Editor’s note: Following unsuccessful peace talks between the U.S. and Iran in Islamabad, Farwa Aamer, Director of South Asia Initiatives, and Emma Chanlett-Avery, Director of Political-Security Affairs, explain how the conflict in the Middle East has dragged Asia’s middle powers into the fray—and how they are reacting.

State of Affairs: Pakistan Pushes for Peace

As the U.S.-Israel-Iran conflict escalated over the past weeks, the fallout reverberated around the world, exposing vulnerabilities and further fragmenting traditional alliances. Great power politics continued unabated, with the war introducing new dynamics: the much-anticipated Xi-Trump summit was postponed and the agenda re-shaped; the disruption to energy supplies and oil price volatility became a boon to energy exporting Russia and reduced attention to Ukraine; and U.S. military assets streamed from the Indo-Pacific theater to the Middle East. For middle powers, these shifts are defining. The conflict underscores a deepening rupture in the global order, compelling these countries to navigate an environment marked by both heightened urgency and profound uncertainty.

Amid this turbulence, an unexpected actor emerged: Pakistan. Leveraging its relationships with both United States and Iran, as well as broader regional ties, Islamabad positioned itself as a pivotal intermediary. Its mediation efforts culminated in a two-week truce announced on April 7. Although the subsequent “Islamabad Talks” failed to produce a durable agreement, there is speculation that U.S. and Iranian teams could return to Pakistan for another round of talks as early as the end of this week. For now, the ceasefire remains intact, even as Israeli strikes on Lebanon and the U.S.’ blockade of the Strait of Hormuz continue to test its limits.

Why It Matters: Crisis, Realignment, and Diplomatic Openings

President Trump’s war of choice imposed devastating consequences for the global economy with deep ramifications for Asia, which remains heavily dependent on Gulf energy flows through the Strait of Hormuz. In response, regional governments have introduced emergency measures to stabilize supply and manage price volatility. While these steps may blunt immediate disruptions, they also reveal deeper structural vulnerabilities tied to energy dependence and geopolitical chokepoints. More broadly, the crisis underscores the need for middle powers to work in concert to mitigate the impacts of a war many label as illegal under international law.

For these countries, the conflict is a stress test of both strategic doctrine and economic resilience. As the global order splinters, the space for hedging is narrowing and the costs of ambiguity are rising. Existing institutions, such as the Group of Seven, the United Nations Security Council, and the International Energy Agency, provided rapid coordination, including strategic oil reserve releases by key economies. These efforts demonstrate both the continued relevance of institutional frameworks and their limitations under sustained geopolitical strain, highlighted by the failure of the Quad to coordinate a response and mounting pressure on BRICS as the group remains divided over Iran.

Another consequence that middle powers may confront is the need to turn to China and Russia, the alternative hegemons in the region. If governments decide to invest more heavily in renewable energy to lessen dependence on Middle East oil and gas, China dominates the green energy technology sector with wind, solar, and battery products. Russia offers its own significant oil and gas reserves for export. The Iran crisis could stymy middle power efforts to avoid reliance on China and Russia, at the expense of U.S. influence.

National responses illustrate both adaptation and constraint. Japan emerged as a first mover in the international reaction to the war. In addition to the decision to release strategic petroleum reserves, Prime Minister Sanae Takaichi was the first foreign leader to meet with President Trump after hostilities began in the Middle East. Despite President Trump’s calls for allies to provide military assistance in the conflict, Takaichi successfully rebuffed his demands. Given Japan’s image as generally malleable to Trump’s pressure, this refusal provided a model for other allies—particularly NATO—to similarly decline offering assistance.

Within the Indo-Pacific, India’s response highlights the constraints of multi-alignment. With significant stakes in its relationships with both Israel and Iran, and the added strain of chairing BRICS at a critical moment, New Delhi has adopted a cautious, neutral stance. While this approach has somewhat helped insulate domestic economic interests, it also emphasizes the difficulty of reconciling competing strategic commitments in an increasingly polarized environment.

Meanwhile, middle power diplomacy has accelerated markedly. In 2026, Japan and South Korea have held in-person leaders’ level summits with Canada, Indonesia, the Philippines, Italy, and France. Main agenda items were supply chain resilience for critical minerals, defense industrial cooperation, and—as the U.S.-Israel war on Iran began—coordinating on global energy market stabilization. In his meetings, French President Macron advanced the need for countries to distance themselves from major powers and forge another path ahead together. As Canadian Prime Minister Carney addressed Australia’s Parliament, he called on Canberra to forge new alliances, saying “Canada and Australia cannot compel like the great powers, but we can convene, set the agenda, shape the rules, and organize and build capacity through coalitions to deliver results at speed and global scale.” While European and Canadian leaders more explicitly promoted a coordinated middle power strategy, Indo-Pacific partners such as Japan and Australia have emphasized diversification rather than outright distancing from great powers.

Taken together, these developments point to a deeper transformation in middle power diplomacy. Pakistan’s role in the crisis is illustrative not because it is anomalous, but because it reveals an emerging pathway for middle power influence. By positioning itself as a central intermediary while simultaneously coordinating with regional actors such as Saudi Arabia, Turkey, and Egypt, Pakistan operationalized networked agency. Its leverage did not derive from material dominance, but from its ability to connect, align, and mobilize a web of relationships that no single great power could fully replicate in that moment.

What to Watch

• The durability of the ceasefire—and the trajectory beyond the initial two-week horizon—will shape whether Asian and European governments move toward more assertive strategies to secure alternative energy supplies, either collectively or unilaterally. At stake is not only short-term market stability, but whether middle powers can translate crisis coordination into more durable mechanisms for managing energy security and geopolitical risk. In this sense, the conflict is a test of whether middle powers can coalesce into a functional bloc capable of stabilizing both markets and regional order. Critically, will these countries bypass antiquated global institutions that resist reform and instead shift toward more informal, national interest-driven coordination?

• The crisis may also accelerate the formation of new, more fluid security arrangements in response to gaps in U.S. security guarantees. The growing coordination among regional actors, particularly Saudi Arabia, Turkey, Egypt, and Pakistan, suggests the early contours of a more decentralized security architecture. It will be important to see how these countries institutionalize their cooperation for not only Middle Eastern stability but also the strategic options available to Asian middle powers navigating the region.

• Finally, observers should track whether the depth and breadth of the conflict drive countries toward other centers of power, particularly if the United States withdraws precipitously. Russia’s energy empire (already gaining from sanction waivers) could offer lifelines to starved economies, while China’s dominant renewable energy sector may provide building blocks for those governments rattled by their dangerous dependence on Middle East resources.

Dive Deeper With ASPI

• Read Farwa Aamer and Emma Chanlett-Avery’s report unpacking the broader state of middle power diplomacy amidst the fragmenting global order.

• Register for ASPI’s April 21 webinar assessing the forces driving hedging behavior, middle power partnerships worth watching, how effectively countries are exercising agency collectively, and what a more assertive middle power landscape means for the U.S.

• As the U.S. and China prepare for President Trump’s May visit to Beijing, check out Bryanna Entwistle’s op-ed arguing that anti-scam cooperation should be on the agenda.

Editors note: As the U.S. and Israel’s war with Iran enters its fifth week, the conflict has expanded well beyond its initial frontlines. Iran is conducting missile and drone strikes on Jordan and Saudi Arabia—both U.S. allies—and targeting American military facilities across the Gulf, including those in Qatar, Kuwait, the UAE, and Bahrain. Schwarzman Fellow Faye Simanjuntak explains why data centers are the target of some of these strikes and how the Gulf’s booming AI industry might be forced to adapt.

State of Affairs: Iran’s Infrastructure War

On March 31, the Iranian Revolutionary Guard Corps (IRGC) warned that 18 U.S. companies operating in the Gulf will be considered “legitimate targets” for their suspected support of American intelligence operations, communications technology, and artificial intelligence (AI). The statement specifically listed hyperscalers Microsoft, Google, Apple, Meta, and Oracle, which have recently invested heavily in the Middle East’s AI industry.

There is ample precedent of targeting civilian infrastructure suspected to play a role in military operations during warfare, but the conflict in Iran has shed light on a new vulnerability: data center infrastructure. Earlier this month, an Amazon Web Services (AWS) data center in the UAE was struck by an Iranian drone. Two more data centers—one in the UAE and one in Bahrain—were damaged the same afternoon. The combined damage on three data centers caused outages in various services across the region, including in banking and enterprise software systems. A week later, a U.S.-Israeli missile strike hit the digital security center of Sepah Bank in Tehran, which was targeted due to alleged ties between the bank and the Iranian military.

Coupled with the IRGC’s threat to American tech companies, these attacks cement a pattern shift in modern warfare, where data centers become both critical infrastructure and military targets, exposing vulnerabilities that the booming data center industry has yet to consider.

Why it Matters: The Gulf’s “New Oil” Under Threat

As hyperscalers expand their footprint across the globe, they are looking to build data centers in stable political environments with reliable energy and friendly regulations. They are also looking for places where they can build data centers close to users, known as low-latency environments, enabling firms to run services that require near-instant communication.

The Gulf checks most of these boxes and has thus become an increasingly popular place for tech firms to invest in infrastructure. Microsoft has committed $15.2 billion in the UAE between 2023 and 2029. AWS has pledged more than $5.3 billion to build a new data center in Saudi Arabia, while Oracle has invested $1.5 billion to boost the country’s cloud capacity. In May 2025, the first international deployment of OpenAI’s $500 billion Stargate project was announced: a major, specialized AI data center in Abu Dhabi that is expected to go live this year. According to OpenAI, the deal was developed in “close coordination” with the U.S. government and President Donald Trump.

Just as oil has defined the region’s economic leverage, data is emerging as a new strategic resource in the Gulf. But Iran’s explicit targeting of data centers has spotlighted the risks and vulnerabilities that accompany concentrating data centers in a given region.

The Data Sovereignty Complication

One of the vulnerabilities that the conflict has exposed relates to data sovereignty. When Iranian missiles struck AWS data centers in March, clients were advised to move their data and applications to other regions and reroute traffic away from the affected sites—a standard disaster recovery playbook. But that playbook collides with laws adopted by the Gulf Cooperation Council (GCC) states to localize sensitive public sector data. These laws require such data to be stored within state borders, limiting where companies can shift operations during a crisis.

For Gulf states, data localization was a strategic play toward sovereignty, but the conflict in the Middle East has made it clear that tying data to a specific location can concentrate risk rather than reduce it. It is now apparent that there is a fundamental mismatch between how hyperscalers manage global resilience and how states assert data sovereignty.

Frontlines of the U.S.-China AI Race

As American companies have flocked to support the Middle East’s AI boom, so have Chinese firms. But Saudi Arabia and the UAE have fully bet on American AI partnerships, cutting ties with Huawei in exchange for approvals to purchase the equivalent of up to 35,000 Nvidia Blackwell chips. Per White House demands, a deal between Microsoft and the UAE’s top AI company, G42, mandated that G42 phase out Huawei hardware and divest from Bytedance. Meanwhile, Saudi Arabia’s Humain pledged not to purchase Huawei equipment. Both companies also agreed to strict security protocols to prevent the diversion of chips to China.

G42, Humain, and their GCC hosts iced out Chinese investment as part of a strategic bet on the value of U.S. technology, but partnering with American companies now seems to be a liability: G42 is the only non-American company named by the IRGC as a potential target for retaliatory strikes. As they watch Iran target data centers and other AI infrastructure, Saudi Arabia, the UAE, and other Gulf states may consider diversifying the countries serving their computing needs.

Move or Adapt?

Existing Gulf infrastructure is unlikely to be abandoned in the near future, but the current conflict in the Middle East may lead the next wave of investments from major tech companies to shift to regions where security concerns are more predictable. Poland and other countries in Central Europe are becoming destinations for operators looking to move beyond the Gulf while capturing some of the Gulf market, as they provide the legal certainty of the EU with the ability to serve users in both Europe and parts of the Middle East. If these regions can fulfill other factors—including water access, power availability, and regulatory flexibility—they will become increasingly attractive destinations for investment.

However, it’s important to note that these are not ideal alternatives to hyperscalers with GCC-based infrastructure. Having in-region infrastructure provides low-latency usage for customers, and Central Europe might not necessarily catch that same market, it will only work as a resilience fallback. For hyperscalers operating in the Gulf, the most urgent task is figuring out the resiliency strategy that will both maintain corporate security and ensure long-term market capture in the region.

What to Watch

• Hyperscalers have two potential paths forward. First, these companies might strengthen their presence in the region to offer additional regional coverage as fallbacks in the case of geopolitical instability. This would require specific disaster recovery capabilities and perhaps deepen regional risk. Or, hyperscalers might shift investments into other, less unpredictable regions. It’s likely that these companies will fall somewhere in between to hedge their bets.

• Tech companies aren’t the only American firms targeted by the IRGC. Tesla, Boeing, JP Morgan, and several other American companies were named by the IRGC as potential retaliatory targets should more of Iran’s senior commanders be killed. In a statement, the IRGC advised employees to evacuate and to expect the destruction of infrastructure starting at 8pm local time on April 1st. Whether Iran follows through on these threats, and how these companies respond, will be critical to watch in the coming days.

• Beyond data centers, energy infrastructure has emerged as a deliberate target on both sides of the conflict. Iranian missiles struck the Ras Laffan liquefied natural gas facility in Qatar on March 18 and 19, while Israel retaliated by hitting Iran’s South Pars gas field the following day. President Trump has since threatened to destroy crucial energy infrastructure in Iran if the Strait of Hormuz is not reopened. As the conflict progresses, it’s likely that other forms of infrastructure may be drawn into Iran’s targeting strategy, undersea cables among them.

Dive Deeper with ASPI

• Read Farwa Aamer’s paper “AI Ambitions in a Thirsty Region: Water, Data Centers, and South Asia’s Digital Future.”

• Listen to Wendy Cutler, Danny Russel, and Rorry Daniels discuss how Xi Jinping is thinking about the conflict in the Middle East as he prepares to meet President Trump in Beijing.

• Watch Asia Society Trustees Vali Nasr and Hamid Biglari unpack the implications of the conflict between the U.S., Israel, and Iran for the future of nuclear diplomacy, the use of AI in warfare, and the stability of the Middle East.

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From March 4-12, China convened its largest annual political gathering—the “Two Sessions”, or Lianghui—bringing together the Chinese People’s Political Consultative Conference (CPPCC) and the National People’s Congress (NPC), China’s legislature.

On March 12, these two bodies adopted the 15th Five-Year Plan, which will serve as the blueprint for China’s economic and social development through 2030. While economic growth, technological self-sufficiency, and military strength usually dominate discussion during the Two Sessions, the 15th FYP includes important indicators on climate, energy, and the environment.

China’s climate policy is guided by its “dual carbon” goals to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060. Beijing has also pledged to reduce its carbon intensity by more than 65% from 2005 levels by the end of the decade, its Nationally Determined Contribution (NDC) under the Paris Agreement. In the 15th FYP, clean energy technologies continued to receive support, adaptation gained elevated importance, and Beijing announced an ambition to double non-fossil fuel energy. However, the new 17% carbon intensity target for 2030 fell short of expectations and will leave China short of its NDC commitments. At the same time, concerns over domestic competition in the clean energy sector persist.

These developments reflect a broader shift in Beijing’s climate strategy: away from top-down targets and towards using industrial policy and clean energy investment as primary levers for cutting emissions.

Why It Matters: Looser Targets, Bigger Bets, and an Urgency to Adapt

The most anticipated climate metric released with the 15th FYP was Beijing’s new goal to reduce carbon intensity (CO2 emissions per unit of GDP) by 17% between 2026 and 2030. While this might sound like a persistent commitment to decarbonization, it represents a step back from the 2021 FYP’s 18% planned reduction. Over the past five years, Beijing fell significantly short of that target, achieving only a 12.4% reduction in carbon emissions, though officials claimed a 17.7% drop by revising how the figure is calculated. This lack of progress, combined with the 15th FYP’s even lower target, reflects China’s weakening commitement to one of its core Paris Agreement pledges due by 2030.

While the 15th FYP signals a shift toward capping China's total carbon emissions, it stops short of setting any binding targets. Without hard numbers, emissions could climb back up ahead of China's 2030 peak deadline, even after two years of flattening or modest declines. Instead of imposing the stringent, legally enforceable limits on coal and fossil fuels needed to cap emissions, China is choosing to prioritize immediate economic stability and energy security. The underlying strategy is clear: Beijing is betting that its rapidly expanding clean energy and cleantech industries will outpace fossil fuels over time.

Rather than adopting aggressive emissions reduction goals, the 15th FYP introduces an action plan to “double non-fossil energy” over the next decade—though it fails to specify a baseline year for this. Depending on how it is interpreted, this new plan could far exceed China’s current commitment to achieve a 25% non-fossil energy share by 2030, but its success hinges on Beijing’s ability to scale up massive “clean energy bases” to integrate solar, wind, and hydropower throughout the country. China’s existing Paris Agreement target calls for 3,600 GW of combined solar and wind capacity by 2035, which would mean adding approximately 200GW of capacity each year. But with energy demand rising rapidly, staying on track with the broader energy transition may require an even more ambitious pace of around 300GW annually.

