Mark Carney, Canada’s prime minister, didn’t mince words when he took the stage at the World Economic Forum in Davos earlier this year. In Carney’s estimation, the rules-based international order was experiencing a “rupture.” Great powers like the U.S. and China were “using economic integration as weapons, tariffs as leverage, financial infrastructure as coercion, and supply chains as vulnerabilities to be exploited.” His message to middle powers was blunt: “If we’re not at the table, we’re on the menu.”
But middle powers are a “motley group,” says Eswar Prasad, the Tolani senior professor of trade policy at Cornell University, including basically everyone outside of the U.S. and China. “They’re large and small, rich and poor, and so they’re not going to have perfectly aligned interests.”
Carney has previously called for “variable geometry,” or having governments build alliances in ways that align along certain interests. Yet Prasad cautions that such alliances are “not built on any common underlying values or fundamental trust.”
That will make Carney’s “variable geometry” a poor replacement for the global network of international institutions that helped lay down the rules of global diplomacy and commerce. “If you don’t have deep alliances built on mutual trust, it’s difficult to fashion a new rules‑based order,” Prasad says. “The underlying tensions between rich and poor countries will bubble up to the surface.”
The Doom Loop
Globalization as a political project has looked fragile ever since U.S. President Donald Trump first won the White House in 2016. Since then, Washington has steadily moved to “de‑risk” from China through tariffs, export controls, investment screening and other measures, while becoming more willing to bypass multilateral forums and act unilaterally.
Prasad, who is also the author of The Doom Loop: Why the World Economic Order Is Spiraling into Disorder, argues that the forces that were supposed to stabilize the world—globalization, multilateral institutions, the rise of emerging economies—are instead making things worse.
Courtesy of Basic Venture
In a conversation with Fortune, Prasad said he began the book intending to make a more optimistic case that the shift in economic power toward emerging markets would produce a more balanced and stable order. Instead, he concluded that the current form of globalization is “generating instability rather than stability.”
Voters now see globalization as a zero-sum game, with benefits that accrue to political and economic elites that “tilt the system even morein their favor.” That discontent then feeds domestic politics, producing anti-globalization policies like tariffs; that, in turn, feeds back into the international system, deepening instability.
Trade is still expanding, reaching a record value of about $35 trillion last year. But more of that trade occurs within geopolitical blocs rather than across them. “Trade and financial flows are fragmenting in a way that deepens those rifts.” Prasad says.
Consulting firm McKinsey has found that “geopolitical distance” in trade and investment is shrinking, as countries increasingly trade with and invest in partners aligned with their security alliances.
China and India
Prasad doesn’t see much cause for optimism in Asia.
In February, the International Monetary Fund projected that China’s economy would grow by 4.5% this year, while warning that overinvestment and industrial policy “resulted in weakening productivity, build‑up of financial vulnerabilities, and excess supply in some tradable sectors.” China’s retail sales growth fell to 0.9% in December, the slowest pace since late 2022, while fixed‑asset investment shrank by 3.8% in 2025, the worst performance on record.
In its latest review, the IMF again urged Beijing to shift to a consumption‑led growth model. China’s own policymakers have also tried to encourage domestic spending, but progress has been halting at best.
China did make progress on rebalancing its economy before the COVID pandemic, Prasad says, with consumption contributing more to GDP growth than investment. But the pandemic pushed Beijing back to “its old playbook of credit‑fueled, investment‑driven growth,” he argues, amplified by regulatory crackdowns on the tech, education, and health‑care sectors that undermined private‑sector confidence.
“The government has tried recently to signal that the private sector is back in favor, but I don’t think private firms are confident about that turn,’ Prasad adds.
Neighboring India also seemed well-positioned to take advantage of U.S. “friendshoring,” due to its closer relations with Washington. But outside of some high-profile shifts from companies like Apple, India remains far behind smaller emerging markets like Vietnam.
“It seemed the stars were aligning well for India,” Prasad says. “But it looks like that opportunity will be much less great than anticipated.”
Prasad thinks India will struggle to build a relationship with China, even if the country’s government wants to diversify its diplomatic outreach. India can’t fully open its markets to China, as its manufacturing sector will “collapse under the weight of China’s exports, which India cannot really compete with.” Then, on the global governance front, India is wary that any redistribution of power at institutions like the IMF would give China proportionally more influence—”and so in a relative sense, India loses out.”
How businesses might be making things worse
What, then, can global businesses do in this more complicated world?
Prasad argues the era of “lean, mean, hyper-efficient supply chains is over.” Now, corporate leaders talk “almost entirely about resilience”, whether it’s by diversifying suppliers, deepening ties with geopolitically friendly countries, and retreating to home markets. The economist admits that his advice to CEOs is “always unsatisfying”: Don’t take on too much debt, keep cash in reserve, and build buffers.
Yet the natural response of businesses could be making things worse. One of the strongest stakeholders against U.S.-China decoupling was the business community, which relied on China both as a manufacturer and a large consumer market. “That helped stabilize the relationship between the two countries,” Prasad says. Now as companies retreat from China and other geopolitically problematic economies, they may be “paradoxically exacerbating” the risks they are trying to avoid.
“I fear we’re going to be stuck in the doom loop until we reach a point where the system undergoes some major correction,” Prasad warns, “and that could be ugly.”
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