Diversifying economic risks: Japan’s economic hedging toward China

Abstract

International Relations has traditionally identified balancing and bandwagoning as the two predominant strategies adopted by states in response to a rising power that threatens the status quo. However, recent academic debates have highlighted the emergence of hedging as a middle-ground approach adopted by states facing a rising power with ambiguous intentions, particularly when the stakes are high. Economic hedging forms a critical element of this strategy, as it allows states to maximize economic benefits while minimizing the risks of dependency through trade and investment. We present an analytical framework based on Kuik’s model, which focuses on the concept of economic diversification in trade and investment. We test its validity through an analysis of the diversification initiatives of the Abe administration and our central argument is that Japan’s diversification efforts are aimed at reducing economic risks and avoiding excessive dependency in specific sectors through trade and investment with China.