Climate change mitigation aside, the 15th FYP also contains increased emphasis on adaptation. The plan states that China will “persist in attaching equal importance to mitigation and adaptation,” while also calling for improvements to the national climate adaptation system, stronger risk assessments for vulnerable sectors and regions, and greater capacity to respond to extreme weather.

While adaptation has appeared in earlier Five-Year Plans, the 15th FYP marks a notable shift by explicitly placing adaptation on equal footing with mitigation and enshrines language from the National Climate Change Adaptation Strategy 2035, adopted in 2022. The plan’s focus on risk assessments, vulnerable sectors, and extreme weather preparedness suggests adaptation is increasingly being integrated into mainstream policy planning rather than treated as a narrow environmental issue. The inclusion of adaptation in the 15th FYP builds on earlier signals in China’s latest NDC, announced by President Xi Jinping via video at the United Nations Climate Summit last September, where he emphasized China’s ambition to “establish a climate adaptive society.”

What to Watch: Policy vs. Progress

• While the 15th FYP outlines the overall strategic direction for China’s climate and clean energy goals, real operational details will emerge from sectoral plans released by National Energy Administration and other ministries later in 2026 and into 2027. These documents will cover electricity, renewable energy, and the coal industry, and are expected to spell out how China implements its long-awaited shift from capping total energy consumption to a “dual control” system focused strictly on carbon emissions and intensity. In addition to explaining how emissions caps will be introduced, these next set of documents will outline concrete policy support technologies like smart microgrids and vehicle-to-grid technologies, which are crucial for managing the intermittency of wind and solar power. Perhaps most consequentially, the sectoral plans will also provide a more definitive answer on the fate of fossil fuels in the near-term and how long it will remain an anchor for China’s energy security.

• After a punishing 2025 marked by droughts, extreme heat, and floods, China can expect more significant human and economic losses from climate disasters in the year ahead. This reality makes the urgency of strengthening adaptation measures increasingly difficult to ignore, and it’s worth paying attention to see if further measures scale up existing efforts. China’s National Climate Change Adaptation Strategy 2035 outlined a comprehensive and proactive approach to building resilience amid enduring climate impacts in 2022. Now, how Beijing implements these ideas and integrates them into policy documents—particularly in protecting critical infrastructure, agriculture, and water resources—will signal whether adaptation has become a higher policy priority.

• While the headline figures are important, paying attention to how climate translates into other sectors like trade is equally significant. China retains global dominance across clean energy technologies, accounting for roughly 80% of global solar PV production and more than 70% of wind turbine and electric vehicle battery manufacturing. That said, the industry is not immune to shocks. The 15th FYP emphasizes the need to manage the downsides of hyper competition, including relentless price wars and over-investment in certain segments. It also de-emphasizes saturated clean tech sectors like solar and EVs while highlighting new, frontier ones like batteries and green fuels. Still, while tracking new sectors that China is investing in, the rest of the world should expect to see continued waves of cost-competitive Chinese solar panels, wind turbines, and electric vehicles.

Dive Deeper with ASPI:

• Watch ASPI’s Kate Logan chat with the Centre for Research on Energy and Clean Air about China’s 15th Five-Year Plan.

• Read our Center for China Analysis’ analysis of the Two Sessions, in which five experts cover political signals, personnel changes, defense posture, economic targets, five-year planning priorities, and climate commitments.

• Read Neil Thomas and Guoguang Wu’s recent report, The Evolving Politics of Climate Change in China.

State of Affairs: SCOTUS IEEPA Ruling Creates New Uncertainty

On February 20, 2026, the U.S. Supreme Court ruled 6-3 that the International Emergency Economic Powers Act (IEEPA) does not authorize the Trump administration to impose tariffs. It was a significant legal setback for one of the administration’s most flexible trade tools, but not a broader retreat from tariffs. Within hours, President Trump announced a 10% global tariff under Section 122 of the Trade Act of 1974 as a 150-day stopgap. Treasury Secretary Scott Bessent framed the move as a short-term bridge while the administration pursues new Section 232 and 301 actions to restore tariff levels to where they stood before the ruling.

Across Asia, the initial response has been cautious and pragmatic. Rather than treating the ruling as a turning point, governments are reassessing timing, preserving flexibility, and avoiding new commitments. India’s Commerce Minister Piyush Goyal called it “an evolving situation,” adding that India’s interim framework agreement with the U.S. includes a provision ensuring rebalancing should circumstances change. Malaysia’s Prime Minister Anwar Ibrahim said his government would not “make any hasty decisions.” Meanwhile, Thailand convened an urgent meeting to map out strategy for the Section 122 window, warning that “uncertainty is very high” and exporters need clarity.

For Asia’s export-dependent economies, the question is now what replaces IEEPA as the backbone of President Trump’s trade offensive.

Why It Matters: Asia’s Trade Deals Are Now in Limbo

Of all regions, Asian trading partners have arguably been the most proactive and responsive since President Trump announced his sweeping tariffs on “Liberation Day.” This kicked off a race to negotiate trade agreements with Washington, and, in recent months, ten Asian countries reached arrangements to reduce their exposure to IEEPA and other tariffs. These deals have taken different forms, including detailed Agreements on Reciprocal Trade (ARTs) signed by Indonesia, Malaysia, Cambodia, Taiwan, and Bangladesh; broader frameworks built around investment commitments with Japan and Korea; and preliminary frameworks with countries like Vietnam, Thailand, and India that have yet to finalize formal agreements with the U.S.

For trading partners that already reached deals, the immediate priority post-IEEPA is preserving gains rather than renegotiating. Much of that reflects the fact that their most important concessions were secured under Section 232, not IEEPA, and therefore remain intact. Tariff relief for Japan’s $58 billion and Korea’s $52 billion in automotive exports were not impacted, and neither was Taiwan’s Section 232 relief on auto parts and lumber, along with preferential treatment for semiconductor firms investing in U.S. production. As South Korean President Lee Jae Myung put it, “These are promises made between the U.S. president and me, so we will steadily move forward.”

Southeast Asian partners face more uncertainty. Malaysia and Cambodia’s ARTs offered only assurances their deals would be “considered” in future Section 232 actions, leaving them exposed. More than half of U.S.-bound exports from major ASEAN economies are in sectors already under Section 232 tariffs or active investigation. Countries are responding to this in a variety of ways. Cambodia has said it will move ahead with ratification of its trade agreement with the U.S, while Malaysia appears more cautious. Indonesia’s situation is more complicated: its ART included IEEPA-based carve-outs covering nearly 10% of its U.S. exports—concessions now in question.

For countries still negotiating—including India, Vietnam, Thailand and the Philippines—the ruling has created less incentive to move quickly and more reason to wait and see how future U.S. actions unfold. We have already seen India delay a planned delegation to Washington.

China remains Asia’s biggest wildcard. The ruling eliminated both China’s baseline reciprocal tariffs and fentanyl-related IEEPA tariffs, though Section 301 tariffs remain in place. This lowered the U.S. average weighted tariff on Chinese imports from 36.8% to 26.9%. China’s response was measured but pointed, calling on the U.S. to cancel all unilateral tariff measures. With President Trump expected to visit China in April, the administration may be reluctant to take trade actions that could complicate the summit.

What to Watch: New U.S. Tariff Impositions and Non-U.S. Trade Integration

• Can deals be finalized and implemented? The most immediate question is whether and on what terms trade arrangements move forward and enter into force. Finalization is only the first hurdle. Countries that signed ARTs have taken on extensive commitments touching on sensitive domestic concerns. Whether governments can deliver on these commitments—and how the administration responds if they fall short—will be critical in the months ahead.

• What new tariffs will hit Asia hardest? Section 122 expires July 24, and the administration has indicated it will use that window to put more durable measures in place under Sections 301 and 232. For Asian governments, the question is which sectors are most exposed. Semiconductors stand out as a major concern, but pharmaceuticals, critical minerals, and industrial machinery, and other sectors face active Section 232 investigations. Meanwhile, the Office of the U.S. Trade Representative has signaled that there may be broad-based Section 301 probes targeting issues like agricultural subsidies, digital taxation, and industrial overcapacity. Such an approach could sweep in multiple Asian economies at once.

• What will the April Trump-Xi summit deliver? A comprehensive trade deal between the U.S. and China is unlikely, but Asian partners will be watching for signals about where the bilateral relationship is headed whether through tariff adjustments, investment, Chinese purchases of U.S. goods, or export control arrangements. Any terms that bring China’s tariff rates closer to those offered to other Asian partners could undercut the competitive advantages those countries have worked to secure.

• Will Asian economies accelerate diversification? The IEEPA saga has reinforced what many Asian policymakers already believed: dependence on the U.S. market carries structural vulnerability. The response is already visible. Since late 2024, 13 trade agreements involving Asian economies have been signed or entered into force, the majority with partners outside the region. Indonesia reached deals with the EU and Canada and, along with the Philippines, moved to join the CPTPP. Malaysia signed an FTA with South Korea and Thailand is targeting new agreements with South Korea, the EU, and Canada this year. CPTPP members have also launched trade and investment dialogues with both the EU and ASEAN. India, too, has been expanding its trade options, concluding FTAs with the UK, Oman, and New Zealand in 2025 and signing a landmark EU trade deal in January of 2026. If Trump’s new tariff regime proves as aggressive as threatened, 2026 could see meaningful acceleration in non-U.S. trade integration.

Dive Deeper with ASPI

• Read Wendy Cutler’s op-ed for Nikkei Asia “Trump and Xi Must Deliver More Than Optics at April Trade Summit.”

• Check out Jane Mellsop’s analysis for how like-minded countries across Asia can preserve and enhance the rules-based trading system through plurilateral arrangements.

• Read Shay Wester’s op-ed for the Straits Times, “Court Rebuke Won’t End Tariffs Threat. Trump Has Fallbacks”, published prior to the IEEPA ruling.

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Editor’s Note: From February 16-20, leaders from around the world will convene in New Delhi to discuss AI innovation and adoption at the 2026 AI Impact Summit. It is the biggest international gathering on AI yet: the Indian government is expecting 250,000 visitors, including 20 national leaders and 45-ministerial-level delegations. Corporate leaders in attendance will include Bill Gates, Alphabet Inc’s Sundar Pichai, Anthropic’s Dario Amodei, and OpenAI’s Sam Altman. Faye Simanjuntak, Schwarzman Fellow at ASPI, explains what we can expect from the gathering.

State of Affairs: The World Heads to New Delhi

The 2026 AI Impact Summit is taking place as countries across the world are attempting to determine the best balance between establishing AI regulation and encouraging innovation. Currently, there are only two binding AI regulations that have taken effect globally. Of these, only one is from Asia: South’s Korea’s AI Basic Act, which was adopted in January of 2026. Most countries remain in consultation phases for their own AI regulations, with voluntary frameworks—or non-binding legislation, such as the AI Promotion Act in Japan—guiding AI adoption and development.

This year’s summit is the first to be held in the Global South, following the 2023 AI Safety Summit in Bletchley Park, 2024 AI Summit in Seoul, and 2025 AI Action Summit in Paris. Like previous summits, the gathering in New Delhi is not expected to result in a joint binding political agreement, though, at the end, the Indian government plans to release a declaration on goals for AI development in the form of a “Delhi Statement".

As the host country, India has structured the Summit around three thematic sutras: people, planet, and progress. Seven chakras will guide the focus of working groups: human capital, inclusion, safe and trusted AI, resilience, science, democratizing AI resources, and social good. These themes mark a clear evolution from those of earlier summits, focusing on development and deployment instead of model safety.

While safety concerns remain relevant, many countries in Asia are now focused on practical questions such as how AI can support digital public infrastructure (DPI), how governments can ensure local cultural representation in models, and how small businesses and firms can access compute without deepening dependency on foreign providers. The AI Impact Summit’s guiding sutras suggest that conversations in New Delhi will focus on questions like these about how AI will be applied rather than developed.

Why it Matters: Advancing Fair and Trusted AI Deployment

The Pursuit of Equitable AI Adoption

According to research from Microsoft, AI adoption across the Global North has grown almost twice as fast as in the Global South, even though the latter compromises most of the world’s population and workforce. The thematic focus and working groups of the AI Impact Summit reflect India’s endeavour to balance out AI norms with global geopolitical realities, prioritizing deployment, digital public infrastructure integration, and conditional access to models, as opposed to top-down approaches that disproportionately benefit wealthier countries. With these priorities, India promotes a model of strategic interdependence that tempers asymmetries in technological power.

The release of DeepSeek, an open-source model from China, in early 2025 is testament to how non-Western approaches to AI are starting to shape the narrative of AI adoption. Between affordability and flexible deployment, DeepSeek saw higher adoption rates throughout markets that are underserved by Western AI platforms.

DeepSeek’s release did sharpen perceptions that the race for AI leadership is largely between China and the U.S., but the AI Impact Summit’s framing signals a growing rejection of choosing between two superpower-led visions for AI. Similarly, many emerging economies are increasingly recognizing that owning the entire AI stack—part of the buzzy new goal of sovereign AI—is not feasible. Instead, they are pivoting toward strategic interdependence: selectively developing domestic capabilities while partnering internationally where it makes economic and technological sense. This shift will become evident at the AI Impact Summit, as policymakers seek out diversified partnerships, localized capacity-building, greater control over data, and shared standard-setting processes.

Developing Approaches to Trust & Safety

One of the barriers to equitable AI adoption is the limited clarity around what constitutes safety and trust in AI ecosystems. This challenge will be the focus of one of the sutra-guided working groups in New Delhi.

ASPI recently identified seven recurring factors that shape how governments across Asia define trust and safety in existing AI policy documents: trusted datasets, adequate infrastructure, skills and awareness, supply chain stability, ethical development, regulatory accountability, and institutional risk mitigation.

These seven factors may be viewed as risks, opportunities, or both by governments with differing levels of AI maturity and strategic ambition. For emerging AI economies, gaps in infrastructure, datasets, or skills represent immediate constraints, but also clear areas for targeted investment and international cooperation. For more advanced ecosystems, questions of regulatory accountability, supply chain security, and institutional risk mitigation are increasingly tied to competitiveness and national security.

At the AI Impact Summit and beyond, those focused on expanding AI trust and safety in Asia should consider ASPI’s following findings:

• Countries are already leveraging existing strengths—compute, talent, minerals, industry, or governance frameworks—to secure their position in the AI value chain. This creates both competition and interdependence, highlighting the need for interoperability and rapid, equitable AI adoption to avoid deepening digital divides.

• Asian countries need frameworks that both mitigate risks and enable innovation. Effective governance must align with international ethical standards, protect data and rights, and provide mechanisms for accountability.

• Trust is a central pillar of AI strategies across Asia. Governments consistently emphasize safe, human-centric, and trustworthy AI as prerequisites for adoption and long-term ecosystem development.

• AI is widely viewed as foundational to economic growth, but workforce and capacity gaps are slowing adoption in parts of Asia, increasing technological dependence and widening regional disparities.

• Governments are highly alert to AI-driven societal harms and cybersecurity threats. This has led to targeted legislation (e.g., election safeguards) and broader ethics-based regulatory frameworks.

What to Watch

• The AI Impact Summit will serve as a platform to see whether global AI governance will evolve towards a more development-centric framework that reflects the priorities not just of developing economies, but of the Global South as well. The leaders declaration released at the end of the Summit, the “Delhi Statement”, will reflect the conclusions of working groups as to how to achieve this.

• With a guest list of high-profile AI executives, and an increasing interest of expanding operations into APAC, it’ll be no surprise if compute deals emerge from the Summit. It will give India, in particular, the opportunity to pitch itself as a key growth market for AI. It has drawn over $50 billion in fresh investments from Amazon and Microsoft, and Prime Minister Modi will seek to capitalize on this momentum.

• AI cooperation is increasingly intertwined with geopolitics, and it is newsworthy that a Chinese delegation is set to attend the Summit, the latest sign of improving ties between Beijing and New Delhi. Watch for bilateral meetings between these two powers on the sidelines—as well as those between the U.S. and India—and whether they produce cooperation initiatives, joint statements, or frameworks on shared priorities.

Dive Deeper With ASPI

• Listen to or watch our recent episode of Asia Inside Out with Dr. Leslie Teo, Senior Director of AI Products at AI Singapore. He explains the importance of localized large language models and open-source data to equitable AI adoption across Southeast Asia.

• Read Faye Simanjuntak’s op-ed “Malaysia’s Gamble: Turning Data Centres Into Industrial Power”, in which she argues that there is a tension between Malaysia’s National AI Roadmap and the industrial reality taking shape.

• Read Arun Polcumpally’s summary of an official pre-summit roundtable hosted by ASPI “Utilizing Digital Public Infrastructure (DPI) as Techno-Legal Solutions for AI Governance”

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Editor’s Introduction: Hi there. In today’s issue of Asia Policy Brief, ASPI’s Director of South Asia Initiatives Farwa Aamer assesses what lies ahead for upcoming elections in Asia, particularly in Thailand, Japan, Bangladesh, and Nepal. Can electoral politics deliver political legitimacy and rebuild public trust in leadership?

