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Taiwan braces for second Trump term

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With Donald Trump securing a second term as U.S. president this week, the Taiwanese government, which heavily relies on U.S. support for defense, is preparing to enhance relations with Washington. Trump previously suggested that Taiwan should pay the U.S. for its defense support and has criticized Taiwan for impacting the U.S. chip industry.

Trump’s approach to Taiwan is among the most significant questions facing his new administration. While the U.S. officially respects Beijing’s sovereignty under the One-China Principle and does not formally recognize Taiwan’s independence, it remains Taipei’s main political and security ally and continues to bolster Taiwan’s defense by providing weapons and training its forces.

Taiwanese leaders Lai Ching-te and Foreign Minister Lin Chia-lung quickly extended their congratulations to Trump. Lin remarked that Taiwan, a global semiconductor leader, would play a vital role in helping Trump realize his “Make America Great Again” mission.

“We are confident we will work well with the new Trump administration,” a senior government official told Nikkei Asia on the condition of anonymity.

The official added that China will likely work to fuel skepticism about the U.S.-Taiwan relationship and President Lai but noted that during Trump’s previous term, many high-level officials had productive interactions and cooperation with Taiwan.

However, Trump is known for his transactional diplomacy and emphasis on trade tariffs. Taiwan will closely monitor his cabinet selections—particularly in the foreign and defense departments—as well as his stance on the Ukraine conflict, demands on security partners in Europe and Asia, and whether he will intensify the U.S.-China trade war.

Analysts expect Taiwan to call for increased defense spending and to accelerate military reforms.

“President Trump’s ‘peace through strength’ approach means our adversaries will be deterred and our allies will carry a greater share of the global security burden,” said Ivan Kanapathy, a former senior national security official under Trump.

Taiwan’s Defense Minister Wellington Koo emphasized that, regardless of the election outcome, it’s crucial to ensure the U.S. understands Taiwan’s commitment to self-defense and recognizes Taiwan’s economic and strategic significance.

Some leaders within Taiwan’s Kuomintang Party (KMT), which advocates for closer ties with China, have voiced reservations about increasing defense expenditures. KMT legislator Weng Hsiao-ling recently told Nikkei Asia that he opposed a substantial boost in the defense budget.

Chieh-Ting Yeh, director of the U.S. Taiwan Watch think tank, suggested that Taiwan should engage beyond diplomatic channels, reaching out to influential figures in Wall Street, Silicon Valley, and other sectors familiar with Trump.

“Taiwan’s leaders need to connect with people who know Trump personally and have his ear,” Yeh commented at the Taiwan Foreign Correspondents Club (TFCC), acknowledging the likely policy unpredictability.

Courtney Donovan Smith, a commentator and former president of the American Chamber of Commerce in Taichung, pointed out that some members of Trump’s first administration supported Taiwan, partly as leverage against China. Smith noted that National Security Advisor John Bolton and Secretary of State Mike Pompeo were strong advocates for Taiwan.

After Lai posted on X about the enduring Taiwan-U.S. partnership rooted in shared values and regional stability, former national security adviser Robert O’Brien thanked him, hinting at the continuity of their alliance.

A confidential memo from a prominent U.S. consulting firm—seen by Nikkei Asia—lists O’Brien as Trump’s likely Secretary of State and Pompeo as a probable Secretary of Defense candidate. Additionally, Republican Senator Tom Cotton, another defense contender, has called for “strategic clarity” in U.S.-Taiwan relations, replacing the current “strategic ambiguity” and explicitly promising U.S. intervention should China attack Taiwan.

Experts note that Taiwan’s de facto representation in the U.S. will be pivotal in maintaining bilateral relations. Sources suggest Taiwan might consider appointing a new de facto U.S. ambassador, possibly replacing Alexander Yui given the changing diplomatic landscape.

Taiwan’s newly appointed deputy ambassador Andrea Yi-Shan Yang, seen as a key intermediary, brings valuable experience, having collaborated closely with President Lai and Foreign Minister Lin.

“Yang is an exceptional diplomat, capable of communicating Taiwan’s priorities effectively in Washington,” commented Raymond Sung, vice-president of the Prospect Foundation, during a speech at the TFCC. He added, “If Trump’s senior appointments are handled by professionals rather than political outsiders, Taiwan’s relationship with the U.S. will remain secure.”

