The variable effectiveness of hedging strategies

Abstract

Governments often adopt hedging strategies to mitigate risks they face in international affairs. They hedge in the conventional, financial sense of the term by seeking to offset risks in global markets. They also adopt strategies to hedge against international security hazards by preserving strategic ambiguity, forging limited security alignments, and cultivating modest self-protection in case potential threats materialize. Both types of hedging typically are seen as prudent behavior. However, hedging strategies sometimes fail. Risks can be difficult to calculate, and the measures needed to hedge against them can be costly. Hedging international security risks can be particularly challenging, as governments sometimes lack access to adequate protective options at any price. This article illustrates the argument with two contrasting cases: relatively successful Southeast Asian hedging against the risk of financial calamity after the 1997 crisis and less effective efforts by some of the same states to hedge against the security risk of Chinese encroachment in the South China Sea.

The Twin Chessboards of US-China Rivalry: Impact on the Geostrategic Supply and Demand in Post-Pandemic Asia

“…The greater the US-China rivalry, the stronger the inclination of smaller states to avoid being entrapped by unnecessary, premature, and self-fulfilling polarization. Hence the stronger need to hedge, that is, to insist on not taking sides, to pursue opposing measures to offset different risks, and to diversify partnerships to maintain a fallback position (Khong 2004;Goh 2016;Ciorciari 2019;Haacke 2019;Kuik , 2020a.…”

ASEAN: still the zone of peace, freedom and neutrality?

“…ASEAN's struggle to maintain impartiality has increased commensurate with tensions in US-China relations. Whilst ASEAN has attempted to pursue a hedging strategy to balance relations with the great powers (Kuik 2016), this has had mixed success (Ciorciari 2019). As the case of the South China Sea shows, doubts regarding US commitment to defend Southeast Asian maritime security has undermined regional attempts at hedging, forcing claimant states to pursue alternative strategies such as balancing or accommodation towards China (Ciorciari 2019, 526).…”

Malaysia’s Hedging Strategy Towards China Under Mahathir Mohamad (2018–2020): Direct Engagement, Limited Balancing, and Limited Bandwagoning

“…Therefore, students of IR should remain critical of many self-proclaimed novel approaches. An illustration is the special issue of International Relations of the Asia-Pacific (2019) with important contributions, inter alia, from Ciorciari (2019), Ciorciari and Haacke (2019), Haacke (2019), and Korolev (2019). The authors provide an excellent critique on the current state of theory-building and methodological deficiencies.…”

“…It is therefore sometimes contested whether a country hedges – and, if so, how exactly it hedges, that is, which set of policies it applies. Thus it comes as no surprise that there exists no consensus on criteria to measure the actual hedging behaviour and the success of the hedging strategy (Ciorciari, 2019: 527–533; Koga, 2018: 636–637). Thus, hedging is still a theoretically and analytically vague, sometimes blurred or overstretched concept.…”