State of Affairs: Bangladesh, Thailand, Nepal, and Japan head to the Polls

With the start of 2026, another election season is unfolding across Asia. Following polls held in Myanmar last month, voters in Bangladesh, Thailand, and Japan are scheduled to go to the ballot box in February, with Nepal set to follow in March.

• Thailand’s February 8 election constitutes a significant test for Prime Minister Anutin Charnvirakul and his Bhumjaithai Party (BJT). The vote is closely tied to his efforts to preserve incumbency amid what appears to be a growing desire for political reform among the nation’s youth.

• In Japan, Prime Minister Sanae Takaichi, riding early momentum in office, is hoping the snap election will give both her leadership and the Liberal Democratic Party (LDP) a stronger mandate.

• Bangladesh’s February 12 polls will be the country’s first national election since the mass student uprising of 2024 that removed Sheikh Hasina from power.

• Finally, Nepal’s March election follows a Gen Z–led movement that toppled the previous leadership, driven by frustration over rising economic inequalities and a social media ban.

Together, these elections will be a measure of whether electoral politics can still deliver legitimacy, surmount deep structural barriers, and rebuild public trust in leadership.

Why It Matters: Instability and Demands for Change

Thailand

2025 was yet another tumultuous year in Thai politics, when Anutin Charnvirakul took office after his predecessor, Paetongtarn Shinawatra, was ousted over her handling of the border war with Cambodia. An unlikely coalition between Anutin’s conservative BJT and the progressive People’s Party (PP) cleared the way for Anutin’s victory, and BJT committed to calling a general election within four months and to initiating a process to amend the constitution. However, as the PP grew frustrated by what it perceived as Anutin’s limited willingness to follow through on these commitments, it threatened to bring a no-confidence motion. In response, Anutin moved to dissolve the parliament and call the election in February, presenting the decision as an effort to “return power to the people.”

The stakes in the upcoming election are high. Voters will not only choose among political parties but will also decide in a referendum whether Thailand should adopt a new constitution, with the outcome shaping the next steps in the reform process.

Anutin enters the race with the advantages of incumbency and has benefited from heightened nationalist sentiment following the Thailand–Cambodia border conflict. However, voters may prioritize domestic needs and political change, giving the progressive PP the upper hand. The PP—which won the popular vote in 2023, yet was blocked from forming a government by the military elite—is leading in pre-election polling, setting the stage for what could be an enormous and durable shift in Thai politics.

Japan

Japan is heading into a snap election, just three months into Takaichi’s tenure, to fill all 465 seats in the House of Representatives. The race features the LDP, the Japan Innovation Party in coalition with the LDP, and the main opposition Constitutional Democratic Party now partnered with long-time LDP partner Komeito, among others. With the LDP polling relatively well, a solid victory would strengthen Takaichi’s leadership and reinforce the party’s hold on power.

Takaichi has gained support through a series of high-profile moves, including outreach to President Trump, backing a larger defense budget, and adopting a firmer nationalist stance toward China, notably in her comments on Taiwan. These positions have appealed to voters seeking a more assertive leadership style.

Still, economic concerns dominate the campaign. Rising living costs, housing affordability, and inflation weigh heavily on voters, alongside growing unease over the perceived impact of foreign residents and tourists. Younger voters have shown support for the snap election, but the outcome will ultimately test whether they and the broader electorate are ready to place their long-term confidence in Takaichi and an LDP still seen by some as a party of the old guard.

Bangladesh

The elections in Bangladesh will function as a test of whether Dhaka can restore political legitimacy and meaningfully address the demands of a new, proactive generation through democratic means. While polarization has long defined Bangladeshi politics, the current phase is marked by the prominence of a new political actor: the youth. In July 2024, the student-led protests erupted against a public sector job quota system but conveyed a much larger frustration with economic precarity, limited social mobility, and the concentration of power among entrenched political elites.

As the election approaches, voters are being asked to make two interconnected choices. Alongside selecting a new government, the country will effectively pass judgment on the July National Charter, a reform framework proposed by Dr. Muhammad Yunus’ interim government and endorsed by 25 political parties, designed to enhance constraints on executive power and improve accountability. A broad public mandate could lend momentum to reform; its rejection would leave the agenda entirely in the hands of the next government, with uncertain implications.

With the Awami League barred from contesting, the Bangladesh Nationalist Party enters the race as the most established contender. At the same time, the election is no longer structured around the historical two-party dominance. The student-led National Citizens Party is contesting the election in coalition with Jamaat-e-Islami, which leads a broader alliance including the Bangladesh Labour Party and the Liberal Democratic Party. A strong showing would mark a significant re-entry into mainstream politics after years of marginalization under Hasina’s rule. Yet the risk of renewed instability and post-election protests remain. The Awami League has warned that elections conducted without the party’s participation will face resistance.

Nepal

Years of corruption, ineffective decision-making, and entrenched elites have reinforced perceptions in Nepal that meaningful reform is difficult to achieve. Initial grievances over socio-economic inequality and shrinking opportunities for the country’s growing youth population escalated following former Prime Minister K.P. Sharma Oli’s social media restrictions last September, which were widely perceived as suppressing dissent. The resulting “Gen Z” movement protests quickly expanded beyond specific policy disputes, signaling a generational demand for broader political change. This mobilization played a key role in ending Oli’s tenure and paved the way for Nepal’s first interim female prime minister, Sushila Karki.

Yet nearly five months later, structural challenges remain, economic opportunities are limited, and citizens feel that leadership is still distant from pressing societal concerns. The gap between formal governance structures and public expectations highlights the difficulty of translating political turnover into tangible change.

The March 5 election underscores both the vibrancy and complexity of Nepal’s political arena. With 3,484 candidates from 68 parties, including independents, the contest is highly fragmented. At the same time, four former prime ministers are seeking office again, suggesting that while the political stage is open to new participants, established figures continue to hold significant sway. The election will test whether Nepal can move beyond cyclical instability to achieve meaningful institutional and policy reform or whether familiar patterns of governance and elite dominance will persist under new leadership.

What to Watch: Stakes and Signals

Beyond outcomes across these elections, watch how new or returning leaders translate mandates into reforms. Their ability to address youth aspirations and respond to public demands in the first months will signal whether these elections can retune the political ideology and strengthen democratic legitimacy or will yet again reinforce old patterns.

Leadership transitions will also have important implications beyond domestic politics. In Thailand, attention will focus on how the incoming government navigates the border tensions with Cambodia. A nationalist or uncompromising stance could strain relations with the United States, which has invested in maintaining the ceasefire. In Bangladesh, the new government’s relationship with India will be critical to watch, as New Delhi is looking for a reset in bilateral ties. Equally important will be Dhaka’s posture toward China and Pakistan, balancing economic and strategic partnerships in a complex regional landscape. How the new government manages these regional and economic partnerships will have a direct impact on Nepal’s development and ability to navigate political leverage.

Dive Deeper with ASPI

• Join us on February 19 for a webinar on “Bangladesh After the Vote: Democracy, Reform, and Foreign Policy Outlook,” moderated by Farwa Aamer.

• Watch Farwa Aamer in conversation with Shah Rafayat Chowdhary, Tanuja Pandey, and Krystle Reid Wijesuriya on “South Asia’s Youth Moment: A New Generation Rewriting the Region’s Politics and Shared Future.”

• Watch Emma Chanlett-Avery in conversation with Mireya Solis and Keiko Iizuka on “Unchartered Territory: The Japan-U.S. Alliance Navigates New Challenges.”

• Follow “The Ballot Box: Why Elections Matter for Asia” for timely updates, in-depth insights, and expert analysis on elections and political transitions across Asia. ASPI’s latest Country Election Brief features Dr. Hunter Marston on how “Military Elections Will Not Resolve Myanmar’s Deeper Problems.”

Editor’s Introduction: Hi there. In today’s issue of Asia Policy Brief, Rorry Daniels, Managing Director of ASPI; Farwa Aamer, Director of South Asia Initiatives; and Emma Chanlett-Avery, Director of Political-Security Affairs, unpack what President Trump’s first year back in office can tell us about the direction of his Indo-Pacific strategy in 2026.

State of Affairs: A New Approach

The first year of President Trump’s second term saw global market volatility, strained ties with allies and partners, and heavy use of presidential authority. The 2025 U.S. National Security Strategy calls for a readjustment of U.S. military presence to focus on combating drug trafficking in the Western Hemisphere, while urging allies in the Indo-Pacific and Asia to increase their contributions to deterrence burden-sharing in their respective regions. The document also no longer identifies China as the U.S.’ foremost strategic competitor. Shortly after the release of the latest NSS, the White House announced the U.S.’ withdrawal from 66 international organizations.

As the first year of Trump’s second term comes to a tumultuous end with unprecedented U.S. military intervention in Venezuela and threats against Greenland, the most important question facing the United States and its global partners is not what Trump has accomplished thus far—it is whether 2026 will mark a permanent shift in the nature of U.S. strategy and leadership in its 250^th year of independence. ASPI’s security and diplomacy experts focus on what Trump’s strategy in the Indo-Pacific will look like in the coming year.

What It Matters: Implications for the Indo-Pacific Region

Evolution of Great Power Competition – Rorry Daniels

The first year of the second Trump administration built on the tenets of his first term—power is fungible across the economy, military, and political sectors; is meant to be wielded by strong leaders; and ought to be aggressively used to advance the national priorities identified by the president. However, while the first Trump term was characterized by direct confrontation with the other great powers, the emerging modus operandi of the second term is to seek deals with the other major powers while pursuing U.S. power projection in situations where other big powers are unlikely to intervene.

The bombing of Iran’s nuclear sites, the targeting of ships in South America and the subsequent takeover of Venezuela, threats to Greenland’s sovereignty, and other recent maneuvers all seem to lay within the threshold of tolerance by the international community.

Meanwhile, major power diplomacy is on the rise, particularly between the U.S. and China but also with Russia, the EU, and India. Despite tariff escalation and economic security restrictions levied or threatened against each of these large powers, the Trump administration has maintained open lines of communication on their respective priorities and red lines. For example, Taiwan has not engendered special treatment despite the unique history of the unofficial relationship and escalating concerns of a hostile takeover. On the contrary, the Trump administration paused transit visits for Taiwan’s leader; concluded a trade deal with Taipei months after other important U.S. partners in Asia; and reportedly called for Japan’s Prime Minister to temper comments on Tokyo’s interests in Taiwan’s defense after taking a call with Xi Jinping. President Trump seems to be prioritizing a deal with Beijing over traditional U.S. policy interests in the cross-Taiwan Strait status quo.

While this administration has no issues confronting major powers on economic matters, it has carefully chosen its security, political and military targets to avoid direct confrontation. The rules-based order, if not over, is at least on hiatus. What remains to be seen is whether the Trump administration can continue calibrating against non-intervention in U.S. affairs when the U.S.’ own intervention is flinging farther and farther afield.

Economic Coercion and Leverage-Driven Diplomacy – Farwa Aamer

Even before President Trump returned to the White House, he signaled his ambition of ending the Russia-Ukraine war within 24 hours of taking office, casting himself as a peacemaker whose legacy would rest on resolving global conflicts and restoring America’s status as “the most powerful and most respected nation on earth.” While the Ukraine pledge remains unmet, the administration has highlighted successful U.S. mediation in eight global disputes—from India-Pakistan and Iran-Israel to the DRC-Rwanda and Thailand-Cambodia—in its 2025 NSS.

Among these, the India-Pakistan episode offers an important window into the tensions inherent in President Trump’s evolving mediation strategy. While Washington portrayed its intervention as decisive action that prevented potential nuclear escalation, India publicly dismissed this account. Meanwhile, Pakistan, keen to recast its position with Washington, embraced the narrative and even nominated President Trump for the Nobel Peace Prize. The result was a narrative gap that strained U.S.-India ties already under pressure from tariff threats and an unresolved trade deal.

But the friction has not stopped there: India has also absorbed the broader shockwaves of President Trump’s leverage-driven diplomacy. As the Trump administration poured greater political capital into the Ukraine conflict, New Delhi’s continued purchase of discounted Russian oil has drawn sharpened U.S. criticism. The imposition of additional punitive tariffs has only compounded the strain, resulting in a quick reversal for a bilateral relationship that had appeared on a high trajectory earlier in 2025. This reflects a broader paradox: President Trump’s efforts to assert U.S. influence in conflict zones risks alienating partners indispensable to Washington’s long-term Indo-Pacific strategy.

The administration’s heavy reliance on economic coercion in ending global conflicts has created a more transactional climate around conflict diplomacy. And If 2025 is any indication, U.S. mediation efforts in 2026 could lean even more on calibrated threats tied to trade, investment, and technology access.

Multilateralism Sans Washington: Middle Power Diplomacy – Emma Chanlett-Avery

The Trump administration’s contempt for global cooperation is not new, nor is its skepticism of the value of security alliances, but those instincts accelerated early in 2026. The operation in Venezuela, which put an emphatic stamp on the Trump administration’s intention to prioritize the Western Hemisphere in its foreign policy agenda, was swiftly followed by the U.S. government withdrawal from 66 international organizations. Despite a presidential tour of Asia in October that resulted in several trade and critical mineral deals, Asian allies remain unsettled as they adjust to Trump’s renewed America First approach. Japan and South Korea, particularly, have been battered by tariff negotiations and expectations that they invest billions in the United States. The public silence from the White House after Takaichi’s spoke of Japan’s obligation to come to Taiwan’s defense further reinforced the sense that U.S. alliance commitments are unreliable.

Fueled by this fear, middle powers in Asia have reached out to each other to improve their security, drive trade and economic growth, and salvage multilateral institutions that promote global norms and rules. Bilateral meetings among Japan, India, Australia, and South Korea’ leaders have flourished, as well as outreach to European countries. Security cooperation has strengthened: Japan has signed visiting forces agreements with the Philippines and acquisition pacts with India; South Korean defense and technology deals with European and ASEAN partners have expanded; and Indonesia and Australia have upgraded their economic partnership and championed ASEAN centrality. Economically, many middle powers are setting the agenda for regional trade flows through pacts such as the CPTPP and RCEP. Meanwhile, multilateral groupings like the Quad, the G7, the G20, and NATO’s Indo-Pacific 4 provide further venues for middle power cooperation even if the United States retreats.

What to Watch: Is the Shift Permanent?

• The U.S.-China relationship has oscillated so wildly in 2025 that it’s difficult to assess the durability of the agreement reached in Busan, much less the long-term implications for the relationship. The second Trump administration now has a roadmap of sorts for conducting diplomacy with China, including a list of priority areas, a timeline of key deliverables, and a structure for negotiation that mirrors past practice (though with a much narrower brief). Is this a “New Type of Major Power Relations,” and if so, what type? What are both sides’ expectations on the scope of diplomacy moving forward? How will Beijing exert its influence and fill the gap as Washington retreats from multilateralism?

• Will U.S. allies and other regional powers abandon the hub-and-spoke approach to Indo-Pacific security and deepen defense cooperation without U.S. facilitation? Will this cooperation provide sufficient deterrence to prevent regional powers from pursuing autonomous defenses, including nuclear breakouts?

• Can peace settlements achieved through economic pressure mature into durable political agreements, or will they remain fragile ceasefires crafted to minimize friction with Washington? Whether parties move toward institutionalized conflict-management mechanisms will be a key indicator of lasting U.S. impact. Also, the administration’s fusion of conflict mediation with resource-security objectives bears close watching as it could very well define the new age of U.S. foreign policy and partnerships.

Dive Deeper with ASPI:

• Join us in New York City on January 27 for an in-person program on “Unchartered Territory: The Japan-U.S. Alliance Navigates New Challenges,” featuring an expert panel discussion moderated by Emma Chanlett-Avery.

• Read Lyle Morris’ recent op-ed for Channel News Asia, “China’s Foreign Policy Calculus Goes Beyond the Current White House Occupant.”

• Read Farwa Aamer’s analysis of Washington’s strategic opportunity to link the Quad Critical Minerals Initiative and Pax Silica.

• Listen to a recent episode of Asia Inside Out with former chief U.S. negotiator for the Paris Climate Agreement, Todd Stern, in which he unpacks the shifting geopolitics of climate diplomacy following the U.S.’ withdrawal from the Paris Accords.

Editor’s Introduction: Hi there, and Happy New Year! In today’s issue of Asia Policy Brief, ASPI’s Director of Trade, Investment, and Economic Security Jane Mellsop assesses Trump’s tariff actions in 2025 and looks ahead to implications for 2026, a midterm election year for the United States.

State of Affairs: Tariffs Begin to Move Off Autopilot

In many respects, 2025 was the year of the tariff. Between new ‘reciprocal’ tariffs, sectoral tariffs, and tariffs imposed for foreign-policy reasons, the average U.S. applied tariff went from 1.5% in 2022 to almost 16% by November. This puts the U.S. tariffs at their highest levels since 1943 and moves the U.S. tariff rate more in the zone of developing, rather than developed, countries.

