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How will Trump’s potential tariffs affect Southeast Asia?

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Southeast Asia is worried about Donald Trump’s threat of universal tariffs and a new trade war with China. Five of the region’s six largest economies run a trade surplus with the United States.

But experts say the situation may not be so bad. The region, which tries to remain geopolitically neutral, saw an increase in gross trade with both China and the U.S. between 2017 and 2020 during Trump’s first presidency. Vietnam, Indonesia, Malaysia, and Thailand have benefited as companies from China, Japan, South Korea, Taiwan, and the U.S. have expanded their production bases in Southeast Asia to avoid U.S. tariffs.

Experts say exports and economic growth will take a hit in the short term, but the region could benefit from trade diversion and substitution.

What is Trump’s tariff threat?

The goal of Trump’s trade policy is to bring manufacturing jobs back to the U.S. and decouple supply chains from China. Trump and his advisers claim that China’s trade advantage is due to “currency manipulation, intellectual property theft and forced technology transfer”.

During his first term, Trump used executive powers to impose tariffs of up to 25% on $250bn of electronics, machinery and consumer goods imported from China. Beijing retaliated with similar measures on U.S. agricultural, automotive and technology exports.

Now Trump has proposed a 60 per cent tariff on all Chinese goods entering the U.S. and tariffs of up to 20 per cent on imports from everywhere else.

How bad could it be for Southeast Asia?

According to Oxford Economics, about 40 per cent of Cambodia’s exports go to the U.S., making it the largest exporter in Asean as a percentage of total exports, followed by Vietnam with 27.4 per cent and Thailand with 17 per cent. Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce, said the Thai economy could take a 160.5 billion baht ($4.6 billion) hit if Trump fulfils his promises.

Vietnam has the world’s fourth-largest trade surplus with the United States. This imbalance has been growing rapidly as Chinese, Taiwanese and South Korean companies have used Vietnam to avoid Trump-era tariffs. Vietnam’s fortunes could change just as quickly, especially if the U.S. continues to classify Vietnam as a ‘non-market economy’, which requires higher tariffs.

Uncertainty over Trump’s tariffs could cause companies to pause or halt investment plans in Southeast Asia. U.S. companies accounted for about half of Singapore’s $9.5 billion in fixed-asset investment last year, according to the city-state’s Economic Development Board. In his congratulatory letter to Trump, Prime Minister Lawrence Wong was quick to remind him that the United States enjoys a “consistent trade surplus” with Singapore.

Any blow to the Chinese economy will have repercussions for Asean countries that depend on Chinese consumption, export demand and tourism. A reduced appetite for Chinese goods will also affect Southeast Asian suppliers of inputs to Chinese producers. Indonesia, Southeast Asia’s largest economy, will suffer the most because it exports 24.2 per cent of its goods to China, mainly commodities.

Unable to send their goods to the U.S., Chinese exporters may turn to Southeast Asia, where governments have faced complaints from local producers hurt by dumping in metals, textiles, and consumer goods.

What is Southeast Asia’s advantage?

Southeast Asia’s current manufacturing boom started because of the trade war. Over time, analysts expect trade substitution and diversion to outweigh the hit to growth.

“We think a stronger crackdown on China could lead to more supply chain diversion as Chinese companies trade and invest more in Asia,” said Jayden Vantarakis, head of ASEAN research at Macquarie Capital.

“Electric vehicle factories, which some Southeast Asian governments are aggressively pursuing, could provide an economic buffer. Demand for EVs is also growing outside the U.S., so I think there could be a net benefit for Indonesia. Smaller countries that are trying to be carbon neutral, especially as petrol prices get more expensive, will try to take over the supply and buy more electric cars,” said Sumit Agarwal, a professor at the National University of Singapore’s School of Business.

Trump’s promised tariffs could embolden Asean governments to impose anti-dumping duties on Chinese goods, as Thailand did on rolled steel this year. Stricter U.S. rules of origin could also give governments an opportunity to ensure that more high-value parts are produced and assembled locally.

