This limitation in oxytocin's radius of trust was discovered only recently

From A Troublesome Inheritance by Nicholas Wade. Page 51.

In the brain, oxytocin has a range of subtle effects that are only beginning to be explored. In general, it seems that oxytocin has been co-opted in the course of evolution to play a central role in social cohesion. It's a hormone of affiliation. It dampens down the distrust usually felt toward strangers and promotes feelings of solidarity. "It increases men's trust, generosity, and willingness to cooperate," say the authors of a recent review. (The same is doubtless true of women too but most such experiments are performed only in men because of the risk that oxytocin might make a woman miscarry if she were unknowingly pregnant.)

The trust promoted by oxytocin is not of the brotherhood of man variety - it's strictly local. Oxytocin engenders trust towards members of the in-group, together with feelings of defensiveness toward outsiders. This limitation in oxytocin's radius of trust was discovered only recently by Carsten De Dreu, a Dutch psychologist who doubted the conventional wisdom that oxytocin simply promoted general feelings of trust. Any individual who blindly trusts everyone is not going to prosper in the struggle for survival, De Dreu supposed, and his genes would be rapidly eliminated; hence it seemed much more likely that oxytocin promoted trust only in certain contexts.

De Dreu showed in several ingenious experiments that this is indeed the case. In one, the young Dutch men who were his subjects were presented with standard moral dilemmas, such as whether to save five people in the path of a train for the loss of one life, that of a bystander who could be thrown onto the tracks to stop the train. The people to be saved were all Dutch but the person to be killed was sometimes given a Dutch first name, like Pieter, and sometimes a German or Muslim name, like Helmut or Muhammad (opinion polls show that neither is a favorite nationality among the Dutch.)

When the subjects had taken a sniff of oxytocin, they were much more inclined to sacrifice the Helmuts and the Muhammads, De Dreu found, showing the dark side of oxytocin in making people more willing to punish outsiders. Oxytocin does not seem to promote positive aggression toward outsiders, he finds, but rather it heightens the willingness to defend the in-group.