However, as the year drew to a close, we began to see signs of President Trump retreating from his automatic reach for high tariffs at whim. In November, President Trump excluded more than 200 mainly agricultural products from the reciprocal tariffs, largely in response to a growing consumer backlash. In December, he also announced delays in applying some tariffs—a one year postponement for higher tariffs on upholstered furniture, kitchen cabinets, and vanities, as well as a delay until June 2027 for tariffs on Chinese semiconductors following the conclusion of a lengthy Section 301 investigation. Furthermore, his 10% threat of additional tariffs on Canadian imports in October failed to materialize. President Trump also did not slap a slew of new tariffs on the EU in response to their ‘discriminatory’ digital taxes and other regulatory policies, with USTR instead referring to possible fees or restrictions on foreign services. And the trade truce with China resulted in the tariffs hikes on Chinese imports ending the year at 20%, considerably lower than the 145% it had escalated to in Spring. These moves came about as opinion polls suggest that domestic support for tariffs is falling, with certain Republican Congressional members expressing concerns as the mid-term elections draw nearer.

Why It Matters: The U.S. Economy in a Midterm Year

The costs of the tariffs are beginning to bite, and some adjustment to the aggressive tariff policy should soften the impact on the U.S. economy. For example, with more than $190 billion of food products imported in 2024, the tariff increases have translated to higher prices at the grocery store and in restaurants for the average American. Research released in November showed that imported goods were rising in price at roughly twice the rate of domestically produced goods, with many U.S. businesses forced to pay higher prices for steel, aluminum and other industrial inputs. Unemployment rates have also been rising, with November showing the highest since September 2021. Reducing reliance on tariffs as the ‘go to’ response could help bring back more certainty to the business environment, thereby encouraging investment and growth.

The recent signals from the administration that the President may be taking his foot off the gas on high tariffs will be welcome news for U.S.’ trading partners. 2025 was a roller coaster for U.S.’ allies and partners in particular, as they tried to manage their way through the trade policy upheaval while keeping their relationships with the Washington intact. Some stabilization of U.S. tariff policy in the year ahead will allow partners and allies some breathing space, with tariff delays or product exclusions important wins for their exporters. A more measured U.S. approach in 2026 also increases the potential for partners interested in working with the U.S. to address broader trade and economic challenges where there are shared interests. These could include building more durable access to critical minerals and responding to China’s policies that flood the global market with unfairly subsidized goods.

What to Watch: How Much Will the Tariff Playbook Evolve?

More product exclusions? U.S.’ trading partners and businesses will continue to press for further product exclusions to the tariffs, especially now that the door has been opened. If the economic impacts of the tariffs continue to grow, there could well be more exclusions announced over the coming months, especially as the mid-term elections loom closer and affordability concerns heighten.

More delays in tariff imposition? President Trump initiated 12 investigations under Section 232 in 2025, with final outcomes still outstanding in most of these, including semiconductors, critical minerals, polysilicon, robotics and industrial machinery, and wind turbines. Will the President delay the imposition of any tariffs from these investigations, favor a non-tariff response to address the national security concerns, or take no action?

Will the tariff truce with China hold? The tariff truce reached with Beijing is fragile. In the lead up to President Trump’s visit to China in April, and the expected visit of President of Xi to the U.S. to follow, both sides will have a keen interest in avoiding any major friction in the relationship. Will the temporary truce on tariff escalation hold for the year? Will it be further extended, or made any more permanent, when the leaders meet? Or will trade tensions or other issues emerge in the coming months to derail efforts to stabilize the relationship?

Will the IEEPA tariffs be struck down by the Supreme Court? A decision is expected to be made early this year by the Supreme Court on the use of the International Emergency Economic Powers Act (IEEPA) as the basis for the imposition of reciprocal tariffs. Should the Surpeme Court rule against IEEPA, the administration seems ready to turn to other statutes to keep tariffs in place. However, other statutes have limitations, including the level of tariff hikes and the need for public input. This could lead to lower tariff rates, at least in the short term.

Dive Deeper with ASPI:

• Read Wendy Cutler’s recent op-ed in Barrons, “Trump Is On a Win Streak in His Trade War. Will It Last?”

• Read Shay Wester’s latest report, “Best Practices for Trusted Cloud Adoption and Interoperability in APEC Economies.”

• Watch a panel discussion on “What’s at Stake for Asia in the USMCA Review?”, moderated by Wendy Cutler.

Editor’s Introduction: Hi there. In our last issue of Asia Policy Brief for 2025, we provide an end-of-year review of our newsletters on Asia-Pacific policy issues—informed by ASPI’s experts from around the world. Please stay tuned for what’s ahead in 2026 and wishing all a restful holiday season and a healthy New Year. Thank you for subscribing to ASPI on Substack!

State of Affairs: 2025 Was No Easy Year for Asia

Countries across the region navigated a tumultuous first year under President Trump’s second term in office, which was capped off by a trip to the region in October. Threats of “reciprocal” tariffs strained ties with longtime allies and partners alike, forcing governments like Tokyo, Seoul, and New Delhi to enter trade negotiations with the U.S. and navigate new phases in respective bilateral relations. China was subject to some of the steepest tariffs for the U.S. and spent the year juggling escalations in the trade war with deepening demographic and economic strains at home. Still, Chinese President Xi Jinping was able to further consolidate his grip on power at forums like the Fourth Plenum. In Southeast Asia, border fighting between Thailand and Cambodia escalated into an all-out war, testing ASEAN mediation abilities as it navigated other challenges like a proliferation of scam centers, a surge in exports from China, and a civil war in Myanmar.

Across Asia, several countries experienced leadership transitions, with some, like Nepal, resulting from youth uprisings and others, like South Korea, from impeachment and snap elections. AI adoption emerged as a significant policy priority for the region, as did adapting to and addressing the worsening climate crisis. Throughout it all, Asia Society Policy Institute’s experts helped unpack developments across the region.

Why It Mattered: ASPI Addresses Major Policy Challenges in the Region

Starting in June, ASPI began to use Substack as a method to deliver timely analysis straight to subscribers. Below are our takes on some of the important stories to emerge from Asia in the second half of 2025.

On Trade and Technology:

• As President Trump’s initial 90-day deadline for trade talks with the U.S. approached, we explained why the U.S. securing full-fledged deals with trading partners by the deadline was unlikely.

• We also wrote about how a lack of progress on trade negotiations between the U.S. and India was testing bilateral ties. A key source of friction is India’s continued imports of Russian oil, and ASPI experts explained why New Delhi is unlikely to curb its relations with Moscow anytime soon in an edition of Asia ASAP, dedicated to unpacking President Vladimir Putin’s December visit to New Delhi.

• The pursuit of “AI sovereignty” across Asia presented challenges in 2025, but we argued that regional frameworks provide unique opportunities for Southeast Asia’s technical agency.

On Security and Diplomacy:

• Following a devastating terror attack in Kashmir earlier in the year, deadly fighting broke out between India and Pakistan. We explained why the ceasefire was unlikely to bring about lasting peace and how the conflict reflected a recalibration of strategic alignment from both sides.

• Our experts took stock of the state of U.S. alliance relations with Japan and Korea in light of Trump’s tariffs and his renewed emphasis on burden sharing, analyzing South Korean President Lee Jae Myung’s visits to Tokyo and Washington and prospects for improved trilateral U.S.-Japan-ROK relations.

• Asia saw a wave of consequential leadership transitions in 2025. In Thailand, as fighting intensified along the Thai-Cambodian border, a leaked phone call between Prime Minister Paetongtarn Shinawatra and Cambodian strongman Hun Sen precipitated her ouster. In Japan, the resignation of Prime Minister Shigeru Ishiba opened the door for Tanae Sakaichi’s election, but not without drama that briefly threw her bid into flux.

• As countries re-evaluated relationships with the U.S, multilateral gatherings became key venues for middle power engagement. This year’s G20 convening highlighted the promise of multilateralism, even without the U.S.’ presence. But Trump’s presence at the ASEAN summit still commanded attention.

On Climate Resilience:

• China’s new climate targets drew scrutiny after a cautious NDC announcement in September, but we explained how Beijing has become the world’s clean energy powerhouse and should not be counted out as a leader in climate action.

• Following COP30 in Belem, Cyclone Ditwah caused catastrophic destruction and loss of life in South and Southeast Asia. We broke down how the urgency to adapt is rising faster than the ability of vulnerable countries to keep pace in addressing severe climate impacts.

On China and Cross-Strait Relations:

• Over the summer, Taiwan’s leader Lai Ching-te attempted to recall opposition legislators and had plans for a U.S. transit on the way to Latin America reportedly cancelled by Washington. We explained how these events were likely to complicate U.S.-Taiwan ties and broader cross-Strait relations.

• When Presidents Trump and Xi Jinping met in Busan in October, ASPI experts provided both rapid and long-form analysis of the summit, which they believed helped stabilize the bilateral relationship by turning down the temperature on recent escalatory trade measures.

What to Watch: Looking Ahead to 2026 and Beyond

• China 2026: Using ASPI’s Center for China Analysis’ unique “inside-out” approach to independent, policy-relevant analysis, this third annual flagship report forecasts the most critical developments to watch in China during 2026 and beyond. Across the report, CCA experts agree that “China in 2026 is ascendant yet constrained, powerful yet fragile, ambitious but anxious.”

• The Ballot Box: Why Elections in Matter for Asia: To understand election results out of Nepal, Bangladesh, Myanmar, and Thailand in the year ahead, keep an eye on our Ballot Box hub. As the world rapidly changes, Asia stands at a critical crossroads in global leadership.

• APEC Cloud Transformation Initiative: Cloud computing has the ability to transform economies and is expected to be a central part of the conversation when APEC is held in China next year. Our trade team will continue to highlight key challenges, share best practices, and support APEC economies in the lead up to APEC 2026 as they work to accelerate cloud adoption.

• AI Impact Summit: As India gears up to host the AI Impact Summit in February, our AI team has and will continue to provide analysis of and recommendations for AI adoption across Asia. Check out the readout from an official pre-event summit ASPI Delhi convened to discuss India’s recent announcement of Digital Data Protection Act Rules and AI Governance guidelines.

Dive Deeper with ASPI:

• Subscribe to South Asia Snapshot to follow key geopolitical, economic, environmental, and social happenings in the region, and stay up to date with all our South Asia-focused events, publications, and analysis.

• Check out “PLA Watch” from our Center for China Analysis. Drawing from primary Chinese-language sources, the monthly newsletter tracks the People’s Liberation Army (PLA), its activities, strategies, and evolving capabilities.

• Listen to Asia Inside Out, our flagship podcast, on your favorite listening platform. Each month we bring together ASPI experts and outside guests to take you beyond the latest policy headlines and provide an insider’s view on regional and global affairs.

Editor’s Introduction: Hi there. In this week’s Asia Policy Brief, ASPI Delhi’s Assistant Director of Climate Nishtha Singh breaks down the tension between climate finance and ambition following the COP30 Summit in Belém and the recent catastrophe wreaked by Cyclone Ditwah on South and Southeast Asia. The urgency to adapt is rising faster than the ability of vulnerable countries to keep pace in addressing severe climate impacts.

State of Affairs: Negotiations Stalled Between Ambition and Finance

COP30 witnessed a sharp political deadlock. Developing countries pushed for enhanced ambition from the Global North under Article 9.1 of the Paris Agreement, requesting developed countries to scale up their provision of climate finance. Developed countries, meanwhile, insisted on greater mitigation commitments from the Global South as part of offering additional financial pledges.

This tension stems partly from the previous year’s COP29 discussions on the New Collective Quantified Goal (NCQG), which included a headline USD 300 billion per year target for climate finance to developing countries and a broader effort to reach USD 1.3 trillion annually by 2035. The declaration sparked criticism from several developing countries, including India, which argued that the proposal failed to reflect historical responsibility and existing needs.

Then came Cyclone Ditwah, resulting in over 600 deaths and hundreds more still missing. Striking South and Southeast Asia just days after COP30 concluded, the disaster highlighted the stark mismatch between the pace of climate impacts and that of climate finance mobilization. Asia already faces some of the world’s highest climate losses, suffering USD 36 billion annually from climate and disaster events. According to the World Meteorological Organization (WMO), extreme weather has affected 50 million people in the region in 2022 alone.

The contrast between stalled climate negotiations and Ditwah’s destruction highlights a widening gap between commitment and capability. COP30’s agreement to triple adaptation finance by 2035 is a step forward, but climate impacts are intensifying now. The urgency to adapt and decarbonize is rising faster than the ability of vulnerable countries to mobilize the resources, institutions, and resilience needed to keep pace.

Why It Matters: Expensive, Loan-Heavy Climate Finance Is Deepening Debt Distress

Climate finance remains heavily loan-dependent. According to the OECD’s 2024 assessment, 69% of public climate finance from developed to developing countries is delivered as loans, while grants make up just 28%.

This model is increasingly misaligned with the needs of vulnerable economies and has contributed to a growing climate-debt trap. Countries borrow to rebuild after climate disasters, yet repeated shocks push them deeper into fiscal stress, reducing the space for long-term resilience planning.

South Asia offers clear examples:

• Pakistan: After the 2022 floods affected 33 million people and caused USD 30 billion in damages, Pakistan borrowed heavily to finance reconstruction, worsening its debt-distress status.

• Bangladesh: One of the world’s most climate-exposed countries, Bangladesh sees annual climate losses exceeding 1% of GDP, contributing to rising public debt.

A deeper inequity underlies this challenge: developing countries face sovereign borrowing costs up to 8 times higher than developed economies. Between 2016 and 2022, the average cost of climate-related borrowing for developing countries ranged from 3.5% to 7%, compared to near-zero rates in the EU and Japan.

Climate finance is therefore not only loan-heavy, but it is also more expensive, precisely for the countries that can least afford it. The more vulnerable a country is, the more it pays for the capital needed to recover.

The outcome is clear: loan-based climate finance risks becoming counterproductive, increasing fiscal fragility and ultimately limiting climate ambition rather than enabling it.

Domestic Climate Finance Tools Are Growing—But Disasters Derail Transition Plans

Several South Asian countries are building domestic climate-finance systems to enable climate mitigation and adaptation, including carbon markets, green bonds, and energy-transition funds. India’s recently launched Carbon Credit Trading Scheme (CCTS), and similar developments in countries such as Indonesia, Malaysia, Vietnam, etc., represent a broader regional trend toward self-generated climate finance.

Yet this progress remains fragile. Climate disasters regularly divert domestic funds away from transition investments and toward emergency response: This structural vulnerability, where every major disaster collapses fiscal space, risks derailing mitigation, competitiveness, and long-term resilience efforts across the economy.

Unilateral Trade Measures and Climate Justice

Unilateral Trade Measures (UTMs) were a key topic in Brazil’s presidency-led discussions in Belém. For developing economies already grappling with mounting climate losses and costly adaptation needs, measures such as the EU’s Carbon Border Adjustment Mechanism (CBAM) raise serious concerns about equity and climate justice.

UTMs introduce new compliance costs for exporters in countries already paying far more for climate impacts and climate finance. They also appear inconsistent with the Common But Differentiated Responsibilities (CBDR) principle, which underpins the obligation for financial and technological support from the Global North to the Global South.

Exporters in developing countries often lack the resources or access to clean technologies that firms in advanced economies possess. Cyclone Ditwah, arriving amid these debates, reinforces an essential question: Can climate-vulnerable economies fairly meet new trade-related carbon obligations while simultaneously managing escalating climate disasters with insufficient support?

Article 3.5 of the UNFCCC is clear: measures taken to combat climate change, including unilateral ones, must not constitute arbitrary or unjustifiable discrimination, or disguised restrictions on international trade.

COP30 created a pathway for addressing these tensions: three annual dialogues on trade scheduled for Bonn in 2026, 2027, and 2028. Given the accelerated pace of net-zero policy adoption, this debate is only likely to intensify.

What to Watch: Can Adaptation Finance Be Scaled Using New Instruments?

Traditional carbon markets have focused almost entirely on mitigation. But COP30 revived a key question: could market-based instruments—similar to Article 6 markets—help scale adaptation finance?

Developing countries have demanded that a minimum 50%, striving for 75%, of the USD 300 billion target be allocated to adaptation planning and implementation. Yet OECD mobilization analyses show that most private finance leveraged by development-finance institutions flows toward mitigation, not adaptation.

To close the adaptation gap, countries are exploring options such as:

• Outcome-based adaptation credits, tied to measurable resilience outcomes.

• Regional adaptation marketplaces, enabling countries to pool demand and create bankable project pipelines.

• Resilience bonds, already used in the United States and Mexico.

• Sovereign catastrophe bonds, such as the USD 225 million bond issued by the Philippines in 2019.

As climate impacts intensify, scaling adaptation finance will require shifting from ad hoc, loan-based instruments to predictable, rules-based, and innovative financing mechanisms.

Dive Deeper with ASPI

• Explore one of ASPI’s featured initiatives, “Developing Emissions Trading Systems in Asia,” a comprehensive and interactive hub that offers an in-depth look at ETS developments across Asia.

• Read Alistair Ritchie’s and Nishtha Singh’s paper on “Strengthening India’s Carbon Credit Trading Scheme by Inclusion of the Power Sector.”

