of challenges to hegemonic powers by rising powers. In the 17^th century, the Dutch Republic was the leading maritime power. It possessed trading posts and colonies in Asia, Africa, and the Americas, and a formidable fleet of warships to defend them. England resented this control and engaged in three maritime wars with the Dutch. The hostilities between the two countries only ended when William of Orange became King William III of England, and the Dutch and English waged war together on the predominant European land power, France.

Allison makes clear that the rivalry between China and the U.S. need not result in war. Besides the British accommodation of U.S. interests in the late 19^th century, he points to the “Cold War” between the Soviet Union and the U.S. as an example of a struggle that did not lead to direct conflict. One of the reasons for the avoidance of the escalation of hostilities to total war was the existence of nuclear weapons,, which dramatically raised the cost of using the full range of weapons. But the Cuban missile crisis showed that it was possible to come perilously close to moving into a full-blown conflict. The expansion of trade and finance to new markets creates opportunities for rivalries and competition that can trigger responses that lead to unforeseen consequences.

U.S. Treasury Secretary Janet Yellen gave a talk at the Atlantic Council last April on the future role of cooperation in the global economy. In October Chrystia Freeland, Deputy Prime Minister of Canada and its Minister of Finance, gave an address at the Brookings Institution that presented a similar perspective on how the global economy must be reorganized to meet security demands. Their speeches raise questions about how the new arrangements would operate, and how the rest of the world would fit into the proposed framework.

Yellen declared that the war between Russia and Ukraine had “redrawn the contours of the world economic outlook…” The sanctions imposed by the U.S., the other members of the Group of 7 and the European Union were in response to Russia’s “…having flaunted the rules, norms, and values that underpin the international economy.” She also drew attention to China’s ties with Russia and declared that “The world’s attitude towards China and its willingness to embrace further economic integration may well be affected by China’s reaction to our call for resolute action on Russia.”

Looking forward, she enunciated several propositions to govern future action. The first of these dealt with the need to modernize the existing multilateral approach. Yellen proposed basing economic integration by confining the “friend-shoring” of supply chains to “a large number of trusted countries…” This orientation would lower our vulnerability to countries using their economic resources to “disrupt our economy or exercise unwanted geopolitical leverage.” Left unsaid were the issues of which countries merited trust, and how to deal with those that do not fulfill that criterion.

Freeland spelt out some of the details in her address. She spoke of “a brutal end to a three-decade-long era in geopolitics,” and proposed a new orientation based on three pillars. The first is a strengthening of the connections among democracies, and Freeland specifically cites Yellen’s “friend-shoring” as one way to accomplish this.

The second pillar deals with “in-between countries” in Asia, Africa, the Middle East and Latin America. Freeland insisted that friend-shoring should be open to any countries that “…share our values and is willing to play by collectively agreed upon rules.” She made the claim that a rules-based order will be valuable to smaller countries “…most susceptible to coercion by larger and more hostile economies.”

Finally, with respect to authoritarian governments, Freeland advocated a sharp break with the assumptions of the 33 years. These states have little respect for a rules-based disorder, she claimed, and are hostile to the democracies. The democracies can continue to trade with the authoritarian states but should avoid strategic vulnerabilities in their supply chains.

Yellen and Freeland, therefore, agree that the economic relationships of democratic nations should be based on common values and goals. This is a major pivot from the guiding principles of the last three decades that more trade and investment would lead to shared prosperity, the development of democratic political systems and a diminution of conflict. It is also much more of a “top-down” approach, with governments overseeing the relationships of domestic firms with the rest of the world and evaluating the entry of foreign firms into domestic markets.

These ambitious proposals have met a variety of reactions. Branko Milanovic has called the trading links “trade blocs,” similar to those in the past such as the United Kingdom’s imperial preferences, and “mercantilism under a new name.” But mercantilism was a characteristic of President Trump’s trade policies, as he saw trade as a zero-sum relationship with trade deficits as a loss for the country that sustained them. The new proposals seek security and freedom from the weaponization of trade.

How will other countries, particularly those in Freeland’s second group, respond to these initiatives? The new lineup of countries bears many similarities to the post-World War II division among the “first world” of advanced economies, the “second world” of the Communist bloc that included the Soviet Union and China and the “third world” that was the category of every other country, which included nations with colonial pasts in Asia, Africa and Latin America. Many of the third-world countries sought to establish their independence from the first and second worlds.

Today there are a wide variety of economic and political systems outside the advanced economies. Many would undoubtedly desire to continue exporting to the U.S., the European Union, Japan and Australasia. But do they qualify for Freeland’s friend shoring club?

Vietnam has taken the place of China for many multinationals as a source of low-wage production, and its trade with the U.S. and other countries has propelled its growth. Its government, on the other hand, is a one-party system led by the Communist Party, and Freedom House ranks it as “Not Free.” Bangladesh is another country where growth has been driven by exports, mainly in garments. The Awami League keeps a firm hold on political power and the country is characterized by Freedom House as “partly free.”

The transition to “green energy technologies,” will require the use of cobalt, and the Democratic Republic of Congo supplies more than 63% of the world’s use of the element, as well as other natural resources. But the inhabitants of that country do not benefit from their extraction and export, and their political system has been volatile at best. Freedom House rates it as “not free.”

Many other countries that engage in transactions with the advanced democracies will not qualify for membership in the friend-shoring club as defined by Freeland. Moreover, they may not want to choose ideological sides between the two sides in the new order. How will Yellen and Freeland’s democracies deal with these countries? Will they be excluded from trade and financial flows? Or will economic relationships with them be allowed to avoid dependence on the authoritarian countries that are viewed as threats to the security of the democracies? The diversity of economic and political systems in the emerging markets and developing countries will resist easy categorization and pose challenges to Yellen’s and Freeland’s configuration of the world’s economies.