The Political Economy of Asian States and Their Development Strategies under USA-China Power Rivalry: Conducting Hedging Strategy on Triangular Relation and Operation

Abstract

Since 2020, the rising economic competition and political rivalries have become intensive and austere between the United States and China. The formation of new global economic and political orders have started to establish a new era gradually under a USA-China hegemonic contest. As a consequence, Asian states have been enforced and reluctant to face the escalating and reshaping regional orders amid the USA-China power rivalry in the new millennium. There are three important parts emphasized for this special issue. One, the research approach will be based on the integration of neoclassic realism and a strategic triangle. Two, the strategic choice of small states toward a China-USA power rivalry intends to apply balancing, bandwagoning, and hedging strategies. The last, involves conducting a research framework of small state’s responses and strategies on the basis of hedging governance.

Keywords:

• Power rivalry
• hedging
• balancing
• bandwagoning
• neoclassic realism
• strategic triangle

The collapse of the Soviet Union in 1990 indicated the termination of USA-USSR hegemonic confrontation during the Cold War period. Yet, during the period of 1990–2020, the whole world has tended to lean on market-oriented capitalism. Within almost three decades, no one country can challenge and antagonize American power, economically and politically. At the same period, China’s economy quietly rose and overtook Japan as the world’s second-largest economy in 2010, just below the USA (BBC News, 2011). It predicts China’s economy will exceed the USA within a decade by 2032 (Kawate & Yasoshima, 2021).

However, since 2020, the rising economic competition and political rivalries have become intensive and austere between the USA and China. Simultaneously, the formation of new global economic and political orders have started to establish a new era gradually under USA-China hegemonic contest. As a consequence, Asian states have been enforced and reluctant to face the escalating and reshaping regional orders amid USA-China power rivalry in the new millennium. Furthermore, in some extents, it is very interesting to raise the question of how much autonomous capacity do the Asian states have to choose the best advantageous strategy and policy for their economic development as well as national security. Clearly put, as long as security and development are concerned, Asian states will efficiently and effectively apply how much resources and geographic niche they have and then decide the possible strategic measures, such as balancing/resisting, bandwagoning, union/coalition, cooperating, competing, neutralizing, and hedging.

1. Integrating neoclassic realism and strategic triangle as a research approach

This special issue’s research approach will be based on the integration of neoclassic realism and strategic triangle that is suitably applied to how Asian states reacting to USA-China hegemonic confrontation. As known, neoclassical realism is a comprehensive and helpful approach to foreign policy analysis which is a combination of classical realism and neorealism, particularly defensive realism, which was initiated by Gideon Rose in 1998 (Rose, 1998). Neoclassic realism is considered superior to understanding a state’s foreign policy behavior and decisions to other ones, especially looking at domestic process and interplay rather than international constraints. A state’s behavior pattern is the outcome of domestic state-society interaction, which is highly influenced by bureaucracy, factional politics, public perception and opinion, mass media, political culture, and political institution (Lobell et al., 2009; Schweller, 2004).

Obviously, the view of neoclassical realism stresses the actions and responses of a state in the international system. It can be explained and analyzed by several crucial factors. The first factor is an intervening systemic variable which is related to the distribution of power capabilities among states. The second factor is a cognitive variable which is related to the perception and misperception of systemic pressures (Soong, 2021). The third factor is about other states’ intentions, opportunities, or threats. The last factor is domestic variables, are related to state institutions, elites, and societal actors. All of these factors will affect the power and freedom of action and response of the foreign policy decision-makers.

Regarding the strategic triangle perspective for foreign policy formation, it currently becomes very adequate to apply for the analysis of Asian states in response to USA-China power rivalry in the new millennium. This approach is likely based on the foundation of balance of power and rational choice operation in order to maximize gain/interest and minimize loss/security against external involvement with USA and China.

Basically, facing the Sino-U.S. confrontational political and economic structure, many Asian countries have fallen into the choice of selecting sides or changing strategies. Under such changing circumstances, many Asian states subsequently have been forced to face the strategic choice of triangular relationship and interaction with the USA and China (Ikenberry, 2016). Especially, it is important for the Asian states to observe whether the USA and China will be situated in Thucydides’s Trap and destined for war or not (Alison, 2017)?