How will Southeast Asian currencies and markets be affected?

Trump’s tariffs could reduce pressure on Southeast Asian central banks to ease monetary policy further.

“Essentially, Trump’s victory is inflationary for the world because of his planned tariffs, so the global monetary normalization or easing cycle will probably not be as sharp as previously thought, including in the Philippines,” said Miguel Chanco, chief emerging Asia economist at UK-based Pantheon Macroeconomics.

Speaking to Nikkei Asia, Chanco said Southeast Asian currencies will not strengthen as much as previously expected, partly because markets are re-pricing the pace of easing by the U.S. Federal Reserve and thus the dollar will continue to strengthen.

Among Southeast Asia’s six major economies, the Thai baht and Malaysian ringgit have been the worst-performing currencies since Trump’s victory, losing 3.2 per cent and 2.9 per cent respectively against the U.S. dollar through Wednesday.

Thai brokerage InnovestX recommended stocks that would benefit from a strong dollar and weak baht. These include companies with significant export earnings, such as CP Foods and Delta Electronics, or tourism-related companies such as Airports of Thailand, property developers and hoteliers.

Governments are already taking steps to reduce their over-dependence on the U.S. or China by deepening ties with other countries and regions and emphasizing their neutrality.

Southeast Asian economies in particular are also expected to focus on building resilience by strengthening intra-ASEAN trade.

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Japan diverges from G7, urging restraint in Israel-Iran conflict

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Japanese Prime Minister Shigeru Ishiba has affirmed Tokyo’s position of calling for “maximum restraint” from both Israel and Iran, despite a G7 statement earlier this week that supported Israel’s “right to self-defense.”

During a meeting of ruling and opposition party leaders on Thursday, Ishiba stated, “What the foreign minister said is the stance of the Japanese government. The G7 is the G7,” as reported by Tomoko Tamura, head of the Japanese Communist Party.

Japan, a close US ally in Asia, has long maintained friendly relations with Iran and has historically adopted a neutral approach to Middle East diplomacy, distinguishing itself from the pro-Israel stance of US administrations. Tokyo relies on the Middle East for the overwhelming majority of its crude oil imports.

G7 leaders convened in Kananaskis, Canada, and issued a statement backing Israel’s attacks on Iran. The statement affirmed Israel’s right to self-defense and condemned Iran as the “main source of regional instability and terrorism.” On June 13, when Israel’s attacks on Iran began, Japanese Foreign Minister Takeshi Iwaya declared: “The use of military force while diplomatic efforts are ongoing… is completely unacceptable and a source of deep regret. The Japanese government strongly condemns these actions.”

Iwaya added, “Japan is gravely concerned about the continuation of retaliatory attacks and strongly condemns any actions that could further escalate the situation.”

He continued, “Japan urges all parties to exercise maximum restraint and strongly calls for a de-escalation of tensions.”

During the meeting of party leaders, Tomoko Tamura, head of the Japanese Communist Party, highlighted the apparent contradiction between Iwaya’s statements and the joint G7 communiqué, suggesting the government was applying a “double standard.”

Prime Minister Ishiba responded, “What the foreign minister said is the stance of the Japanese government. The G7 is the G7.”

Meanwhile, the foreign minister announced at a press conference on Friday that a total of 87 Japanese nationals and their family members had been evacuated by land from Iran and Israel. Sixty-six individuals were evacuated from Iran to neighboring Azerbaijan, and 21 were evacuated from Israel to Jordan.

Following additional requests from Japanese citizens, a second land evacuation from Iran is scheduled for Saturday. Currently, there are approximately 220 Japanese nationals in Iran and about 1,000 in Israel.

In preparation for potential air evacuations, the government plans to dispatch two Air Self-Defense Force military transport aircraft to Djibouti in East Africa to have them on standby. With airports in Iran and Israel closed, Iwaya noted that the aircraft could be used if, for example, the airports reopen and conditions permit an airlift.

