Abstract
This paper develops a Geoeconomic Balancing Framework (GBF) to explain how middle powers—particularly Indonesia—navigate intensifying strategic competition between major powers through economic instruments. Moving beyond conventional trade analysis, GBF conceptualizes trade agreements as instruments of geopolitical balancing. The framework integrates balance-of-power theory, economic statecraft, and hedging strategies to explain how Indonesia’s engagement with the United States through the Agreement on Reciprocal Trade (ART) represents not merely economic liberalization but a geoeconomic anchoring mechanism aimed at recalibrating regional power equilibrium amid China’s expanding influence.
I. Introduction: From Trade Liberalization to Geoeconomic Strategy
Contemporary trade agreements increasingly transcend the narrow logic of tariff reduction and market access. In the Indo-Pacific region, economic arrangements are embedded within broader strategic rivalries, particularly between Amerika Serikat and China. The Agreement on Reciprocal Trade (ART) between the United States and Indonesia should therefore be understood not solely as an economic instrument but as a geoeconomic strategy.
Over the past decade (2014–2024), Indonesia’s economic ties with China expanded significantly through trade, infrastructure investment, and integration into global value chains. Concurrently, China’s maritime assertiveness in the South China Sea has intensified concerns about regional balance and freedom of navigation. Within this context, ART emerges as a strategic recalibration mechanism: an attempt by the United States to anchor Indonesia economically in order to preserve a favorable balance of power in Southeast Asia. To conceptualize this dynamic, this paper introduces the Geoeconomic Balancing Framework (GBF).
II. Literature Review: Balancing, Economic Statecraft, and Middle Power Agency
- Structural Realism and the Logic of Balancing
The intellectual foundation of the Geoeconomic Balancing Framework (GBF) rests partly on structural realism. Kenneth Waltz (1979), in Theory of International Politics, argues that the anarchic structure of the international system compels states to balance against concentrations of power. Balancing, in Waltz’s formulation, is primarily systemic: states seek to prevent any single actor from achieving hegemonic dominance. Importantly, Waltz views balancing as an almost automatic systemic response to power asymmetry.
John J. Mearsheimer (2001), in The Tragedy of Great Power Politics, extends this logic into offensive realism. For Mearsheimer, great powers not only balance but actively seek regional hegemony while preventing others from achieving it. From this perspective, the United States’ engagement in the Indo-Pacific is consistent with a long-standing grand strategy: preventing the emergence of a peer competitor in a critical region.
Applied to Southeast Asia, these realist insights suggest that the expansion of China’s economic and maritime influence will generate countervailing strategies. However, traditional realism has focused heavily on military alliances and hard power balancing. What it under-theorizes is the growing role of economic instruments as balancing mechanisms. GBF addresses this gap by conceptualizing trade agreements and economic integration as functional equivalents of traditional balancing tools.
- Economic Statecraft and the Instrumentalization of Interdependence
The second theoretical pillar of GBF derives from the literature on economic statecraft. David A. Baldwin (1985), in Economic Statecraft, argues that economic instruments—trade, aid, investment, sanctions—are tools of national power comparable to military instruments. Baldwin challenges the assumption that economic interdependence is politically neutral, emphasizing instead its strategic utility.
Similarly, Robert Gilpin (1987) in The Political Economy of International Relations highlights the intimate relationship between economic structures and political power. For Gilpin, international economic orders reflect underlying distributions of power, and economic arrangements are often embedded within hegemonic projects.
More recently, scholarship on “weaponized interdependence” (Farrell & Newman, 2019) has demonstrated how asymmetric network centrality can create coercive leverage. States that control critical nodes in financial or supply-chain networks can convert economic interdependence into strategic influence.
In this light, trade agreements such as ART should not be interpreted solely through liberal theories of mutual gain. Rather, they can function as anchoring mechanisms designed to reshape patterns of dependence and influence. GBF extends this literature by emphasizing that economic statecraft is not limited to coercion; it can also operate through positive inducements and institutionalized interdependence.
- Liberal Interdependence and Its Strategic Ambiguities
Classical liberalism, particularly as articulated by Robert Keohane and Joseph Nye (1977) in Power and Interdependence, posits that complex interdependence reduces the utility of military force and creates incentives for cooperation. However, Keohane and Nye also acknowledge that interdependence is asymmetrical and can generate vulnerability.
GBF builds on this insight but diverges from purely liberal optimism. Interdependence does not automatically produce peace; its effects depend on distributional asymmetries and domestic capacity. Thus, economic integration may stabilize or destabilize regional orders depending on how it is structured and managed.
- Hedging and Middle Power Strategy in Southeast Asia
A critical addition to realist and economic statecraft literatures comes from scholarship on hedging strategies among Southeast Asian states. Evelyn Goh (2005, 2008) conceptualizes hedging as a strategy distinct from balancing or bandwagoning: states simultaneously pursue contradictory policies to offset risks under uncertainty.
Kuik Cheng-Chwee (2008) further elaborates hedging as a spectrum of engagement, limited alignment, and risk contingency. Rather than choosing sides, middle powers maintain diversified relations to maximize autonomy.
Indonesia, historically committed to a bebas-aktif (independent and active) foreign policy doctrine, exemplifies this approach. Rather than entering formal alliances, it cultivates multiple partnerships to preserve strategic flexibility.
GBF incorporates hedging as a central variable, conceptualized here as Strategic Autonomy Capacity (SAC). Unlike structural realism, which tends to treat smaller states as reactive, GBF emphasizes their agency and adaptive strategies.
- From Military Balancing to Geoeconomic Balancing
Traditional balance-of-power theory prioritized military coalitions. However, contemporary strategic competition increasingly unfolds through economic instruments—trade, infrastructure, technology standards, and supply chains.