Indeed, the analytical framework of the “strategic triangle” was proposed by Lowell Dittmer in 1981, which was originally used to analyze the relationship among the United States, China, and the Soviet Union (Dittmer, 1981). After the Cold War period, it was frequently modified, introduced, and intended for some particular state, such as the United States, China, and Japan (Sahashi, 2020; Vogel, 2010), or the United States, China, and India (Schmidt, 2014), or even the United States, China, and Taiwan (Liff, 2019; Wu, 2005).

Theoretically, the so-called “strategy” implies that all actors act independently and they will possibly influence each other positively or negatively through predicting the strategies of other actors and then taking actions in the direction that is most beneficial to them. In practice, it can be found that the strategic triangle, somehow, can shape and reshape international relations in the Indo-Pacific region (Rozman, 2022). Yet, the application of the strategic triangle can only suitably deal with on big power like Japan and India against the United States and China. In order to extend better analysis from a typical strategic triangle approach, it will modify and design a new research framework for a relatively small/weak state engaging the confrontational relationship between the United States and China. It can provide a better understanding on an analysis of any single state responding to great powers of USA and China from its domestic politics as well as strategic choices.

2. Strategic choice of small states toward China-USA power rivalry: Balancing, bandwagoning, and hedging

A small and weak state is a relative term, not an absolute meaning, in relation to a great and strong one, in terms of population and territory size, military power, economic capacity, technology, and industrial productivity. More importantly, it involves the extents of state’s autonomy and independence for one state encountering the other state. Hereby, three types of Asian states will be attributed in this special issue: first, states such as the Philippines, Singapore, and Malaysia, which are not so small and weak; the second type include Vietnam, Thailand, and Indonesia, which are considered as middle powers in some extent; and the third type of states treated as pseudo-great-powers such as India and Japan, but still somehow next to the USA and China. These Asian states will be treated as the third party toward USA-China strategic entanglement in the Indo-Pacific region. Likewise, these Asian states will be carefully taken as active actors in response to USA and China power rivalry and to their own national interests on politics/security as well as economy.

In addition, the choice of strategy between the United States and China is not only about the position and role of the government, but more importantly, the people and enterprises in society. In other words, state agencies, the market, and society naturally have different preferences, tendency, and perception for the power confrontation between China and the United States. The national development strategy is no longer solely determined by the government or leading elites, but must take into account the voices of the people and businesses in the country, and democratic elections, that is, domestic politics.

In the strategic framework of triangular interaction, attention must be paid to two layers of analysis on foreign policy, that is, domestic and international factors. On the external linkage factors, the types or changes in the relationship between China and the United States, such as friendship, cooperation, confrontation, competition, and conflict, as well as how a third country will interact with China and the United States. All these may provide the third party with opportunities, challenges, or threats. On the internal linkage factors, not only the internal political and economic changes of China and the United States will affect its diplomatic strategy, but also the internal political and economic factors of a third party will affect the choice of its diplomatic strategy.

Moreover, under the explanation of neo-realism, the small state has no choice enforced to engage either balancing or bandwagoning strategy under the threat or appeasement of great powers such as the United States and China with the consideration of balance of power and balance of threat (Walt, 1987, 1979). In general, balancing strategy for a small state is to deter or reduce the risk of threats from the United States or China through alliances with one great power. In contrast, the bandwagoning strategy for a small state is attached to a big state in order to acquire some interest and protection, but will restrict its own power in exchange for a balance with the big country as well as avoid conflicts with the big country. As a result, a relationship of leadership and subordination is formed between the big and small.

Compared with balancing and bandwagoning strategies, hedging strategy is not a single strategic option, but a combination of multiple strategies. It mainly maintains a relative degree of autonomy and flexibility against dual great powers and maintains the principle of equidistant strategies. In between balancing and bandwagoning, there exists different degrees of soft (or light) balancing and bandwagoning in order to maximize national interests as well as minimize risk cost. The concept of soft/light strategy on balancing and bandwagoning emphasizes to apply economy, diplomacy, social force, and international institutional norms instead of mere military balance of power mechanism, which indicates hard and heavy strategy, to support the flexible use of a hedging strategy (Cai, 2013; Kuik & Rozman, 2015, pp. 1–10).