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Iran-Israel war: Why US discusses regional conflict with Pakistan

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US President Donald Trump and Pakistan’s Army Chief General Asim Munir held a special and important meeting during a time when tensions are rising in the Asian region. The meeting was held on Trump’s invitation and was not open to the media. However, both sides have released official statements afterward, which states that the main topics were discussed

The meeting focused on the ongoing conflict between Iran and Israel, Pakistan–India relations, especially the Kashmir issue, the situation in Afghanistan and future US–Pakistan cooperation.

Pakistan has recently improved its strategic position in the region. It has shown strong ties with China and is the only South Asian country openly supporting Iran in its conflict with Israel. Meanwhile, Pakistan remains an important player in Afghanistan.

Why the Pakistani Army Chief was invited to the US?

Although Pakistan has an elected civilian government, important decisions—especially related to foreign affairs and security—are often handled by the military. That’s why General Asim Munir was invited to meet Trump instead of the Prime Minister, General Munir’s influence has grown recently. After tensions with India, he was given the title of Field Marshal. His meeting with Trump is seen as a sign of his importance in both Pakistani and international politics.

According to the Pakistan Army’s media wing (ISPR): General Munir thanked President Trump for helping to ease recent tensions between Pakistan and India. Trump praised Pakistan’s role in fighting terrorism. Both agreed to work together in the future, especially in: Trade, Technology Minerals and energy Artificial intelligence Crypto currency and regional peace efforts as well.

President Trump also appreciated General Munir’s leadership during difficult times. Munir invited Trump to visit Pakistan, and Trump reportedly accepted the offer in principle.

Why US former peace envoy to Afghanistan, Khalilzad is not trusting Pakistan’s army chief

Former U.S. diplomat Zalmay Khalilzad criticized the meeting. He said General Munir cannot be trusted and reminded the U.S. that Pakistan has supported groups that harmed American soldiers in the past. According to Khalilzad, General Munir may be trying to get U.S. support for his interests in Afghanistan, which he believes could be risky for America.

Though no official list of US demands was made public, reports suggest a meeting was held in Saudi Arabia earlier, where American officials spoke with top Pakistani leaders. During that meeting, the U.S. reportedly made four key requests:  Pakistan should help the U.S. in counterterrorism operations when needed. Pakistan should slowly reduce its relations with China. Pakistan should recognize Israel after Saudi Arabia does. If the U.S. attacks Iran, Pakistan should support the U.S. instead of staying neutral.

These demands are similar to earlier U.S.–Pakistan arrangements during the Cold War and the War on Terror.

What could be expected in the future?

This meeting could mark the beginning of a new phase in US–Pakistan relations. In the past, Pakistan helped the U.S. during the Soviet-Afghan War and after 9/11. Now, with tensions involving Iran, India, and Afghanistan—and China expanding its role—the U.S. may again be looking to Pakistan as a key partner in the region.

Time will tell whether this leads to a long-term partnership or just another temporary agreement based on short-term goals.

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China pledges aid and signs friendship treaty at Central Asia summit

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China concluded its latest engagement efforts in Central Asia on Tuesday by pledging 1.5 billion yuan (US$209 million) for livelihood and development projects in the region.

The six nations participating in the second China-Central Asia Summit also signed a historic permanent friendship treaty.

“China is ready to provide 1.5 billion yuan in grant assistance to Central Asian countries this year to support livelihood and development projects of common interest to each country,” Chinese President Xi Jinping stated in his opening address at the summit in Astana, the capital of Kazakhstan.

“Additionally, China will offer 3,000 training opportunities to Central Asian countries over the next two years.”

Xi described the signing of the Permanent Good-Neighborliness and Friendly Cooperation Agreement as a milestone in relations between the six countries, calling it “an innovative initiative in China’s neighborhood diplomacy and a contribution that will benefit future generations.”

China has signed similar agreements with Russia and Pakistan.