In a separate TFCC session, Taiwan’s Environment Minister Peng Chi-ming expressed optimism about ongoing cooperation in technology and climate policy with the U.S., despite Trump’s previous withdrawal from the Paris Agreement.

“I believe Taiwan’s contributions in supply chain stability and semiconductor production will ensure continuity in the U.S.-Taiwan relationship,” Peng stated. He emphasized that private-sector initiatives are driving progress in climate technology, with Taiwan playing an essential role in supporting renewable energy and EV infrastructure.

Similarly, Economic Minister Kuo Jyh-huei pledged support for Taiwanese companies seeking to diversify production away from China, in light of potential U.S.-China trade tensions.

According to Nick Marro of the Economist Intelligence Unit, any future trade war could accelerate Taiwan’s shift toward Southeast Asia or India. However, he noted that Taiwan’s reliance on China’s manufacturing advantages—such as its low-cost ecosystem and talent pools—will likely prevent a significant exodus of Taiwanese firms from the Chinese market.

ASIA

Japan’s exports rise despite global risks, boosted by China

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Japan’s exports rose more than expected in October, driven by strong demand from China and other parts of Asia, despite growing uncertainties in global markets.

Exports increased by 3.1% year-on-year, led by significant growth in shipments of chip-making equipment, particularly to China, according to the Finance Ministry’s report on Wednesday. This marked a rebound following the first drop in 10 months in September. October’s figures exceeded economists’ forecasts of a 1% rise and were also bolstered by increased shipments of medical products to the United States.

Meanwhile, imports edged up by 0.4%, defying expectations of a 1.9% decline. As a result, the trade deficit widened to 461.2 billion yen ($2.98 billion), compared to 294.1 billion yen in the previous month.

This stronger-than-expected export performance has raised optimism about Japan’s economic recovery. Although the country’s gross domestic product (GDP) expanded for the second consecutive quarter through September, the pace of growth has been tempered by the drag from net exports.

“Today’s data raises hopes that external demand will revive in the October-December quarter,” said Hiroshi Miyazaki, Senior Research Fellow at the Itochu Research Institute. “The Chinese government’s stimulus measures have stabilized its economy and reversed the prior decline.”

Exports to China rose by 1.5% last month, rebounding from a 7.3% drop in September, with semiconductor manufacturing equipment exports surging by nearly a third. These gains align with signs that China’s stimulus policies are beginning to yield results, driving growth in certain sectors and boosting consumer spending.

Notably, Japanese exports grew despite the yen’s strengthening against the dollar, averaging 145.87 yen per dollar in October—2% stronger than the previous year, according to ministry data.

The export rebound occurs against a backdrop of heightened concerns about global trade policies. Business leaders are bracing for the potential return of Donald Trump to the White House, with fears that his proposed tariffs—60% on imports from China and 20% on other nations—could disrupt international commerce.

Some regions are already experiencing a slowdown. Shipments to the United States and Europe declined by 6.2% and 11.3%, respectively, in October.

The Bank of Japan (BoJ) is closely monitoring these developments. BoJ Governor Kazuo Ueda noted on Monday that while the Federal Reserve’s prospects for a soft landing have improved, risks tied to the U.S. economy and their impact on global markets require careful consideration.

The most pressing concern for Japan’s trade outlook is the impact of potential U.S. tariffs. Historical data from the U.S.-China trade war (2018-2019) suggests that a 1% increase in export prices, including tariffs, led to a 0.35 percentage-point reduction in profit margins for Chinese exporters, according to research from Stanford University’s Centre for Chinese Economics and Institutions. A similar scenario could hurt Japanese firms’ profitability, counteracting gains from the yen’s depreciation.

“We are not yet at a stage where Trump’s tariff policy is clearly impacting export volumes or exporters’ behavior,” Miyazaki told The Japan Times. “However, there remains significant uncertainty, and we must continue to monitor the policy stance of the next Trump administration,” he added.

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IMF reviews Pakistan’s $7bn bailout

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An International Monetary Fund (IMF) team conducted an unscheduled visit to Pakistan last week to assess the country’s progress on the terms of its $7 billion bailout package. The surprise visit, coming less than two months after the loan’s approval, has raised questions about the future of the bailout program. IMF staff are expected to present their findings to the Washington-based executive board for review.

What prompted the IMF’s unexpected visit to Pakistan?