• Read an op-ed by Li Shuo on “Ten Years After Paris Agreement, Climate Action Faces a Reckoning,” featured in Channel News Asia.

Editor’s Introduction: Hi there. In today’s issue of Asia Policy Brief, ASPI’s Director of Strategy and Engagement Juliet Lee highlights the successes of middle power participation and sideline engagement at this weekend’s G20 Summit, and a win for multilateralism despite protests from the Trump administration.

State of Affairs: The U.S.’ Noisy Absence

This year’s G20 marked the first time an African nation has hosted the multilateral convening, yet the leadup to this historic gathering was overshadowed President Donald Trump’s shifting and inflammatory statements about the host country, South Africa. After erroneously accusing the South African government of seizing white-owned land and allowing the killing of white Afrikaners, Trump announced the U.S. was boycotting the summit. Shortly ahead of this weekend’s convening, Trump further fanned the flames by discouraging member countries from accepting a leaders’ declaration, traditionally issued at the end of the sessions. Nevertheless, South Africa’s President Cyril Ramaphosa broke with tradition by beginning the two-day meeting with the adoption of a 122-point declaration, stating that there was unanimous agreement among almost all of the members present (with one objection from the foreign minister of Argentina).

The absence of a senior U.S. official at the summit drew awkward questions about how South Africa would handle the ceremonial handover to next year’s host, the United States. Shortly before the start of the summit, the Trump administration made a last minute request that the acting U.S. Ambassador to South Africa, with the ranking of charge d’affaires, participate in the ceremony on behalf of Washington, which was declined by President Ramaphosa, who refused to “hand over to a junior diplomat.”

Why It Matters: Asia’s Middle Powers Carry On

Despite the Trump administration’s efforts to oppose the Summit’s agenda under South Africa’s leadership, especially the sections that were focused on climate change, the host country succeeded in securing a Leaders’ Declaration that was signed by some of the world’s richest and top emerging economies. The Declaration called for more attention to issues that particularly affect developing nations, including climate change, rising levels of debt and unfair borrowing conditions, and the green energy transition. The unanimity on display despite U.S.’ attempts to undermine the gathering highlighted the enduring strength and convening power of multilateral institutions, often characterized as ineffective because of their inability to build consensus, and middle power diplomacy in the face of ongoing geostrategic competition.

While the United States boycotted the summit, the other participating countries sought to advocate on behalf of developing nations while striking new deals with each other in a flurry of sideline diplomacy. The “middle powers” of the G20 grouping—particularly countries of Asia such as India, Indonesia, Japan, and South Korea—saw the opportunity to take on a larger, more influential role at the meetings. In the U.S.’ absence, many of these countries sought arrangements that allow them to balance engagement with both Washington and Beijing on issues spanning from security and trade to emerging technologies and critical minerals.

Further evidence of a push towards multilateral cooperation by Asian middle powers is the flurry of bilateral and trilateral agreements that came out of sideline engagements in Johannesburg. One of the most notable accomplishments was Modi’s bilateral with Canada’s PM Mark Carney, during which the two countries agreed to restart trade negotiations that would more than double bilateral trade through a Comprehensive Economic Partnership Agreement. This thaw in India-Canada relations comes after a diplomatic row that saw the removal of the countries’ top diplomats from each other’s capital, perhaps a sign that the two countries are seeking alternative paths forward as their respective relationships with Washington stall over ongoing trade and political tensions. Furthermore, Modi, Carney, and Australia’s PM Anthony Albanese also announced a new Australia-Canada-India Technology and Innovation (ACITI) Partnership that would deepen collaboration between partners across three continents and three oceans on emerging technologies, diversification of supply chains, clean energy, and adoption of AI.

The proposed G20 initiatives, particularly those from Modi, were in direct response to global challenges such as strengthening healthcare systems, upskilling workers along with the mass adoption of AI, and responding to climate-related disasters. Indonesian VP Gibran Rakabuming Raka stressed that all countries are entitled to determine their own designs and strategies for advancing development, and that no country has the right to impose its views on development upon others because “there is no one-size-fits-all model” for global cooperation. While the U.S. may not have participated, this year’s G20 Summit is evidence that the global order continues to spin without it.

What to Watch: Whither Unilateralism?

• G20 in 2026: U.S. officials have already claimed that the G20 under U.S. leadership will look very different: “We have whittled down the G20 back to basics,” according to U.S. Treasury Secretary Scott Bessent. After four consecutive Global South presidencies, how will a U.S. administration with an “America First” agenda bring together countries representing 85% of the world’s GDP and more than 75% of global trade? Who will be invited, and perhaps more importantly, who else might boycott in 2026, following the U.S.’ example this year?

• Don’t Forget China: China’s Premier Li Qiang, who led the Chinese delegation to this year’s G20, echoed Xi Jinping’s call for unity in tackling global economic challenges, warning against rising unilateralism, protectionism, and growing trade restrictions. China is set to host next year’s Asia-Pacific Economic Cooperation (APEC) Forum, another multilateral convening that President Trump skipped attending earlier this month. How will Beijing exert its influence and fill the gap as Washington continues to retreat from multilateralism? How will middle powers respond as many continue to pursue and implement trade agreements beyond relying on the U.S. and China?

• Is the Momentum Sustainable? Global interdependence, while presenting distinct advantages for developed countries, has not resulted in equitable benefits for emerging and developing economies. As the U.S. continues to wield unilateral, punitive actions, many countries around the world are seemingly seeking alternatives and rallying together on behalf of the global good. Following the successes of the G20, as well as the COP30 Summit in Belém where the Trump administration was also a no-show, can the multilateral momentum led by middle powers by sustained?

Dive Deeper with ASPI:

• Join ASPI in Washington, D.C. on December 16 for an in-person panel discussion on “Risks and Opportunities for the U.S.-Japan Alliance.”

• Read a recent Australian Financial Review op-ed by Taylah Bland on how “COP30 Escaped Echo Chamber Despite Trump No-Show.”

• Watch a recent panel discussion on “After Gyeongju: APEC 2025 Outcomes and the Future of Regional Cooperation,” moderated by Wendy Cutler.

• Read ASPI’s report, “Cementing the Quad in the Indo-Pacific,” written by Farwa Aamer and Emma Chanlett-Avery.

Editor’s Introduction: Hi there. In this week’s Asia Policy Brief, ASPI’s Managing Director Rorry Daniels asks three key questions following the Trump-Xi Summit in Busan last month: what is the nature of U.S.-China relations today; can the two sides maintain a “no surprises” expectation; and what more will be asked, and what more will be given as diplomacy between the U.S. and China moves forward into 2026 and beyond?

State of Affairs: A Durable Ceasefire?

Presidents Donald Trump and Xi Jinping met on October 30 in South Korea to codify a ceasefire in the U.S.-China trade war following months of negotiations that were punctuated by high-profile announcements of additional trade restrictions. The two leaders agreed to roll back these restrictions for at least one year; to suspend or halt additional investigations on both side in the trade, tariff, and tech spaces; and for China to take additional actions on fentanyl precursors as well as purchase key U.S. agricultural and forestry goods. Though both sides characterized the meeting as productive, with Trump giving it a 12-out-of-10 rating, key questions remain regarding the durability of the deal, U.S.-China relations on areas outside the scope of the deal, and what it all means for bilateral, regional, and global stability.

Why It Matters: Questions Remain, So What to Ask?

The U.S.-China relationship has oscillated so wildly in 2025 that it’s difficult to assess the durability of the agreement reached in Busan, much less the long-term implications for the relationship. Instead, here are three questions to consider as events unfold:

Is this a “New Type of Major Power Relations,” and if so, what type?

The second Trump administration now has a roadmap of sorts for conducting diplomacy with China, including a list of priority areas, a timeline of key deliverables, and a structure for negotiation that mirrors past practice (though with a much narrower brief). However, these parameters set the table for the period ahead, not the floor or ceiling for the relationship. Trump went into the meeting touting a “G2,” but the meeting did not produce a joint statement that suggests such a G2 with a unified view of its own relationship or how the world should work. Trump’s statement is best viewed as a factual observation—these two countries have the most power in the world—instead of a predictive theoretical lens in which the two countries make coordinated decisions regarding leadership of the rest of the world.

Nor is the relationship destined to overcome the so-called Thucydides trap, in which anxiety about a rising power prompts war with an established power—the purpose behind Xi Jinping’s articulation of a “new type of major power relations.” The reverberation of ups and downs in the bilateral relationship through global economic and security planning show that we are also not in a truly multilateral, G-zero world.

So, what is the nature of the U.S.-China relationship today? How will the two countries navigate a G2 structure in which they remain economically co-dependent while fiercely competing for absolute influence and power? Are the ceiling and floor of the relationship closer together, or are we facing a funhouse of different sized rooms and distorting mirrors depending on the issue?

Will leaders successfully devolve negotiating authority to mitigate policy surprises?

Both leaders, in their own ways, are willing to force their domestic political economy strategies on the rest of the world through industrial policy and weaponized interdependence. These are long-term, big-picture, top-down strategies to navigate transitions in the political economy regarding the changing tech and security landscapes, and they are often the source of friction between the two economies. The strategies can be accelerated or decelerated depending on leader-level priorities, but the ultimate destination—self-sufficiency and deference to power at home and abroad—aren’t going to change.

The challenge is that these strategies not only clash with the reality of economic interdependence and its effect on political economy, but they are now considered a negotiation tactic. At the end of the summit, the leaders basically agreed to walk back escalatory strategies and make minor gestures of goodwill. In other words, many of the deliverables erase, delay or lower trade restrictions that weren’t present at the start of negotiations.

What remains to be seen is whether this escalation and ceasefire pattern will continue as a new normal or if it can be confined to an adjustment period with a new U.S. administration. It’s also unclear to what extent new export controls, commercial investigations and other restrictions are seen as negotiation leverage or simply the culmination of ongoing process, poorly timed. Can the two sides set a ‘no surprises’ expectation and stick to it, despite bigger machinations at play in both bureaucracies? Or will we see another cycle of escalation to ceasefire to negotiation to escalation?

What are both sides’ expectations on the scope of diplomacy moving forward?

Both sides feel like they injected some goodwill back into the relationship, but what do the leaders believe these investments augur in the short and medium term? The readouts provide a sharp contrast into how the meeting was assessed by each side. The Chinese readout is narrative-based, focused on a vision for the long-term future of the relationship, and heavy on describing Trump’s praise for Xi Jinping’s leadership. The U.S. readout is action-oriented, heavy on deliverables, and describes the meeting as a win for the American people.

Both readouts support the mindset the leaders want to foster at home—they are in charge, they know what they’re doing, and they’re getting results. If the U.S. and China are locked in a long-term competition, both sides want to show they are on the winning path. However, to keep this momentum up will require continued success in implementing the deliverables as well as success in asking for more. What more will be asked, and what more will be given? What status quo would be mutually acceptable, and can it be reached? And how will what has primarily been a trade negotiation evolve to address other priorities like maritime territorial issues and Taiwan?

What to Watch: 2026 and Beyond

• A new cycle begins. The most stabilizing outcome of the summit was a notional timeline for assessing results and making continued progress. The two leaders not only committed their teams to monitoring compliance and holding further talks, while President Trump also announced his commitment to visit Beijing next April. With China hosting APEC next year, there is another opportunity in November to solidify bilateral agreements. These two opportunities are action-forcing moments for the two teams to get over the finish line.

• The world reacts—and has to press their own interests. The U.S.-China goldilocks era is over and may never return, when relations were not too hot and not too cold and therefore created space for the rest of the world to play the powers toward their own interests without fear of being forced to choose a side. Instead, this is an opportunity for the middle powers to foster and bolster a rules-based order, but it remains unclear if there is enough shared interests and collective will to balance the two enormous superpowers in tandem. Expect to see new and riskier balancing strategies emerge from the countries of Asia, while India makes a play for leadership of the Global South.

• Whither Taiwan? Taiwan was a very risky topic to raise at the actual meeting, given Trump’s tendency to speak off-the-cuff and his immediately prior meetings with Japan’s new hawkish prime minister. But the Trump administration did pay lip service to Beijing’s preferences on Taiwan before the meeting—curtailing a transit visit from Taiwan’s president, Lai Ching-te, and publicly stating the U.S. position that it does not support Taiwan independence. Do continuous U.S.-China negotiations put the U.S.-Taiwan unofficial relationship on ice for the duration? If not, how will Beijing use the negotiations to press its interests?

Dive Deeper with ASPI:

• Watch Wendy Cutler moderate an expert panel discussion that unpacked the 2025 APEC Summit’s outcomes; evaluated APEC’s path forward in addressing trade tensions, digital transformation, and supply chain resilience; and previewed China’s 2026 priorities.

• Watch an ASPI experts rapid reaction discussion—featuring Wendy Cutler, Shay Wester, Emma Chanlett-Avery, and Michelle Ye Hee Lee of The Washington Post—as they explored how President Trump’s trip to Asia could reshape U.S.-Asia relations and trade deals.

• Read ASPI’s first issue of Asia ASAP: Trump and Xi Meet in Busan, featuring expert commentary from Wendy Cutler, Rorry Daniels, and Neil Thomas.

Editor’s Introduction: Hi there. This week’s Asia Policy Brief covers President Trump’s first stop on his second administration’s Asia tour: the ASEAN Leaders’ Summit in Kuala Lumpur. On the sidelines, he presided over the signing of a number of deals, including a ceasefire deal between Thailand and Cambodia, and “reciprocal trade” deals with Malaysia and Cambodia, respectively. ASPI’s Press and Program Officer Bryanna Entwistle and Director of Asian Economic Affairs Shay Wester offer their analysis on what happened and what to watch for next.

State of Affairs: Trump’s Whirlwind Visit to Kuala Lumpur

The attendance of an American head of state at the annual leaders meeting of the Association of Southeast Asian Nations (ASEAN) has long been considered a litmus test for the significance of the region to Washington’s foreign policy agenda. Over the past eight years, U.S. Presidents have only participated in two ASEAN meetings—President Trump traveled to the region in 2017 during his first term, and former President Biden called in virtually in 2022. Given that Southeast Asia faces some of the highest tariff rates globally and transshipment penalties that could disproportionately affect the region, Trump’s announcement that he would attend the 2025 leaders’ meeting in Kuala Lumpur came as somewhat of a surprise.

At this year’s summit, Trump attended the signing of the Thailand-Cambodia ceasefire deal, the U.S.-ASEAN Summit, and several meetings that involved signing trade agreements with Malaysia and Cambodia and framework agreements with Vietnam and Thailand. Moreover, critical minerals agreements were signed with Malaysia and Thailand to expand processing capacity, strengthen supply chains, and promote partnerships with U.S. companies. Despite the showmanship and flattery from several Southeast Asian leaders, there is much more work to be done on many of the agreements that Trump signed in Malaysia, and these countries will still be subject to tariffs going forward. The protests against Trump across Kuala Lumpur underscored that things are far from stabilized in U.S.-Southeast Asia relations—and it will take more than one visit to reverse course.

Why It Matters: What’s in a Deal?

Thai-Cambodia Ceasefire Deal

When a longstanding border conflict between Thailand and Cambodia turned deadly in May, it became an enormous test of ASEAN’s ability to mediate between member states and fulfill its mandate of preventing conflict within the bloc. Diplomatic maneuvering by ASEAN Chair Malaysia, in addition to President Trump’s threats to suspend tariff negotiations, convinced Cambodian and Thai leaders to agree to an initial ceasefire in July. Malaysia then oversaw negotiations for the enhanced ceasefire that was signed at the ASEAN Summit, dubbed the “Kuala Lumpur Accords.”

President Trump has claimed full credit for driving the ceasefire deal, and his decision to stop in Malaysia was driven by a desire to preside over the signing ceremony—another photo opportunity for his Nobel Peace Prize campaign. The White House reportedly told summit organizers that Trump did not want Chinese officials in attendance at the ceremony, despite China’s documented role in facilitating early ceasefire negotiations. While pressure from Washington undoubtedly helped bring Thailand and Cambodia to the negotiating table, Trump’s attempts to take credit for the agreement undermine ASEAN’s historic accomplishment of ending a conflict between two of its member states. Furthermore, the expanded ceasefire is far the all-encompassing peace deal that Trump claims it is, as it fails to address the historic root causes of the border dispute. Thailand’s own foreign minister refused to refer to the joint declaration as a peace agreement, calling it a “pathway to peace” instead.

Rapprochement with Cambodia?

Cambodian leadership was much more enthusiastic about Trump’s involvement at the signing ceremony, and the agreement may have even cleared the way for rapprochement between Washington and Phnom Penh, which has increasingly drifted into Beijing’s orbit. In the first leader-to-leader meeting since Prime Minister Hun Manet assumed office 2023, President Trump agreed to remove an arms embargo on Cambodia that has been in place since 2021 and to restart the bilateral Angkor Sentinel Defense exercise, which was last held in 2017. In return, Hun Manet signed an agreement to “expand cooperation” on combatting Cambodia-based scam centers, an extension of recent U.S. Treasury efforts to crack down on cybercrime targeting American citizens. However, the Cambodian government’s deep ties to the industry makes real progress questionable. (For background on the cyber-scam industry, see ASPI’s most recent Asia Inside Out podcast episode).

