For most of the period after 1990, a government of middling size could treat its security policy and its trade policy as separate files. It could shelter under an alliance with one great power while selling most of its exports to another, and the rules of the World Trade Organization gave it a reasonable expectation that the two would not be linked. That separation has weakened. Export controls, investment screening, subsidy races and the selective use of market access as leverage have made commercial ties a matter of strategy again, and regional trade agreements increasingly carry a geopolitical signature.

The scholarly vocabulary for describing how states respond comes largely from security studies. The classical choice was between balancing against a threatening power and bandwagoning with it (Waltz, 1979; Walt, 1987). From the early 2000s, students of Southeast Asia argued that this menu missed what governments in the region were doing, which was to avoid the choice altogether, and the word they settled on was hedging (Goh, 2005; Kuik, 2008). The term has since travelled well beyond its original setting.

This review asks what the published literature says about hedging by middle powers when the arena is trade and economic alignment. It has three aims: to clarify what the concept means and where authors disagree, to gather what has been written about the economic instruments of hedging, and to identify where the argument still lacks support. The review does not present new evidence, and it does not attempt to classify the present policies of particular governments.

This is a narrative review of the published literature in international relations and international political economy. It draws on the theoretical works that defined balancing, bandwagoning and hedging, on the conceptual debate over middle powers, and on writing about economic statecraft and regionalism. The selection reflects the works most often treated as reference points in these debates; it is not the product of a formal search protocol, and no claim of exhaustive coverage is made. The discussion is organised by theme, moving from the concept, to the actors, to the economic setting, and then to the conditions and limits of the strategy.

Three strands can be distinguished in the conceptual literature: the alignment debate from which the term emerged, the attempts to define it, and the critiques that followed.

The second term in the title is no better settled. Holbraad (1984) defined middle powers by their place in a ranking of material capabilities. Cooper et al. (1993) shifted attention to behaviour, describing a characteristic diplomacy of coalition building, mediation and niche specialisation practised by states such as Australia and Canada. Chapnick (1999) sorted the available definitions into functional, behavioural and hierarchical models and doubted that they pick out the same countries. Jordaan (2003) added a distinction between traditional middle powers, which are wealthy, stable and supportive of the existing order, and emerging ones, which are regionally dominant and more inclined to seek reform of that order.

The distinction matters for hedging. An older literature on small states held that their defining feature is the inability to affect the system alone (Keohane, 1969). Middle powers, by contrast, have enough weight to be courted, enough market size to make access to them worth bargaining for, and enough diplomatic capacity to convene others. Those attributes give them something to hedge with. They also mean that the traditional and emerging types may hedge for different reasons: the former to preserve an order from which they benefit, the latter to widen their room for manoeuvre within it.

The economic setting in which hedging now takes place has been described from two directions, one concerned with the erosion of open trade rules and the other with the strategic use of economic ties.

Authors broadly agree that hedging is easier when great power rivalry is present but restrained. Kuik (2016) notes that the strategy presupposes the absence of an immediate threat and of an all-out rivalry that forces a choice. Korolev (2016) makes the corresponding structural point: as competition at the system level sharpens, the regional space for hedging contracts. Applied to trade, the implication is that hedging should be feasible in sectors where the great powers tolerate dual ties and difficult in sectors, such as advanced semiconductors or critical infrastructure, that they have defined as matters of security.

Domestic politics is the second condition. For Kuik (2008) the balance between the two prongs follows from how ruling elites justify their authority at home, whether through economic performance, nationalism or autonomy. Trade policy adds organised interests to this picture, since exporters, import-competing industries and firms tied to particular supply chains each have a stake in which bloc's rules prevail (Mansfield and Milner, 1999). A hedging strategy that looks coherent from the foreign ministry may in practice be the sum of sectoral bargains.

The third condition is cost. Hedging in the security literature is often treated as cheap, a matter of signalling. Lim and Cooper (2015) dispute this, arguing that ambiguity carries a price in reduced alliance credibility. The economic equivalent is plain enough: duplicate standards, compliance with incompatible regulatory regimes, and the fiscal burden of reshoring or stockpiling. The literature on weaponized interdependence adds that a middle power's own firms may sit at points in a network where a great power can reach them directly (Farrell and Newman, 2019), which limits what the government can promise to either side.

Four gaps stand out. The first is definitional. Much writing on economic hedging uses the term for any diversification of trade, which is the stretching that Ciorciari and Haacke (2019) warned against. A workable definition would need to specify the risk being insured against and show that the offsetting measures are intended as such. The second is measurement. The security literature has indicators, however contested (Haacke, 2019); there is no agreed equivalent for trade, and membership of several agreements may reflect commercial opportunity as easily as strategy.

The third gap concerns the middle power category. Most cases discussed are Asian, and the distinction between traditional and emerging middle powers (Jordaan, 2003) is seldom carried into the hedging literature, although it predicts different motives. The fourth is durability. If the room to hedge shrinks as rivalry intensifies, then hedging is a description of a phase. What middle powers do when the phase ends, and whether their collective action can prolong it, is a question the existing literature raises without answering.

The literature reviewed here gives a clear account of where the idea of hedging came from and a less clear account of what it means once it is moved from security alignment to trade. The concept is most useful when it is held to its original content, a deliberate pairing of opposed measures under uncertainty, and least useful when it becomes a label for keeping options open. Middle powers have the market weight and the diplomatic capacity to hedge across fragmenting blocs, and the overlapping agreements of the Asia-Pacific show the form such a strategy can take. Its costs, its measurement and its staying power are the matters on which further research would add most.

To be declared by the author(s) before publication.

To be declared by the author(s) before publication.