Finally, as the competition between China and the United States in the Indo-Pacific region is becoming increasingly fierce, apparently the pressure on Asian states to choose sides is increasing creating a situation of dilemma. After all, for those Asian states, the United States still has comparative military and economic advantages while China’s geographical proximity and vicinity advantage and threat cannot be ignored. Obviously, it is not a simple strategic choice of pro-USA/con-China or pro-China/con-USA for the third party to make a decision. Strategic entanglement does not only occur between USA and China, but also appears between the third party and USA or China, respectively. All of these will make the Asian state choice complicated and uncertain with the USA-China entanglement situation and make it difficult to choose an advantageous choice on strategies (Morrow, 1988).

In doing so, such as balancing/resisting, bandwagoning, and hedging strategies will be evaluated and manipulated for better interest gain and cost reduction in response to the United States’ and China’s political and economic purposes, which can be treated as a way of “strategic governance.” In a sense, the response of strategic governance is closely followed by a transaction of risk aversion and risk taker under an uncertain situation, either to be safer with a lower expected return or with a higher expected return. So applying a hedging strategy is the effective operation of strategic governance in order to attain risk aversion and benefit maximization (Cai, 2013, pp. 6–8).

3. Conducting a research framework of small state’s responses and strategies on the basis of hedging

In order to conduct a research framework of small state’s strategy, first of all, it should adopt strategic mechanisms and means such as balancing, resistance, bandwagoning, hedging, cooperation, communication, and independence for those Asian states against the USA-China dual power structure. It is also worth exploring and even figuring out a more in-depth solution with specific defensive diplomacy strategies and governance for the small state. In response to this, it should be simplified to become a rational strategic choice for hedging, and its process and decision-making can undoubtedly be conceptualized as a “strategic governance” model to examine the Asian state’s choice and model under USA-China power rivalry.

Moreover, following the integration of neoclassic realism and strategic triangle, it is better to provide an operational framework for dealing with how one Asian state responds to USA-China power rivalry in the Indo-Pacific region. This can be applied as shown Figure 1, which indicates the structure background and relation for all the papers in this special issue. The main focus is on each Asian state and in what ways of strategic choice and interests to apply regional hegemonic powers, that is, USA’s Indo-Pacific strategy/Indo-Pacific Economic Framework (IPEF) versus China’s One Belt and One Road Initiative/Regional Comprehensive Economic Partnership (RCEP).

Figure 1. Research structure framework and focus.

Source: made by author.

In fact, Dittmer’s four strategic triangle models do not fully describe the analysis for Asian states toward USA-China confrontation. In order to deeply interpret Asian states’ strategic triangle pattern, it must be modified into four possible models, as Figure 2 has shown. The first, Model A of the strategic triangle is supposedly based on the positive relationship (i.e., cooperation, competition, and mutual benefits) between the USA and China, where the Asian state can enjoy very flexible interaction with USA and China. This is the best condition for an Asian state to participate in this kind of triangular interaction, which will have a more liberalist view on development.

Figure 2. Modified models of strategic triangle for Asian states.

Source: made by author.

Notes: + vs – or (–) vs (+) is a pair of relationship; yet, +/– and –/+ indicate strategic relation can be changeable and flexible from – to + or from – to +.

The second model is assumedly based on the negative relation (i.e., hostility, confrontation, conflict) between the USA and China, where the Asian state has basically three possible responses on a strategic choice toward the USA and China. One is on taking balancing/resisting strategy for the purpose of politics and security toward either the USA or China, shown as Model B. Two is selecting a bandwagoning strategy for the purpose of development and alliance toward either the USA or China, shown as Model C. Three is to take the hedging strategy which can be flexibly be applied in between resisting and bandwagoning the continuum mechanism to pursue better benefits and relative autonomy, as shown Model D (Kuik, 2008). The Model D will be taken and applied for the research framework.