A U.S.-Malaysia Upgrade

Another diplomatic achievement was the elevation of the U.S.-Malaysia relationship to a comprehensive strategic partnership, marking the first upgrade in ties between the two countries since 2014. In addition to the trade agreement, it involves enhanced cooperation on maritime security, new critical minerals partnerships, and greater transparency on foreign exchange interventions.

All Eyes on Trade

Beyond the security and diplomatic maneuvering, Trump’s visit focused on advancing his tariff-driven trade agenda through bilateral deals with Southeast Asia. This included two “reciprocal trade” agreements (Malaysia, Cambodia) and two frameworks (Thailand, Vietnam) built on a common template: Washington keeps high baseline tariffs (19-20%) while carving out certain products for lower or zero rates, while partners slash duties, remove a range of non-tariff barriers, accept U.S. standards, and agree to purchases of U.S. products and pledge further investments in the U.S. However, carve-outs for specific products do not shield them from future Section 232 or 301 actions, only noting that the United States may take these new deals into account.

Malaysia’s agreement goes the furthest: providing greater market access across automotives, agriculture, and manufacturing, while embedding forward-leaning digital rules. The agreement bundles headline purchase pledges of $150 billion over five years for semiconductors, aviation, and data center equipment, and a $70 billion U.S. investment commitment by Malaysia. On the other hand, Cambodia’s deal is a bit softer, reflecting its Least Developed Country status, but includes many similar provisions. Both agreements pledge closer alignment with U.S. export controls and sanctions, tighter screening of sensitive investments, and cooperation to police rules of origin, content, and transshipment to deter duty evasion. These provisions clearly target China and risk provoking retaliation. Neither agreement provides a dispute settlement mechanism, while giving Washington the ability to reimpose tariffs without consultation and leaving unresolved transshipment and foreign content questions that could still trigger tariffs of 40%.

President Trump also signed critical minerals MOUs with Malaysia and Thailand aimed at deepening cooperation, accelerating development, and diversifying supply chains away from Chinese dominance. Malaysia also committed to refrain from restricting exports of critical minerals and rare earth magnets to the U.S. These steps build on the U.S.-Australia Critical Minerals Framework announced one week earlier, which aims to scale mining and processing through targeted financing and market-stabilization tools.

As Prime Minister Anwar acknowledged in his plenary remarks, “growing geoeconomic fragmentation” is forcing ASEAN to diversify its economic strategy even as it negotiates with the U.S. ASEAN’s two-track response to U.S. tariffs includes pursuing individual accommodations with Washington (as reflected in these bilateral deals) while accelerating regional integration and diversifying trading partners. In Kuala Lumpur, the bloc completed an upgrade to the ASEAN Trade in Goods Agreement, reached substantial conclusion of the Digital Economy Framework Agreement (DEFA), signed the ASEAN-China Free Trade 3.0 agreement, and convened a meeting of Regional Comprehensive Economic Partnership (RCEP) leaders. Prior to the summit, the new ASEAN Geoeconomics Task Force also issued its first report, the bloc’s most coordinated response yet to geoeconomic fragmentation.

What to Watch: Will the Momentum Last?

• Implementation Over Announcements: The test of Trump’s Southeast Asia deals lies in execution. Watch whether Malaysia secures preferential treatment on semiconductors when the Section 232 review concludes, and how countries are treated by future U.S. rules of origin to deal with third country shipments. In addition, how economic security commitments are implemented will reveal whether these are substantive obligations. For Malaysia and Cambodia, do agreements move quickly to implementation or get bogged down in domestic procedures? For Thailand and Vietnam, do frameworks lead to binding agreements?

• The Missing Deals: Indonesia, Vietnam, Thailand, and the Philippines remain without bilateral trade agreements despite being major U.S. trading partners in Southeast Asia and previously announcing deals with the Washington. Vietnam and Thailand’s framework announcements suggests movement, but Indonesia and the Philippines’ absence is conspicuous. Southeast Asian countries will face pressure to cut similar deals quickly, as those without agreements risk being at a competitive disadvantage with Malaysia and Cambodia.

• ASEAN Cooperation Going Forward: The 47th ASEAN Summit marked watershed moments beyond Trump’s visit. Timor-Leste’s admission as the 11th member completes ASEAN’s geographic footprint, while peace in Myanmar remains elusive and a challenge to the bloc’s unity. With the Philippines set to chair ASEAN in 2026 under the theme ‘Navigating Our Future, Together,’ expect a focus on implementing ASEAN Vision 2045, integrating Timor-Leste, and pushing for measurable progress on a South China Sea Code of Conduct, all while navigating the pressures that tested Malaysia leadership this year.

Dive Deeper With ASPI

• Rorry Daniels speaks with transnational cybercrime expert Jacob Sims on the “Political Economy of Cybercrime in Southeast Asia” in our latest podcast episode of Asia Inside Out.

• In July, an expert panel, moderated by Bryanna Entwistle, unpacked the roots of the Thai-Cambodia border conflict and discussed what was needed in a long term peace agreement.

• For a deeper look at how ASEAN is navigating the pressures of China’s export surge and intensifying Western de-risking, read Shay Wester and Brandan Kelly’s report, “ASEAN Caught Between China’s Export Surge and Global De-Risking.”

Editor’s Introduction: Hi there. In this week’s Asia Policy Brief, ASPI’s Director for Political-Security Affairs Emma Chanlett-Avery breaks down the collapse of the coalition between the LDP and Komeito following Takaichi’s election and implications for the U.S.-Japan alliance and Japan’s regional leadership.

State of Affairs: The Divorce of the LDP and Komeito

The Liberal Democratic Party (LDP)’s leadership election on October 4 delivered a surprise: Sanae Takaichi, a staunch conservative, sailed to victory over several other contenders. She is likely—although not certain—to become Japan’s first female Prime Minister when the Parliament votes later this month. A protégé of the former powerful leader Shinzo Abe, Takaichi defied expectations not only because of her gender but because she hailed from a modest, non-political background, a break from Japan’s tradition of dynastic politics. Deeply conservative on social issues and hawkish on China, she supports amending the Japanese constitution, including the pacifist Article Nine clause that renounces war and forbids the use of military force to settle disputes.

Takaichi inherits an LDP in crisis. Under its predecessor, the ruling coalition lost its majority in both houses of Japan’s Parliament (known as the Diet) as voters registered their disappointment with inflation, frustration with an influx of tourists and immigrants, and Tokyo’s inability to negotiate a more favorable trade deal with Washington. In the days since Takaichi’s election, the coalition’s junior partner for the past 26 years, the Komeito party, broke from the LDP, setting off a scramble to court other opposition parties and throwing Takaichi’s bid for prime minister in flux. With the Diet’s scheduled vote postponed, several opposition parties could unite to elect another candidate, requiring substantial concessions by each party on issues core to their constituencies. Komeito continues to hold considerable leverage given its bloc of votes. With the vote scheduled just days before President Trump’s anticipated visit to Tokyo, Takaichi remains the favorite to become Japan’s next leader.

Why Does It Matter: Weakened Leadership at Home and Abroad

Without the pacifist Komeito in the ruling coalition, Japanese politics is almost certain to shift to the right. While Japan has moved significantly but deliberately to acquire more defense capabilities, it is unclear if a new coalition’s policies will destabilize existing cooperation with the United States and other security partners. Given the range of challenges the new leader will face both domestically and abroad, the premiership may be short-lived, and Japan could produce a series of weak and ineffective leaders that quickly revolve out of power. In the past, this pattern has frustrated U.S. policymakers: the lack of policy continuity led Japan to be slow and indecisive in coordinating with U.S. priorities, particularly on security matters. However, Washington’s unpredictability may narrow Takaichi’s task to effectively navigating the incoming demands from the Trump administration on trade and defense spending.

Japan also faces a severe regional security landscape. China, Russia, and North Korea’s partnership is strengthening just as the United States is preoccupied with its own domestic political turmoil. Takaichi is also known as a virulent China hawk. Her visits to the controversial Yasukuni Shrine have infuriated both Beijing and Seoul in the past. If she goes as prime minister, the historical grievances that have stymied Tokyo-Seoul relations could resurface and arrest recent cooperative relations. With the two democratic U.S. allies at odds, the prospect for productive trilateralism with the United States is troubled. Beyond trilateral ties with Korea, Japan has developed a reputation as a stabilizing force in the region, trusted as a reliable and steady partner for Southeast Asia and beyond. For countries resisting economic coercion or security pressure from Beijing, Japan has offered an alternative as a trade partner and supporter of regional norms. If Japan is consumed by contentious political battles at home, its ability to serve as a counterweight and to build partnerships with other powers may be compromised.

What to Watch: How Far is the Swing to the Right?

Assuming Takaichi is elected, her hardline stances in foreign policy matters will be tested. As leader, will she continue her pilgrimages to the Yasukuni Shrine, particularly on politically sensitive anniversaries, that would almost certainly chill relations with Seoul? Or will she repeat statements that celebrate Japan’s imperial conquests, with the potential to anger countries beyond Korea? For regional partnerships like the Quad, will Tokyo step up to keep stabilizing frameworks in place, particularly if the ruling party is embattled at home?

Taikaichi’s next moves will reveal how she plans to position the LDP within Japan’s current political landscape. The doveish Komeito party has traditionally served as a brake on more muscular security policies. Will Taikaichi pivot to partnerships with the rising group of right-wing parties or instead pursue ad-hoc coalitions for specific economic and security priorities? Can she balance her objectives and strategies with the establishment LDP politicians who supported her candidacy? Her political choices may be restrained by the LDP’s political predicament, but her direction will determine how and if the party that has controlled Japan for nearly all of its post-war years can avoid collapse.

Relations with the United States may face an early test when Trump visits the region the coming weeks. Takaichi may be able to curry favor with Trump by playing up her close ties with the late Shinzo Abe, but challenges abound. Japan faces burden-sharing negotiations with Washington in the coming year that threaten to demand multifold increases in Japan’s contributions. If elected, she will need to satisfy some U.S. demands to keep U.S. assurances in place, without losing faith with her public. Takaichi has certainly made history, but her ultimate legacy in this challenging landscape is yet to be determined.

Dive Deeper with ASPI:

• Read ASPI’s latest report, “Cementing the Quad in the Indo-Pacific,” written by Emma Chanlett-Avery and Farwa Aamer.

• Watch a panel discussion on “Cementing the Quad: Power, Partnership, and Regional Purpose,” where Emma Chanlett-Avery and other experts assess the evolving role of the Quad and its future trajectory amid bilateral tensions, U.S. policy shifts, and changing geopolitical dynamics.

• Read Wendy Cutler’s recent op-ed, “Why Asia Has Huge Stakes in U.S.-Mexico-Canada Trade Deal Review” in the South China Morning Post.

Editor’s Introduction: Hi there. In this week’s Asia Policy Brief, Taylah Bland, Senior Program Officer for the China Climate Hub and a Fellow on Climate and the Environment with ASPI’s Center for China Analysis (CCA), assesses China’s NDC announcement last week and what it really means for China’s global climate leadership.

State of Affairs: Conservative Climate Commitments from Beijing

Pledging less, delivering more—but is it enough?

Few national pledges carry as much weight for the international community’s climate trajectory as those made by China. On September 24, President Xi Jinping, via video, announced China’s new climate targets, or Nationally Determined Contribution (NDC), at the United Nations Secretary General’s Special High-Level Climate Action event. The Summit was intended to serve as a forcing mechanism on NDCs, which serve as an individual country’s commitment to advancing climate action under the Paris Agreement and are expected to be updated every five years.

China’s latest NDC sets forth a set of new targets including reducing net economy-wide greenhouse gas (GHG) emissions by 7-10% from peak levels, increasing the share of non-fossil fuels in total energy consumption to over 30%, expanding installed capacity of wind and solar power to over six times the 2020 levels, and striving to total 3600 GW. Notably, this is the first absolute, economy-wide GHG emissions target for China. However, the NDC fell short of expectations.

The tone of the announcement was cautious and ultimately did not meet the standard from climate policy practitioners or the UN Secretary General Antonio Guterres for countries to significantly strengthen their pledges ahead of COP30 in Brazil.

Domestically, the pledge reflects a changing economic and energy landscape. After years of breakneck growth, China’s economy has slowed in the wake of the COVID-19 pandemic. Energy security has re-emerged as a priority following severe power shortages in 2021 and 2022, reinforcing China’s dependence on coal and complicating the transition to aggressive decarbonization.

Internationally, the election of U.S. President Donald Trump and his significant climate policy rollbacks, a rightward shift in European politics and ongoing tensions over Ukraine and trade have created a fragmented geopolitical context where climate ambition is harder to sustain.

Still, the picture is not entirely pessimistic. China has become the world’s clean technology powerhouse, dominating supply chains with over 80% of the world’s solar panels, around 75% of electric vehicle batteries and more than 60% of wind turbines. China’s domestic CO₂ emissions are stabilizing, renewable energy is accounting for increases in energy demand, and structural shifts in industry could enable an earlier-than-expected emissions peak. But whether this progress translates into stronger climate leadership remains an open question.

Why It Matters: A Reality Check on China’s Climate Leadership

Despite its recent progress, China remains the world’s largest emitter of greenhouse gases, responsible for around 30% of global emissions. A China Climate Hub survey of research, including Intergovernmental Panel on Climate Change (IPCC) assessments, finds that to align with the Paris Agreement’s 1.5°C target, China would need to reduce its GHG emissions by at least 30% from the peak by 2035. To stay within the 2°C limit, a cut of at least 20% would be necessary. At 7-10%, China’s current commitment falls significantly short.

While China is known for its “under promise and overdeliver” approach to climate commitments—and there is confidence it will exceed its 2035 NDC targets—its limited ambition raises the question of why it couldn’t have aimed higher. While the aforementioned domestic and international factors provide some insight as to why, another consideration remains. Some targets from the previous NDC remain unmet, so a more conservative pledge helps maintain political legitimacy and aligns with Beijing’s preferred delivery-first strategy.

That said, a broader question is whether China’s strategy should be replicated by other countries. Nations tend to fall into two categories: those that set overly ambitious goals and fail to meet them, and those that set modest targets but exceed expectations. A third, less common scenario is when a country sets ambitious goals and actually achieves them. These scenarios generate an overarching question of how climate leadership is measured. Beyond questions over which path countries should follow is a need to understand that action in the real economy matters more than targets. On that basis, China is demonstrating and delivering on its ambition.

One positive development to come from the new NDC was China’s announcement of plans to build a “climate-adaptive society.” Although specific details remain unclear, this marks a notable shift—China has traditionally focused more on mitigation than on adaptation and resilience. China has been no stranger to the unfortunate climate impacts of extreme weather. Extreme heat, floods, hailstorms, and drought have continued to cause havoc in China with natural disasters during the first half of 2025 affecting over 23 million people, resulting in direct economic losses of CNY 54.1 billion (USD 7.6 billion). While China has stepped up its adaptation efforts in domestic legislation, elevating these goals to the level of the NDC is a welcome sign.

What to Watch: From Pledges to Implementation

• Will COP30 address the global ambition gap? China has pledged to submit its NDC formally to the United Nations Framework Convention on Climate Change (UNFCCC) before COP30, and a meticulous reading of the full document will provide more detail into some of the headline targets. There is also the need for China to support Brazil and other countries in putting forward a strong response to the NDC ambition gap as a priority outcome from COP30. As the world’s largest emitter, China’s actions will be critical to keeping the 1.5°C target within reach.

• How will implementation be integrated into China’s 15th Five-Year Plan? China’s 15th (2026-2030) and 16th Five-Year Plans (2030–2035) will be the main vehicles for turning this NDC 3.0 into action. Additional domestic policy measures will need to deliver on these action points and relies on the coordination of various government departments to prioritize implementation.

Dive Deeper with ASPI:

• Read Li Shuo and Kate Logan’s latest analysis for ASPI, “Unpacking China’s New Headline Climate Targets.”

• Read Li Shuo’s recent op-ed in The New York Times, “China is the Adult in the Room on Climate Now.”

• Read Taylah Bland’s recent op-ed in the Australian Financial Review, “Why are Xi’s Climate Targets So Tiny?”

Editor’s Introduction: Hi there. In today’s Asia Policy Brief, Bryanna Entwistle, ASPI’s Press and Program Officer, breaks down the latest developments in Thai politics following a dramatic summer that has resulted in the election Prime Minister Anutin Charnvirakul. The next few months could be a watershed moment for the country and the region.

State of Affairs: An Oust and Unlikely Coalition

On September 7th, Anutin Charnvirakul of Thailand’s Bhumjaithai party took office as prime minister—the country’s third in two years. His election ended a summer of stalemate following former Prime Minister Paetongtarn Shinawatra’s suspension from office in early July. Amidst an escalating border crisis between Thailand and Cambodia, a phone call was leaked in which Paetongtarn criticized the Thai military and sounded overtly differential to Cambodian strongman Hun Sen. The leaked call incited a political firestorm as calls for her resignation mounted, eventually leading to a Constitutional Court hearing and her dismissal from office on August 29.