Xi also emphasized the need for cooperation in a world that has entered “a new period of turbulence and transformation.”

State news agency Xinhua quoted Xi as saying, “There will be no winner in a tariff and trade war. Protectionists and hegemonists will harm both others and themselves.”

“The world should not be divided, but united; humanity should not revert to the law of the jungle, but work to build a common future for mankind,” he added.

Xi also announced the establishment of three cooperation centers focusing on poverty reduction, educational exchange, and desertification control, as well as a trade facilitation platform under the China-Central Asia cooperation framework.

In a statement on Wednesday, the Chinese Foreign Ministry said that China and the Central Asian countries are eager to improve road and rail connectivity and plan to open more direct flights to and from China to increase mutual exchange.

China will consider simplifying visa procedures with the five Central Asian countries, while all parties will study the feasibility of opening consulates.

Together with Kazakhstan, Kyrgyzstan, and Tajikistan, China will accelerate the modernization of existing port facilities and assess the need for new ones.

The summit was the second of its kind, following the inaugural one held two years ago in Xian, China.

These efforts reflect a deepening of China’s relations with Central Asia, which have historically focused on areas such as transportation infrastructure.

The region is a key part of the Belt and Road Initiative, Beijing’s global development strategy, and China has invested heavily in energy pipelines, infrastructure, and mining projects in Central Asia.

However, China also wants to expand cooperation into sustainable development and renewable energy.

These investments were a major focus of Xi’s meetings with the leaders of the five Central Asian states.

During the meetings, Xi stressed the need to uphold multilateralism and the global trade order. This is part of Beijing’s effort to position itself as a more reliable partner following the US tariff war.

Meeting with Turkmen President Serdar Berdimuhamedov, Xi called for expanding gas cooperation and exploring opportunities in non-resource sectors.

Security was also on the agenda.

“The two countries should further strengthen law enforcement, security, and defense cooperation, jointly combat the ‘three forces,’ and enhance cooperation in cybersecurity,” Xi said, referring to “terrorism, separatism, and extremism.”

Beijing views these forces as threats to national and regional security, and Xi has repeatedly emphasized this stance in his meetings with Central Asian leaders.

While China’s presence in Central Asia has historically focused on economic investments, its influence in the security sphere is growing through joint counter-terrorism drills, training programs, and aid.

This is particularly true in Tajikistan, which shares a long border with Afghanistan, where China is concerned about terrorists returning to carry out operations in its western Xinjiang region.

In his meeting with Tajik President Emomali Rahmon, Xi called for deeper cooperation in law enforcement and security to combat the three forces.

He also called for increasing bilateral trade and investment and improving transportation infrastructure.

Rahmon said Dushanbe would expand cooperation in new areas such as new energy, green industries, and artificial intelligence, and would “strengthen coordination with Beijing for the Shanghai Cooperation Organisation (SCO) to play a greater role.”

The SCO is the main forum for relations between China and the landlocked region. This political, economic, and security bloc was founded in 2001 by China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan. Turkmenistan, reflecting its commitment to “permanent neutrality,” is the only Central Asian country outside the organization.

On Tuesday, Xi also held talks with Kyrgyz President Sadyr Japarov, describing relations between the two countries as being in “the best period in history.”

Xi said the construction of the China-Kyrgyzstan-Uzbekistan railway is a top priority, but new growth drivers such as clean energy, green mining, and artificial intelligence should also be developed.

The talks followed the signing of cooperation documents between China and the summit’s host country, Kazakhstan, covering trade, investment, technology, tourism, and customs.

Xi asked his Kazakh counterpart, Kassym-Jomart Tokayev, to accelerate cross-border railway projects and the improvement of port infrastructure.

Xi also stated, “Beijing and Astana should be strong supporters of each other in turbulent times.”

According to the Kazakh presidential office, Tokayev described relations between the two countries as stable and “not negatively affected by geopolitical challenges and turmoil or the international situation.”

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