According to Figure 2, there are four basic propositions that should be mentioned here. One is to take three actors as unit of analysis with rational consideration and hedging strategy. Two is to consider the relationship between the USA and China, so-called dual great powers in the Indo-Pacific region, being fixed on positive or negative that leaves more room and discussion of strategic governance for the Asian state in response to the United States or China. Three is to deal with two-level influences from foreign diplomatic relations and domestic politics, especially from nationalism, party faction, elite capacity, and people’s perception. The last is to take the Asian state as the major actor on how to perform better strategic governance with hedging manipulation on risk aversion and profit maximization.

Moreover, small state’s hedging strategy becomes the core issue in response to the USA and China. As Table 1 shows, it depicts two dimensions of hedging-strategy governance of the small state against the great powers. The first dimension is the two-level strategic governance which will consider foreign and domestic influences. The foreign influence is mainly from the direct or indirect pressures from foreign great powers, which will be emphasized on the issue of development and security. Yet, the domestic influence is from internal reflection of the small state with the involvement of external great powers, which is always related the issue of politics and economy (Soong, 2016).

Table 1. Hedging governance on multilevel transaction and reflection.

Two-level Strategic Governance: Foreign vs. domestic influences	① Politics vs. Economy (Domestic) ② Development vs. Security (Foreign)
Relative Strategic Governance at the same Strata/Spectrum	③ Military Collaboration vs. Conflict ④ Economic Cooperation vs Competition ⑤ Political Rapprochement vs. Confrontation

Notes: to avoid the extreme choice on 1 or 0, but a spectrum of continuum for relative relation in a scene.

Sources: conducted by author.

The second dimension is regarding relative strategic governance at the same strata or spectrum but in different ways. Three important contact interfaces between the small states and great powers will be marked here. The first one is military collaboration and conflict, which is linked to the issue of security consideration, such as sovereignty, defense, and military assistance. The second one is economic cooperation and competition, which is related to the issue of development consideration, such as trade, technology, and investment. The third one is political rapprochement and confrontation, which is close to the issue of diplomacy considerations, such as freedom, democracy, and human rights.

4. Approach and method design on hedging strategy: Flexible operation between balancing and bandwagoning

As mentioned above, the formation and situation of international relations between the two great powers is gradually emerging, and the polarized international political and economic order is even more affected for the small states. As a result, the strategic triangle analysis framework becomes crucial for the small state to handle the USA-China political-economic confrontation and rivalry. Besides, this special issue will mainly focus on the dramatically changing USA-China rivalry since 2020. It is related to three important impacts of great incidence. First, there is the USA-China trade dispute and the subsequent global supply-chain disconnection. Secondly, there is the outbreak of Covid-19 that has infected more than 541 million (as of June 2022) in the world. Also, vaccine resources are limited and unevenly distributed, widening the health gap between poor and rich countries. Lastly, fueled by the Ukraine-Russia war, this has caused the shortage of food and energy supply. It also brings to the forefront why national security is so important in geo-politics, not only relating with balancing and bandwagoning strategy application, but also making good use of hedging strategy for the small state in the Indo-Pacific region.

Especially, as China’s One Belt and One Role Initiative meets America’s Indo-Pacific Strategy, it offers states in East Asia to make a decision for their best development strategy choice for pro-China, or pro-USA, or without any side selection.

The situation in the Indo-Pacific region under the competition between China and the United States is gradually emerging as a dual power structure. For the foreign policy of every Indo-Pacific country, it will be forced to face the strategic situation of the so-called new triangular relationship. Under such circumstances, the hedging strategy will also become an important choice for countries in the Indo-Pacific region. The application of a hedging strategy will make the foreign policies of countries in the Indo-Pacific region more flexible and autonomous.

As shown in Figure 1, political and economic interaction toward and under China-USA power rivalry, politically and economically, will be expected. Taking the Asian state as a major actor, concerning its purposes, strategies, security, and interests, it will try to conduct the best policy to pursue the relative advantages from United States or China, and even to reduce or to avoid the worse harm/loss from United States or China, respectively.

According to Figure 3, it is noted that the Asia states will act as the main actor in reception with and response to dual great powers of USA and China in the Indo-Pacific region. How will the Asian states create a better hedging strategy and governance to gain an outcome of win-win-win, win-win-loss, win-loss-loss, or loss-loss-loss, under China’s OBORI versus the United States’ Indo-Pacific Strategy.?

