SYDNEY (MarketWatch) — For nations without a large domestic economy, adequate resources and a need for new markets, a retreat from global integration poses challenges.

Such less-powerful nations cannot control currency exchange rates to the same extent as the major powers, for example. In February, the New Zealand government ruled out intervening in currency markets to reduce the value of the New Zealand dollar NZDUSD, +0.22% , which would have relieved pressure on exporters and manufacturers.

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As Finance Minister Bill English wryly observed then: “To influence the exchange rate you need a couple of hundred billion U.S. in the bank so they take you seriously. We’d be out in the war zone with a pea shooter.”

Indeed, if global economic pressures lead to a shift to autarky, then the U.S., Europe and China are likely to find closed economies a realistic policy option, although for different reasons.

Smaller, emerging countries don’t have that choice. This article addresses their situation and what they must do about it. Previous commentaries observe Europe’s imperfect union, China’s autonomy and America’s splendid isolation.

Smarter, better, richer

Put simply, countries without much clout must be smarter and work together or with larger nations if they are to prosper.

Trading blocs to counter the shift to closed economies may evolve. South America has experimented with trade blocs such as the troubled Mercosur grouping, which was originally founded in 1991 between Argentina, Brazil, Paraguay and Uruguay. Such agreements can form the basis of integration promoting free trade and fluid movement of goods, people, and currency between members.

Natural-resource rich countries may ally themselves with major nations, such as the U.S., Europe or China, becoming preferred suppliers of food, energy and raw materials. In turn, they can be areas of investment for their trading partners.

Satyajit Das

African countries are pursuing this policy, concluding long-term supply agreements for agricultural or mineral products sought by China. In return, China is expanding investment, trade and development aid preferentially with these nations, coordinating transactions by Chinese businesses and banks.

Australia is now an important source of raw materials for China. Russia has become an energy and commodity supplier to Europe. Within the framework of NAFTA, Canada is an important energy source for the U.S., while Mexico provides low-cost labor to American businesses.

Strategically located trade-oriented nations such as Switzerland or Singapore would continue to be important trading and financial centers, providing trading, logistics, financial and investment services.

In China’s shop

And if they could overcome historical animosities and territorial conflicts, Japan and China could develop a mutually beneficial strategic partnership.

Japan already is China’s second-largest trading partner. Japan is also one of China’s largest foreign investors. Japan possesses advanced technology and needs export markets, and Chinese businesses would benefit from Japanese skills and intellectual property. And with the world’s largest pool of savings, Japan is continually seeking investment opportunities.

In May 2012, Japan and China concluded arrangements that would allow direct currency trading of the Japanese yen USDJPY, -0.19% and Chinese renminbi USDCNY, +0.15% , bypassing the U.S. dollar. The pact is designed to facilitate trade between the two countries. It also furthers Chinese objectives of promoting use of the renminbi rather than the dollar or euro EURUSD, +0.19% in international trade.

Japan also received approval to invest in Chinese government bonds. This was a pioneering development as China does not allow foreign investors to freely purchase its debt. While initial purchases will be limited to just over $10 billion, it is designed to strengthen bilateral economic ties. The two countries agreed to promote the use of their currencies in bilateral transactions — such as renminbi-denominated foreign direct investment by Japanese companies in China. Australia and China have agreed to a similar deal.

Despite a history of intermittent political differences, India may seek closer ties with China. Such an alliance would help India overcome constraints including financing large current account and budget deficits, investment capital requirements and infrastructure shortages. China would improve access to raw materials and to India’s large domestic market. “Chindia” is not farfetched, given the two countries have rich cultural links reaching back to ancient times and are now increasing trade links.

United nations

Nations will have to abandon historical ties and biases, trading off political status against economic prosperity and security. In the popular British TV series “Downton Abbey,” Cora Crawley asks her mother-in-law: “Are we friends, then?” The dowager countess’s reply is instructive: “We are allies, my dear, which can be a good deal more effective.”

Unable to retreat into autarky, less-powerful nations will need to adjust strategies. After the Second World War, when France and Germany sought to create a united Europe, Winston Churchill argued that Great Britain did not need peacetime entanglement with its continental partners. U.S. Secretary of State Edward Stettinius told President Franklin Roosevelt that Britain’s problem was “emotional difficulty ... in adjusting to a secondary role after always accepting a leading role as a national right.” Great Britain took many years to recognize the benefits of the European Union. Even today, it remains equivocal, having chosen not to adopt the euro and now is planning a referendum in 2017 on membership in the EU itself.

In this new world order, policy makers in countries both large and small would do well to heed 17th Century French author Francois de La Rochefoucauld’s observation: “Self-interest makes some people blind, and others sharp-sighted.”