Several officials, speaking to Nikkei Asia on condition of anonymity, highlighted key factors prompting the visit. These included a $685 million shortfall in the government’s tax collection target for the first quarter of the current fiscal year and a $2.5 billion deficit in the external financing required under the bailout terms. Compounding these issues was the failed sale of Pakistan International Airlines (PIA), a key component of the IMF-recommended privatisation drive.

While routine IMF program review visits are standard, the timing of this visit—just seven weeks after board approval—has raised concerns. “This suggests significant difficulties in implementing the program,” said Naafey Sardar, an economics professor at St. Olaf College in the United States, speaking to Nikkei Asia.

Ikram ul Haq, a lawyer specializing in economic and tax policy, added, “The reality is that the government’s promises to the IMF have not been fulfilled.”

What were the key issues discussed?

The IMF raised the issue of the tax gap and urged action to ensure that Pakistan meets its annual tax collection target of $46 billion.

Islamabad was also asked to engage with Saudi Arabia and China, the largest investor, to bridge the external financing gap. Promised energy sector reforms and the repayment of billions of dollars of debt owed to mostly Chinese-backed power plants in Pakistan were also discussed.

Another issue was for the IMF to press provincial governments for more funds, such as the Benazir Income Support Programme, which provides a $2.1 billion annual cash transfer for poverty alleviation, currently paid for by the central government.

How does agricultural income tax fit into this picture?

As part of the loan agreement, Pakistan’s provinces missed an end-October deadline to harmonize their agricultural income tax laws with the federal income tax.

The IMF had previously said that Pakistan’s loan agreement would be in jeopardy if agricultural income remained largely untaxed. During the meetings, provincial government officials told the IMF that they would face significant difficulties in implementing a higher tax.

Economist Aqdas Afzal said such a move would face significant opposition from big landowners, who are disproportionately represented in the federal and provincial assemblies.

“Given the weak mandate of the current government, a higher agricultural income tax is unlikely as it could trigger major social and political unrest,” he added.

What assurances has the government given to the IMF?

Pakistan has assured the IMF that it will increase the provincial agricultural income tax rate by up to 45 percent. It has also pledged to meet annual tax collection targets and to continue reforms in the energy sector and state-owned enterprises.

“This is an ongoing dialogue process and there have been discussions [with the IMF] on energy and SOE reforms, the privatization agenda and public finance,” Pakistan’s Finance and Revenue Minister Muhammad Aurangzeb told local media.

Haq, a tax expert, said the government’s primary focus would be on meeting the six-month revenue collection target set by Pakistan’s Federal Board of Revenue, a government agency that regulates and collects taxes.

What are the challenges ahead for Pakistan’s loan agreement?

Meeting tough tax targets and implementing structural reforms are major hurdles for the government to overcome.

The IMF has previously cancelled other loan programmes when conditions were not met. Payments to Pakistan could be suspended or stopped altogether, which would be a serious blow to a country struggling with a sputtering economy.

The IMF is pressing for cuts in government spending.

“Structural reforms are being resisted by vested interests, making efforts to meet IMF conditions even more difficult,” Haq said.

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Australia, Japan, and the U.S. seek to institutionalize cooperation ahead of Trump’s arrival

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As Asia prepares for potential instability ahead of Donald Trump’s potential return to the White House, Australia, Japan, and the United States are taking significant steps to strengthen their strategic partnerships.

Before Trump’s anticipated inauguration in January, U.S. Defense Secretary Lloyd Austin is working to reinforce Washington’s network of like-minded allies cultivated during President Joe Biden’s administration to counter China’s growing influence in the Indo-Pacific region. Under Biden, the United States has deepened defense ties with regional players such as Japan, South Korea, and the Philippines to address China’s expansionist strategies.

Austin’s first stop on this mission was Australia, where he joined his Australian and Japanese counterparts to announce that Japanese soldiers would now participate in an annual rotation alongside U.S. Marines in Darwin.

“Recognizing the critical role of the trilateral partnership in maintaining regional stability, we are committed to trilateral policy coordination and consultation on regional security challenges and contingencies,” the three nations’ defense ministers stated in a joint announcement on Sunday, emphasizing concerns over China’s growing regional presence.

In their statement, the ministers highlighted their “grave concern” over “destabilizing actions” in the East and South China Seas, specifically referencing “dangerous behavior” by the Chinese military toward Philippine vessels and other maritime actors. They also underscored the importance of maintaining “peace and stability” in the Taiwan Strait as a key regional priority.

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