Figure 3. Operation of research framework.

Source: made and designed by author.

Next, the Asian states will be discussed and divided into three types of areas: economic, political, and military influences. The first type will be those treated as big states, such as Japan and India. The second type can be viewed as medium-size states, such as Indonesia and Vietnam. The third type is those states between medium- and-small-size states, such as the Philippines, Thailand, and Malaysia. This special issue would like to find the different types or patterns of those states’ strategy choices and governance in response to the China-USA power confrontation.

Subsequently, Figures 3 and 4 show the operationalization and measurement for the Asian state in relation to the United States and China from the three dimensions of political, economic, and military contacts. Also, 5 points will be given at any dimension which indicates the relationship degree with the United States and China, respectively. There are the extreme points of 5 or 1, which can be treated as balancing or bandwagoning strategies in response to the United States or China. Yet, in between of the balancing and bandwagoning strategy choices will be taken as the flexible range of hedging, as Figure 3 shows. Finally, Figure 4 will dynamically present the overall scene of the above three dimensions in order to summarize the tendency of the Asian state’s hedging strategy application and operation.

Figure 4. The best and worst strategy choice under Sino-US power rivalry.

Note: the red line for the Asian state on upper left direction will be choosing bandwagoning strategy and on lower right direction will be choosing resisting/balancing strategy.

Source: made and designed by author.

5. Final remarks: Content structure, arrangement, and research outcome for the special issue

5.1. Content structure and arrangement

Several articles are introduced and presented as follows: The first article is titled as “The Political Economy of Vietnam and Its Development Strategy under China-USA Power Rivalry and Hegemonic Competition” and authored by Van-Hoa Vu, Jenn-Jaw Soong, and Khac-Nghia Nguyen. It emphasizes that Vietnam’s USA-China hedging strategy is used for considering its security and development, which is a quite serious for Vietnam’s development choice.

The second article is titled “The Political Economy of India and Its Strategic Choice under USA-China Power Rivalry and Hegemonic Competition” and written by Wayne Tan and Jenn-Jaw Soong. It stresses that India as a quasi-great power still needs to adopt a defensive hedging strategy and governance on uncertainty toward USA-China power rivalry in order to acquire better national interests and security.

The third article is titled “The Political Economy of Japan’s Development Strategy under China-US Rivalry: The Crane, the Dragon, and the Bald Eagle.” Guanie Lim and Chengwei Xu analyze the policy maneuvering of Japan in relation to its relationship with both China and the United States. Despite its sizable clout on the global arena, Japan still has to carefully manage ties with these two economies, in addition to catering to domestic demands. In a metaphorical sense, Japan is akin to the legendary crane engaging with the much more—seemingly—robust dragon (China) and bald eagle (the United States). Although lacking in absolute size, the crane still glides gracefully between the other two creatures, carving out a niche for itself through its skill and wisdom.

The fourth article is titled “The Political Economy of the Philippines and Its Development Strategy under China-USA Power Rivalry and Hegemonic Competition” and written by Wen-Chih Chao. It highlights the Philippine’s foreign strategy toward USA-China with an emphasis on hedging with balancing.

The fifth article is titled “The Political Economy of Indonesia and Its Development Strategy under China-USA Power Rivalry and Hegemonic Competition” and written by Muhamad Iksan and Jenn-Jaw Soong. It illustrates that Indonesia plays a middle power with hedging strategy in response to United States s and China’s core national interests in the Asia-Pacific region.

The sixth article is titled “Malaysia in Changing Geopolitical Economy: Navigating Great Power Competition between China and the United States” and written by Kok Fay Chin. It tries to deal with how Malaysia navigates the hedging strategy between the United States and China’s power rivalry.

The seventh article is titled “Thailand and Its Development Strategies under USA-China Power Rivalry” and authored by Jiranuwat Swaspitchayaskun and Siwat Surakitbovorn. It underscores that Thailand is facing the difficulty of balancing influence and hedging with China and United States, especially after the sudden step-down of Prayut Chan-o-cha.