An unlikely alliance between Thailand’s conservative Bhumjaithai and progressive People’s Party cleared the way for Anutin’s bid. The pro-military and pro-monarchy proclivities of the Bhumjaithai party means that they are ideologically opposed to People’s Party’s calls to limit military influence in politics and end a law that criminalizes insulting the monarchy. However, as part of the agreement that precipitated their support of Anutin, the People’s Party made the Bhumjaithai promise to call a general election within four months of swearing in the new prime minister and start the process to amend the constitution. Whether or not the Bhumjaithai party upholds these promises will determine the direction of Thailand’s democracy; the next few months could be a watershed moment for the country and the region.

Why It Matters: A New Era for Thai Politics?

Thai politics can be divided into three main camps: Thaksinites, supporters of the political parties connected to former Prime Minister Thaksin Shinawatra, which have produced six prime ministers since 2001; establishment-aligned conservatives like Bhumjaithai; and the progressives, represented primarily by the People’s Party. The military and aligned conservative parties have long tried to stymie the populist appeal of the Shinawatras: both Thaksin and his sister, Yingluck, were deposed by military coups and four other Shinawatra-backed leaders were dismissed by the Monarchy-aligned Constitutional Court. Despite this, Shinawatra-aligned politicians have remained a consistent force in Thai politics. Following a period of military rule after the 2014 coup that deposed Yingluck, the Shinawatra-backed Pheu Thai Party once again assumed power in 2023 through a deal with the establishment elite that enabled Srettha Thavisin and later Paetongtarn to become prime minister—a joint attempt to limit the ascendence of progressive forces.

But recent events may have struck a fatal blow to the Shinawatra dynasty. Following Paetongtarn’s removal and Bhumjaithai’s victory, on September 9th Thaksin Shinawatra was ordered to spend a year in prison after the Thai Supreme Court ruled that he did not properly serve a sentence for abuse and corruption following his return to Thailand from 15 years of self-imposed exile.

As the Thai political status quo is rewritten, the impending general election could move Thailand in one of two directions: a shift towards reform with the People’s Party or a regression towards consolidated military and royalist control. During the 2023 general election, there were brief hopes of the resurgence of democracy when voters handed the Move Forward Party (MFP), the predecessor to the People’s Party, a decisive electoral victory. However, MFP’s leader, Pita Limjaroenrat, was blocked from forming a government and assuming the office of prime minister by the Thai Senate, which had been given the right to vote on a prime minister by a temporary provision of the 2017 military-sponsored Constitution. The Constitutional Court then disbanded MFP and barred its leaders from running for office for 10 years—a move that prompted “deep concern” from the U.S. and several human rights groups.

This time may be different. The temporary provision that gave the Senate a role in electing the Thai Prime Minister expired in 2024, clearing the principal barrier that prevented Pita Limjaroenrat and his MFP from assuming leadership in 2023. If the People’s Party were to replicate or improve upon its 2023 electoral performance, it would likely be in a strong position to lead the formation of the next government and secure the premiership. Such an outcome would install a government in Bangkok that aligns more closely with Western values, a development that may slow or reverse Bangkok’s increasing tilt towards Beijing—since the 2014 coup, Thailand has become increasingly reliant on Chinese trade, investment, arms, and diplomatic support. The growing ties between the two countries were further highlighted earlier this year when Bangkok sent at least 40 Uyghur men that they had detained back to China, a move met with international condemnation and sanctions from the U.S.

However, the military and royal establishment may simply end up consolidating power. Conservative forces in Thailand have repeatedly used both military and judicial measures to dissolve opposition parties and could do so again, even if the People’s Party were to win the general election. There is also the possibility that the Bhumjaithai party forms a new coalition and reneges on its promise to the People’s Party of dissolving parliament and organizing a general election.

What to Watch: Reform, Realignment, and the Road Ahead

• Frustrated Youth: This summer Gen-Z led protests have rattled governments across Asia. Should Anutin walk back on his promise to call an election in four months, Peoples Party’s supporters—primarily younger Thais—may use this opportunity to make their desire for democratic reform heard. It has happened before: in 2020, thousands of young Thais marched for democracy and were met with riot police, water cannons, and over 2,000 charges of royal defamation.

• Constitutional Reform: Serious questions exist around Bhumjaithai’s supposed commitment to calling a referendum on the constitution before the general election date. One area of reform that will be of interest to Anutin, however, is cannabis regulation, as he previously led the push to decriminalize the drug as health minister.

• Economic Woes: While the Bhumjaithai government might only be in power for four months, excluding the caretaker period, Anutin has laid out an ambitious plan to right Thailand’s sinking economic ship. Thailand’s economy is forecast to grow just 1.8% this year, and tariffs from the U.S. have only compounded this struggle. Anutin has appointed outside economic experts to lead technical trade talks with the U.S. and move a free trade agreement with the EU across the line by the end of the year.

• Thai-Cambodia Border Conflict: The Bhumjaithai government has expressed its full support of upholding the ceasefire that ended five days of intense fighting on Thailand’s border with Cambodia. At a meeting of the General Border Commission on September 11th, both sides have agreed to withdraw heavy weaponry, begin joint de-mining operations, and move towards opening trade routes. Cambodian PM Hun Manet wrote to Anutin shortly after his victory, congratulating him on his election and pledging to work together to normalize relations, an indication that the new government might offer a needed reset to relations.

Dive Deeper with ASPI:

• Read a recent op-ed by Rishi Gupta for The Diplomat on “The Gen Z Protest in Nepal Exposes Systemic Governance Failure.”

• Watch ASPI’s webinar on “Unpacking the Thailand Cambodia Border Conflict,” moderated by Bryanna Entwistle.

• Explore ASPI’s online hub, The Ballot Box: Why Elections Matter for Asia, for timely updates, in-depth insights, and expert analysis on elections and political transitions across Asia.

Editor’s Introduction: Hi there. In today’s Asia Policy Brief, Farwa Aamer, ASPI’s Director of South Asia Initiatives, and Jane Mellsop, ASPI’s Director of Trade, Investment, and Economic Security, assess recent developments in U.S.-India relations.

State of Affairs: From Trade Optimism to Tariff Shocks

Few bilateral relationships have drawn as much scrutiny in recent weeks as that between Washington and New Delhi. Right up until the end of July, optimism was high that a long-awaited U.S.-India trade deal was within reach. After five rounds of talks this year and the fanfare of the February Modi-Trump meeting in Washington that launched the “Mission 500” goal, both sides appeared ready to resolve long-standing trade issues as part of their rapidly expanding strategic partnership. Instead, hopes unraveled and the script was flipped. India now faces twin tariff shocks: 25% ‘reciprocal tariff’ after negotiations faltered and another 25% tariff ‘penalty’ tied to its continued importation of Russian oil. The next steps in the trade negotiations appear uncertain as the latest round of talks that were scheduled for August were deferred. This week, President Trump claimed that India had now offered “to cut their tariffs to nothing, but it’s getting late.”

The current breakdown in trade talks stems in part from U.S. frustration with India’s unwillingness to adequately lower high tariffs and address non-tariff barriers, despite India’s early movement on some tariffs such as for bourbon whiskey and motorcycles. Washington’s demands in domestically sensitive areas, particularly in agricultural market access, and data localization changes, further complicated the negotiations.

But the impasse also reflects the cumulative weight of broader geopolitical rifts. India’s refusal to back Washington’s account of the May ceasefire mediation with Pakistan rankled the White House. India had also expected that under President Trump, Russia would no longer be a point of friction. Instead, the U.S. President has treated India’s ties with Moscow as leverage in talks with Russia over the Ukraine conflict. Together, these cracks have stripped much of the shine from what recently was celebrated as a defining partnership that had been built through sustained engagement across multiple administrations.

Why It Matters: Geopolitics and the Test of Trust

The failure to reach a trade deal by the August 1 deadline, compounded by sharp rhetoric from Washington, has raised the stakes for U.S.-India ties. President Trump sharply called out New Delhi for its continued large volumes of Russian oil imports. Russian oil now accounts for almost 40% of India’s total oil imports, up from less than 1% before the war, in contrast with China, the largest importer of Russian oil, whose purchases rose to 21% of total crude imports in 2024.

India rejected the additional 25% penalty on Russian oil as unfair because other nations are also purchasing refined products and other energy products from Russia, and other sources of oil are also impacted by U.S. sanctions. Instead of immediate tariff retaliation and escalation, New Delhi has pivoted to deeper engagement with Moscow and Beijing. During his recent Moscow visit, Indian External Affairs Minister S.Jaishankar stressed the risks of overdependence on a few partners and underscored the need for diversified ties. The planned Putin-Modi summit later this year, despite Western unease, highlights this recalibration, with Prime Minister Modi also reiterating that India and Russia share a special relationship as they met in China this week.

India’s diversification strategy is also evident in its active free trade agreement (FTA) agenda. This year, India has signed an FTA with the UK and is also progressing its FTA negotiations with the European Union, Chile, and the Gulf countries, as well as upgrading its existing agreement with ASEAN. At the same time, there is renewed interest in the opportunities that the BRICS countries can offer, with Prime Minister Modi, who takes up the Chair of this bloc in 2026, emphasizing the important role of the group in the critical minerals supply chain.

However, this shifting landscape leaves India navigating a delicate balance. It cannot afford to alienate Washington, where cooperation still offers immense strategic and economic benefits—the United States is India’s largest trading partner, with bilateral goods trade of almost $130 billion in 2024. But domestic political pressures against yielding to Washington, India’s energy security needs, uncertainty in U.S. trade policy, and unease over America’s rapid re-engagement with Pakistan are all driving New Delhi to hedge more decisively and at speed.

The collapse of trade talks, coupled with tariffs now exceeding 50%—far steeper than most of its neighbors—places India at a competitive disadvantage in the U.S. market and weakens investor optimism about its role as a China alternative. The Section 232 tariffs on steel, as well as those threatened by President Trump for other sectors important to India—such as semiconductors and pharmaceuticals—will further strain trade relations.

The downturn in U.S.-India relations also carries real costs for Washington. India is important to U.S. supply chains, and its burgeoning defense and technology partnership with the United States has brought key gains to both sides. For years, a strong bilateral relationship has been a cornerstone of the U.S. Indo-Pacific strategy, with New Delhi cast as a critical counterweight to Beijing’s influence in the region. Yet Washington’s recent softer posture toward China and the prospect of a U.S.-China trade deal could suggest that counterbalancing Beijing may no longer be the administration’s immediate focus. New Delhi has taken note, even as it cautiously seeks to improve its own ties with Beijing. Over the weekend, Prime Minister Modi visited China for the first time in seven years for the Shanghai Cooperation Organization (SCO) leaders’ summit, meeting with President Xi and affirming that the two countries “were development partners and not rivals.” Prime Minister Modi’s trip followed closely on the heels of Foreign Minister Wang Yi’s trip to India, where he pledged that China would resume critical supplies of fertilizers, rare earths, and tunnel boring machines, alongside discussions on border stability.

What to Watch: Is a Thaw in the Tensions Coming?

• What will it take for President Trump to lower the new tariffs on India? If a Russia-Ukraine peace deal is looking promising, how quickly will the United States rescind the 25% penalty for Russian oil imports? On the flip side, if the Ukraine war remains unresolved, could Washington resort to heavier ‘secondary sanctions’ on New Delhi to further tighten pressure on Moscow? How India manages its close ties with Russia, heavy energy dependence amid U.S. concerns, and positioning within BRICS (a grouping President Trump views as anti-West and has threatened with tariffs) will be critical in determining how well New Delhi can uphold its strategic autonomy.

• Will the pressure of the 50% combined tariffs force Prime Minister Modi to make further concessions to secure the elusive trade deal with the United States and see the U.S. tariffs at par (or lower) than its Asian neighbors? Will the trade deal include any special treatment for India on the forthcoming Section 232 tariffs? For now, Prime Minister Modi has claimed that “India will never compromise with the interests of its farmers, herders, and fishermen,” acknowledging the challenges and the personal price he may have to pay. Trade negotiations would ideally resume soon, and it should be in the interest of both sides to move swiftly towards an outcome. Establishing a direct Modi-Trump channel could be helpful to move beyond the rhetoric. The 80^th UN General Assembly (UNGA) or the Quad Summit (if the latter goes ahead) could be opportunities for a face-to-face meeting in the coming months.

• Will the Supreme Court uphold the President’s ability to impose these tariffs under the International Emergency Economic Powers Act (IEEPA)? The U.S. Court of Appeals for the Federal Circuit ruled last week that IEEPA did not authorize President Trump’s tariffs, but the tariffs are still in effect pending the expected appeal to the Supreme Court.

Dive Deeper with ASPI

• Read Wendy Cutler’s recent op-ed in the South China Morning Post, “U.S. Negotiators Face Tough Task to Secure Trade Deal with China.”

• Read Farwa Aamer’s recent op-ed in 9DashLine, “The Indus Waters Treaty: South Asia’s Most Durable Accord Faces a Tough Test.”

• Watch an ASPI webinar on “Tariffs and Textiles: Fashion Interrupted,” where panelists analyze the impacts of shifting U.S. trade policy on the global textile and apparel landscape, with particular focus on South Asia and Southeast Asia.

South Korean President Lee Jae Myung visited Tokyo for a summit with Prime Minister Shigeo Ishiba, just days ahead of his highly anticipated meeting with President Trump in Washington. The Lee-Ishiba meeting produced the first joint statement between their two countries in 17 years. The two leaders agreed to rebuild trust and strengthen trilateral cooperation with the U.S. While historical issues remain, both sides are prioritizing stability and flexible dialogue during a period of great uncertainty for international politics and economics. The unprecedented move of visiting Japan before the United States underscored that strong Korea-Japan relations are critical to drive forward U.S.-Japan-ROK trilateral cooperation, a key pillar of the U.S. Indo-Pacific Strategy.

With Ishiba’s advice, Lee’s visit to Tokyo likely facilitated a smoother dialogue with President Trump in Washington. Lee and Trump agreed on the importance of reengagement with North Korea, even while acknowledging that Pyongyang appears disinterested in resuming negotiations on denuclearization. Lee praised Trump’s leadership and role in negotiations with North Korea under his first administration, part of a series of flattering comments of the President. Trump emphasized the importance of alliance cooperation on shipbuilding, a priority for his administration against the backdrop of U.S.-China strategic competition. Despite the more positive atmosphere, the issues of trade and alliance modernization were far from resolved, but—the two leaders agreed to continue these discussions in the future.

Initially centered around prioritizing cooperation on the North Korean nuclear issue, the trilateral has since expanded to include broader cooperation on regional economic prosperity, advanced technologies, and climate change. Today, managing relations with the U.S. has become an important shared priority for Seoul and Tokyo, once seen as the weak link to effective trilateral cooperation. The key question now is how trilateral momentum, as well as ROK-Japan rapprochement, can be sustained under new leaderships in Washington and Seoul, and given political dynamics in Tokyo.

Bleak Outlook for U.S.-Japan-ROK Trilateralism

– By Emma Chanlett-Avery

Trilateralism among the three countries faces an uncertain and daunting path. Both Asian allies are likely to face intense pressure from the Trump administration to increase their own defense spending and the amount they contribute to defray the costs of hosting U.S. troops. Coupled with punishing tariffs, cost-sharing negotiations will further strain Japan and South Korea’s respective relations with the United States, degrading trust and eroding the security guarantees that underpin the alliances. In that context, productive cooperation among the three countries is improbable.

North Korean provocations have driven successful periods of trilateralism in the past. Trilateral exercises have emphasized sharing real-time ballistic missile warnings, coordinating anti-submarine warfare, countering cyber attacks, and enhancing interoperability and communication, all explicitly directed at North Korean aggression. If Trump seeks to restart personal diplomacy with Kim Jong Un as promised during the Lee summit, exercises that seek to deter DPRK provocations may be muted. In addition, both capitals anticipate that their own priorities in dealing with Pyongyang will be ignored if Trump engages directly with Kim. If a Trump-Kim deal involves a moratorium on ICBM testing—the most potent threat to the U.S. homeland—but does not address its other missile and nuclear weapon capabilities, Japan and South Korea’s security will suffer. Coordinating strategies on how to deal with policy outcomes on the Peninsula is a spoke that is ripe for Seoul-Tokyo cooperation.

While Lee sought to underscore the importance of U.S.-Japan-ROK trilateralism, the more remarkable aspect of his summitry is the growing strength of Japan-South Korea bilateral ties. Far from needing the United States to coordinate cooperation between Tokyo and Seoul, Ishiba and Lee are proactively reaching out to each other. Following on the heels of positive statements reflecting on the 80^th anniversary of the end of World War II, the leaders have downplayed history-related controversies that have dogged their relationship in the past. The rapprochement is all the more notable given that Lee hails from the progressive political end of the spectrum in South Korean politics, which has traditionally been more critical of Japan’s handling of history issues. Lee’s decision to stop in Tokyo and huddle with Ishiba ahead of his meeting with Trump speaks volumes about the relationship that previously required U.S. facilitation to engage.