Scholars of geoeconomics argue that economic integration is now a primary arena of rivalry. As states seek influence without direct military confrontation, trade agreements become strategic architecture.
GBF synthesizes these strands by proposing that (1) Great powers use economic statecraft to perform balancing functions; (2) Middle powers respond through hedging strategies; and (3) Outcomes depend on domestic autonomy capacity.
In the Indo-Pacific context, intensified rivalry between the United States and China creates systemic pressure (External Pressure Structure). Trade agreements such as ART represent Geoeconomic Instrument Layers deployed within this competitive environment. Indonesia’s Strategic Autonomy Capacity mediates the ultimate outcome—either stabilizing competitive equilibrium or asymmetric dependency.
- Theoretical Gap and Contribution
Existing literature offers partial explanations (1) Realism explains why balancing occurs; (2) Economic statecraft explains how economic tools are used; (3) Hedging literature explains middle power agency.
However, few frameworks integrate these strands into a single analytical model tailored to contemporary Indo-Pacific competition.
The Geoeconomic Balancing Framework fills this gap by (1) Conceptualizing trade agreements as balancing mechanisms; (2) Incorporating middle power agency into systemic rivalry; (3) Linking domestic autonomy to regional stability outcomes.
Building upon structural realism, economic statecraft theory, and hedging scholarship, the following section formally articulates the Geoeconomic Balancing Framework. GBF operationalizes how systemic rivalry translates into economic instruments and how middle powers mediate their effects through strategic autonomy.
III. 3. Core Components of the Geoeconomic Balancing Framework – Indonesia Implementation
GBF consists of three interrelated dimensions, (1) External Pressure Structure (EPS); (2) Geoeconomic Instrument Layer (GIL); and (3) Strategic Autonomy Capacity (SAC). External Pressure Structure EPS refers to systemic pressures generated by major power rivalry. In the Indo-Pacific context, this includes China’s expanding economic footprint, Maritime disputes in the South China Sea, Strategic competition over supply chains and critical minerals, and Competing visions of regional order. The higher the intensity of rivalry, the more likely economic tools will be deployed for strategic purposes.
Geoeconomic Instrument Layer (GIL) captures the concrete economic mechanisms used by major powers. For the United States, instruments include Bilateral trade agreements (e.g., ART), Energy export commitments, Aerospace and high-technology cooperation, and Supply-chain diversification strategies. For China, instruments include Belt and Road Initiative projects, Infrastructure financing, Trade integration, and Industrial and mineral investment. These instruments function as anchoring devices: they create long-term structural ties that embed a state within a broader strategic orbit.
Strategic Autonomy Capacity (SAC) refers to the ability of the pivot state—in this case Indonesia—to manage external engagement without succumbing to asymmetric dependency. SAC includes Institutional robustness, Economic diversification, Fiscal resilience, Domestic political stability, and Coherent foreign policy doctrine. The interaction between EPS, GIL, and SAC determines outcomes.
GBF operates through three primary mechanisms, (1) Anchoring, major powers seek to institutionalize economic interdependence to secure long-term strategic alignment. ART can be interpreted as an American anchoring strategy aimed at preventing excessive Indonesian dependence on China; (2) Hedging, Indonesia engages both major powers to avoid over-reliance on either. By maintaining diversified partnerships, Indonesia increases bargaining leverage ; (3) Competitive Equilibrium, when multiple major powers maintain significant but non-dominant economic engagement, a form of competitive equilibrium emerges. No single actor achieves structural dominance, thereby stabilizing the regional balance.
How about Indonesia implementation? Between 2014 and 2024, Indonesia deepened economic integration with China, particularly in infrastructure and trade. While economically beneficial, such concentration raises concerns about strategic asymmetry.
The introduction of ART can therefore be interpreted as a recalibration effort by the United States (1) Expanding U.S. market access to Indonesia; (2) Securing energy and industrial cooperation; (3) Reinforcing maritime alignment in Southeast Asia. From a GBF perspective, ART represents an attempt to rebalance Indonesia’s external economic portfolio rather than eliminate trade deficits per se.
Then, what the outcomes: stability or vulnerability? GBF predicts two possible trajectories. First, Stabilizing Balance. If Indonesia’s Strategic Autonomy Capacity remains high, the country can extract economic benefits from both powers, maintain policy independence, and contribute to regional multipolar stability. Second, Asymmetric Dependency. If SAC weakens, intensified competition may produce policy capture, pressure to align, and fragmented foreign policy orientation. Thus, the effectiveness of geoeconomic balancing depends less on the intentions of major powers and more on Indonesia’s domestic capacity.
Conclusion
The U.S.–Indonesia ART illustrates a broader transformation in global politics: economic agreements increasingly function as strategic architecture. For the United States, ART is less about eliminating bilateral trade deficits and more about preserving geopolitical equilibrium in the Indo-Pacific. For Indonesia, it presents both opportunity and risk. If managed prudently, geoeconomic balancing can enhance Indonesia’s strategic leverage and contribute to regional stability. If mismanaged, it risks entrenching asymmetric dependency.
The Geoeconomic Balancing Framework provides a conceptual lens to understand this delicate equilibrium—one in which economics and geopolitics are no longer separable domains, but mutually constitutive arenas of power.
GBF contributes to international relations theory in three ways. It reconceptualizes trade agreements as instruments of balance-of-power politics. It restores agency to middle powers within major power rivalry. It bridges realism and liberal interdependence by showing how economic cooperation can serve competitive strategic purposes. Rather than viewing economic interdependence as inherently pacifying or destabilizing, GBF positions it as conditional—its effect depends on domestic autonomy capacity.
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