The last article is titled “The Political Economy of Singapore and Its Development Strategies under USA-China Power Rivalry” and authored by Pei-Shan Kao. It appears that states Singapore’s foreign policy toward the USA and China power rivalry is an application a choice of hedging strategy.

5.2. Research outcomes and findings

It is quite clear that Asian states cannot simply ignore that the Indo-Pacific region has become a battleground in the USA-China power rivalry. The Asian states believe that the USA-China power rivalry in this region should not fall in the situation of a zero-sum game. Therefore, the Asian states can pragmatically and capably employ a hedging strategy toward a USA-China power confrontation for gaining better interests.

As discussed above, there are three types of hedging strategies for the Asian states (relatively small states, the middle-power states, and pseudo great-power states) toward the USA-China power rivalry, and these are political and security strategy; economic and cooperation strategy; and overall economic and political strategies. It concludes hedging of overall economic and political strategies from these three types of Asian states toward USA-China power rivalry will be summarized in Table 2.

Table 2. Asian States’ hedging toward USA and China at overall political-economic strategy and tendency.

Asian states	Before 2016		After 2016 to 2022			Hedging tendency
Vietnam	USA	3.0	USA	3.5		USA	3.75
	China	3.75	China	3.25		China	3.25
Thailand ①	USA	3.25	USA	3.50		USA	3.50
	China	3.50	China	3.75		China	4.00
Indonesia	USA	2.50	USA	2.75		USA	2.75
	China	3.00	China	3.50		China	3.00
Singapore	USA	3.75	USA	3.75		USA	3.75
	China	3.25	China	3.75		China	3.5
The Philippines ②	USA	4.0	USA	3.0	3.75	USA	3.75
	China	3.0	China	3.75	3.5	China	3.5
Malaysia ③	USA	3.25	USA	3.5		USA	3.75
	China	3.5	China	3.5		China	3.25
Japan	USA	3.0	USA	3.5		USA	3.5
	China	3.0	China	2.5		China	2.25
India	USA	3.0	USA	3.5		USA	3.5
	China	3.0	China	3.25		China	3.25

Note: Rating scale for scores is 0-5 (light to heavy). ① for Thailand, the scores are for before 2019 and after 2019 to present; ② for the Philippines, the scores are for 2016 ∼ 2022 and 2022∼present; ③ for Malaysia, the scores are for before 2018 and after 2018 to present.

Sources: findings are collecting from all articles in this special issue.

The first type of hedging strategy toward USA-China power rivalry is for those treated as big states or pseudo great powers, such as Japan and India. It can be found that Japan’s and India’s overall hedging strategies are equally weighted on the United States and China at +3.0 before 2016, politically and economically, but slightly closer to the United States at +3.5, higher than China at +2.5 or +3.25 from 2016–2022. It seems that Japan will be much closer with the United States at +3.5, but will be little worse with China at +2.25 or +3.25 in the future. Yet, India will keep almost the same pace or distance toward the United States and China for future hedging.

The second type of hedging strategy is for those viewed as medium-size states or so-called the middle-power state, such as Indonesia, Thailand, and Vietnam. These three states due to geographic linkages tend to be closer with China, but not for Indonesia, before 2016. These three states keep slightly closer with the United States and China, but Thailand and Indonesia are much more favorable to China than the USA except for Vietnam, from 2017–2022. It seems that these three states will go in the same direction and strength with the United States and China, just like the previous stage, for their future prospects. Yet, Indonesia will tend to decrease hedging with China from + 3.5 to +3.0, and Thailand will increase favorable hedging to China at +4.0 in contrast to Vietnam with an increase in favor to the United States at +3.75.

The third type of hedging strategy is for those states viewed as medium- and- small-size states, such as the Philippines, Singapore, and Malaysia. These three states tend to be closer with the United States than China, except Malaysia, before 2016. These three states keep and enhance a slightly stronger link with the United States and China at the same extent from 2017–2022. It also seems that these three states will keep and enhance better and stronger relations with the United States than China in the future. These states gained high scores at +3.75 with the United States, but remain +3.5 with China for future prospects.

Notes

1 In 2022, China’s and Japan’s GDPs are US$5.8786 and 5.4742 trillion, respectively.