Trump’s Tariffs: A Uniting Factor for Tokyo and Seoul

– By Jane Mellsop

The Lee-Ishiba summit provided a valuable opportunity for Japan and Korea to reinforce the importance of their bilateral economic cooperation, especially in light of volatile U.S. trade policy and ensuing global economic uncertainty. The leaders pledged to increase economic cooperation, including in cutting edge sectors of AI and hydrogen. But the meeting was also a chance for the leaders to compare notes on their own dealings with President Trump and the resulting trade deals, which were quite similar in terms of tariff rates, establishing an investment fund, and purchase commitments. While countries have been vigorously pursuing their own economic interests in their dealings with the U.S. to date—and with the trade deals now (largely) done—sharing experiences, lessons learned, and on-going challenges helps both Seoul and Tokyo, not only from a strategic point of view but also with regard to the leaders and their officials forging closer personal relationships.

As the U.S. looks increasingly inward and expands barriers to access its market, Japan and Korea are pursuing their own trade diversification efforts with increased urgency. This includes shoring up their economic relations with each other but also working together in other multilateral fora. Seoul may be more inclined to finally make the move to seek CPTPP membership under this new government and in this current economic environment. It is also worth watching closely how both countries engage with China over the coming months, with increased impetus for Japan-China-ROK FTA negotiations earlier this year, and the Japan-China-ROK trilateral summit expected to be held in Tokyo in October.

Moving on to the Oval Office after Tokyo, President Lee’s trip to Washington did not result in the ROK securing additional trade concessions, with President Trump confirming there would not be changes to the trade deal reached last month. Lee had been hoping to gain preferential treatment for steel and autos in particular, but Seoul’s status as an FTA partner of the U.S. has not resulted in anything more favorable than their direct competitors. The different interpretations with respect to the implementation of the $350 billion investment deal also did not appear to be ironed out by the leaders. The ROK may now find itself in the firing line for Trump’s new moves targeting digital trade barriers, which will add a further area of tension as the details of the July trade deal are worked out over the coming months. There may be another chance for a face-to-face meeting when Korea hosts the APEC summit in October; however, Trump has apparently been non-committal on his attendance.

Adapting to Realities and Identifying Opportunities

– By Rorry Daniels

U.S.-Japan-ROK trilateralism has mostly been defined by the bilateral relationships, with Japan-ROK relations often described as the weak leg of the stool. Recent events challenge the assumption that a common security environment coupled with U.S. support for trilateralism would be the main driver of stronger ROK-Japan relations. On the contrary, it seems the secret ingredient to bridging the gaps between the neighbors was the Trump administration’s indifference toward allies as it pushes through its economic and security priorities. The question on trilateralism moving forward is whether concrete cooperation developed from the change in tone between Lee and Ishiba can hold the stool’s now weaker bilateral legs with the United States

The key to satisfying the U.S. is more focused now on joint commercial opportunities than on military preparedness. While Japan and Korea may find some synergy to rebuild their tech sector connectivity after a suite of export controls stymied development, it’s less clear that the two sides are willing or able to bridge the gaps in their defense strategies. Anxieties about the U.S.’ commitment to extended deterrence, amid the building up of the DPRK and Chinese nuclear arsenals, may prompt both Tokyo and Seoul to develop indigenous nuclear weapons capabilities or push for tactical nuclear deployment. Renewed support for bilateral engagement may help the two sides better communicate their strategic intentions on any potential changes in nuclear policy, but such engagement is still fragile—a major decision that comes as a surprise to the other may damage the progress already made.

President Lee’s visits to both Tokyo and Washington were well-prepared, especially given the short time frame from his inauguration to these early overseas trips. The ROK government was able to project stability and vision after a tumultuous period for the country, but it is still playing catch up on relationship-building with the 2^nd Trump administration and other key global actors. Meanwhile, Japan under Prime Minister Ishiba is nowhere near as politically stable or forward-leaning on the rules-based international order as it was under Abe nearly a decade ago. In this regard, Japan and South Korea have a lot to offer each other—a politically secure and ambitious ROK administration can increasingly take on more responsibility in regional and global institutions, while Japan’s industrial strength and key positions in those institutions such as the Quad and CPTPP can advocate for Korea’s greater involvement. Although the Trump administration may not see allies as force multipliers for its agenda, the allies themselves may become force multipliers for each other to soften some of the rough edges of U.S. policy and stabilize the regional economic and security architecture.

Hi there. In today’s Asia Policy Brief, ASPI’s Summer Endowment Intern Allyson Ye and Managing Director Rorry Daniels examine President Trump’s U.S. AI Action Plan and the potential ramifications for Southeast Asian countries. While pursuit of ‘AI sovereignty’ presents its challenges, regional frameworks can provide unique opportunities for Southeast Asia’s technological agency amidst U.S.-China competition.

State of Affairs: Trump’s Zero-Sum AI Vision

“America started the AI race. And we’re going to win it.”

So heralded Donald Trump on July 23 when he signed the U.S. AI Action Plan into being, signaling the administration’s embrace of a competitive, deregulatory approach to artificial intelligence (AI). Underpinned by three executive orders, the action plan strips red tape such as environmental review, removes “woke AI” from government, and expedites the buildout of large-scale domestic AI infrastructure. Of most interest to international players, the plan calls for the U.S. to develop and promote its own open-source AI models—an area where China has historically made inroads with countries wary of ‘black box’ U.S. tech—and also reverses the Biden administration’s restrictions on advanced-capability AI, calling instead for hardware, software, and U.S. standards to be bundled into a “full-stack export package” for worldwide adoption. Altogether, the plan centers on achieving U.S. supremacy over the global AI market. The pernicious consequences if it fails? China will win the AI race and dominate the 21^st century global economy.

In Southeast Asia, the volatility of U.S.-China geopolitical jockeying has made ‘AI sovereignty’ a key strategic priority, as regional states seek to detangle themselves from a binary AI race by chasing geopolitical independence in domestic AI stacks. However, Trump’s action plan seems to take for granted that third countries are helpless to accept the rules of the game—that the future of AI geopolitics will be written by bipolar superpower rivalry, and the only question is with whom will they side. If the global market casts smaller countries overwhelmingly as buyers rather than partners on the AI value chain, Southeast Asia may find ambitions of sovereign AI increasingly costly.

Why It Matters: The Cost of Alignment

Invocations of ‘AI sovereignty’ made in the promotion of Indonesia’s Sahabat-tailored large language model, Thailand’s SIAM.AI Cloud, and Malaysia’s first full-stack sovereign AI infrastructure, are all driven by recognition of the glaring security risks of ceding too much of this critical technology to foreign control. In an age where compute is revered as a critical resource akin to oil, overdependency on a foreign AI stack is naturally an alarming prospect. What happens if the service is cut off? What happens if the dependency is exploited by the provider country? A domestic market hyper-attached to one foreign vendor leaves smaller countries uniquely vulnerable to not only price fluctuations and supply shocks, but also political leverage.

Perhaps more tangibly felt are the implications of AI sovereignty for public trust and AI adoption. If AI is the ‘next big thing’ characterizing frontier nations, public uptake of AI is crucial for smaller countries to evolve alongside the global economy. However, AI products imported wholesale from abroad can contain baked-in biases unique to the developer’s country that impede their own adoption. Common commercial models are trained on predominantly Western datasets, and aside from posing conversational barriers to non-English users, have been shown to reinforce sweeping generalizations and racial stereotypes about Asia learned from their Western cultural corpus. AI standards imposed by the Global North may not map onto how concepts like ‘privacy’ and ‘explainability’ are construed in collectivist cultures. These barriers to AI uptake could easily worsen the global digital divide, as Southeast Asian countries struggle to integrate AI amenable to their language, culture, and workforce.

If smaller countries do scale back national ambitions and tie themselves into one of two AI ecosystems top to bottom, this bifurcated tech landscape might affect the diffusion of ideas. Global division into two AI markets of limited interoperability might create diverging sets of information, content, and applications available to users, a two-party ‘echo chamber’ effect all the more troubling considering AI’s integration into media and education, and its potential for ideological weaponization. In turn, refining the models based on training data limited to each ecosystem may entrench biases that drive the two further apart.

What to Watch: A Non-Sovereign Solution?

Even absent great power competition, ambitions of sovereign AI are hampered by a swathe of practical concerns. AI infrastructure is financially costly, with worldwide capital outlays forecasted to reach almost $7 trillion to meet demand for compute. Data centers guzzle frightening amounts of water and display a voracious appetite for energy that has countries hankering to develop next-generation sources, which themselves require years to build. Compounding these limitations with the increasing pressure to align with Trump’s global market may, for Southeast Asia, put notions of true sovereign AI out of the picture for now.

The slim prospect of a national AI stack, however, doesn’t annul Southeast Asia’s chances of asserting agency over this technology. ASEAN member states have a keen disposition towards regional multilateralism, which could emerge as a powerful convening force for tech development. Singapore has released its regionally tailored SEA-LION model, trained on a data corpus sourced from languages including Thai, Vietnamese, Tamil, and Indonesian. A proposed ASEAN Language Repository would elevate these efforts to a regional level through an open-access platform for member states to contribute their own linguistic and multimodal datasets. The new Digital Economy Framework Agreement between ASEAN states breaks ground as the first region-wide agreement on digital governance, harmonizing its status as an interoperable seedbed for digital growth.

By taking advantage of regional fora such as ASEAN, Southeast Asian countries can disperse the overwhelming costs of pursuing AI sovereignty and assert a unique leverage over their digital futures. Though perhaps less secure than developing a domestic stack, regional multilateralism could be the key to ASEAN states holding their own in the shifting terrain of AI geopolitics—and its rapidly thickening binary.

Dive Deeper with ASPI:

• Read Wendy Cutler and Shay Wester’s recent op-ed for the Straits Times, “Cloud Computing is the Missing Link in Regional AI Ambitions.”

• Watch Lizzi C. Lee moderate a virtual conversation on “China’s Open-Source AI Revolution,” part of a broader video series, China’s DeepSeek Moment, by ASPI’s Center for China Analysis.

• Read Danny Russel’s report with Emily Ratté, “Defense or Diffusion? Open Source AI in U.S.-China Competition.”

Editor’s Introduction: Hi there. In today’s Asia Policy Brief, ASPI’s Managing Director Rorry Daniels breaks down recent political and economic developments in Taiwan, and how these events point to an uncertain future for the Lai administration and his Democratic Progressive Party (DPP). August will prove to be an important month that has the potential to further impact U.S.-Taiwan and cross-Strait relations.

State of Affairs: Taiwan’s President Under Pressure

Taiwan’s leader Lai Ching-te had a series of setbacks over the last two weeks as Taiwan’s voters rejected a recall of opposition legislators, plans for his U.S. transit in early August were called off, and Taiwan failed to secure a favorable trade deal with the United States. While not explicitly linked, the close timing of these multiple setbacks has spiked anxieties in Taipei about the future of Lai’s agenda.

Lai, as Chair of the ruling Democratic Progressive Party (DPP), publicly apologized after throwing the party’s weight behind the attempt to recall 24 opposition Kuomintang (KMT) legislators and appointed new party leadership to manage the upcoming second wave of recall votes, scheduled for August 23. However, the total failure of the first round of votes means the DPP has lost the opportunity to change the majority in the legislature through the recall process.

A day later came the indefinite postponement of a Lai transit visit through the U.S. on a planned trip to Taiwan’s diplomatic allies in Central America. Details surrounding the final decision to delay the visit remain opaque, but the cancellation came amidst ongoing U.S.-China trade negotiations and rumors of a U.S. President Donald Trump summit in Beijing this fall.

Finally, while many Asian economies concluded trade negotiations with the United States just before the August 1 deadline, Taiwan was unsuccessful in doing so and now faces a tariff rate of 20% with no clear sign on how the two sides will close the gap between U.S. demands and Taiwan’s own imperatives and sensitivities.

Why It Matters: A More Vulnerable Taiwan

This series of events are an inflection point in Taiwan’s domestic politics that could have long-term implications. Pressure at home and abroad could push Taiwan’s parties into closer alignment on key issues or serve to highlight differences and deepen divides. A Taiwan weakened by in-fighting and vulnerable to economic shocks may affect Beijing’s calculus on how to advance its unification objectives, opening up the Taiwan Strait to further instability or an escalating crisis.

While the DPP had hoped the recall would end the gridlock in domestic politics caused by the opposition’s majority in the Legislative Yuan, voters completely rejected the attempt. Several factors may have contributed to the recall’s failure: the late arrival of the DPP to support the grassroots movements that began the recall process; the failure to centralize coordination of the same toward a catalyzing narrative; and a dissatisfaction with other domestic political intrigue, such as the long-time detention of Ko Wen-je, leader of the Taiwan People’s Party aligned with the KMT, which may have mobilized support for the targeted lawmakers. Whether the voters rejected process or substance, the DPP is in the middle of a larger shift—having been in power for almost a decade, it is no longer the upstart party but the political establishment.

If the Lai administration couldn’t solve the domestic politics puzzle, it had hoped to establish Lai’s connections to a U.S. now dominated by the Trump agenda. However, the DPP has been slower than expected to code switch from thundering support for the rules-based international order and shared democratic values to a narrative that would more directly appeal to President Trump’s priorities and transactional style.

While Taiwan has strong bipartisan support in Congress and U.S. defense appointees seem focused on denying the PRC a full-scale invasion, Taipei has also been asked to raise its defense budget and contribute as a semiconductor powerhouse to the build out of a U.S. high-tech manufacturing sector. Despite doing all it can on these points, a bigger fish—a potential U.S.-China trade deal—seems to have deprioritized public shows of support from Washington. Calling off Lai’s visit in the midst of U.S.-China trade negotiations suggests concerns from the U.S. side that Lai’s presence or actions might jeopardize bigger picture priorities with Beijing. As one of the 21 APEC members, Taiwan will be attending APEC 2026 in Beijing—if the U.S. is unwilling or unable to pull off a balancing act between Taipei and Beijing, Lai’s job in promoting Taiwan’s interests becomes that much more difficult leading into local elections just after the APEC summit.

On trade, the Lai administration has been actively trying to close a deal, preferably one similar to the other advanced economies in its periphery, South Korea and Japan. Instead, Taiwan was hit with a 20% tariff rate while negotiations continue. In order to reach an agreement, the U.S. is pressing Taiwan to provide market access in politically sensitive sectors, such as agriculture and autos, as well as invest more in U.S. semiconductor manufacturing and purchase more energy, agricultural products, or weapons from the U.S.—even as Taipei has already put billions on the table with little to show from Washington given delays in fab construction and in delivery of arms sales. The devil will be in the details of the final deal—to what extent will the Trump administration use Taiwan’s vulnerability as leverage that bolsters U.S. economic priorities at the expense of Taiwan’s prosperity?

What to Watch: Can the DPP Pull Out of a Tailspin?

1. Defense Special Budget Vote: The Lai administration has pledged to increase Taiwan’s defense budget to over 3% by use of special budget authorizations that need to pass the LY. The next tranche will be submitted to the legislature in August. The resulting LY debate could give clues on the trajectory of domestic politics—how will the KMT navigate domestic head-butting around the next set of recall votes when defense preparation and relations with the U.S. are on the line?

2. Support from the U.S. Congress: Beijing will not be pleased to see the announcement of a new Congressional delegation to Taiwan this month, led by Chair of the Senate Armed Services Committee, Roger Wicker (R-Colorado). How will Taiwan’s media cover the visit, and will Beijing respond with increased military pressure and/or seek to route complaints through the ongoing trade negotiations? Can the U.S. Congress help balance the executive branch’s focus on a trade deal with the PRC, including reconstituting a Lai transit visit at a later date?

3. Supply Chain Shifts Could Expand Taiwan’s Partnerships. The ongoing restructuring of global trade due to U.S. trade negotiations may create opportunities for Taiwan to build connective tissue through its unofficial and economic relations with the countries of Asia and the world. While cross-Strait trade continues, Taiwan companies are moving their investment dollars elsewhere,. If Taipei can capitalize on developing tech supply chains into Asia’s rising economies, it may find more support overall for continued peace and stability in the Taiwan Strait—and better channels to convey its concerns about Beijing’s aggression.

4. Nuclear Power Referendum. Alongside the remaining August 23 recall votes, Taiwan’s electorate will vote in a national referendum to decide whether to restart its Maanshan nuclear reactor. The DPP led efforts to sunset all nuclear power from Taiwan after the Fukushima incident in 2011, but increasing power needs for an AI-driven economy and resilience from fossil fuel imports have reopened the debate. A win for the KMT-TPP referendum could further magnify a sense that the DPP is out of touch with emerging challenges.

Dive Deeper with ASPI

• Explore ASPI’s Taiwan Policy Database, a one-of-a-kind interactive that allows visitors to trace the evolution of cross-Taiwan Strait relations from the perspectives of Beijing, Taipei, and Washington.

• Read Simona Grano’s Taipei Times op-ed on “Europe, Taiwan Amid Global Chaos.”

• Read Rorry Daniels’ South China Morning Post op-ed on “Missed Signals Only Worsen Tensions over Taiwan.”