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US-China trade war is pushing Asian nations to pick sides, ministers warn

Malaysia and Singapore find harder to maintain neutrality as geopolitical tensions grow

The trade war between the US and China is putting south-east Asian countries under increasing pressure to pick sides between the world’s two biggest economies, government ministers have warned.

“China is looking and watching,” Malaysian trade minister Zafrul Aziz, who is leading tariff negotiations with Washington on behalf of the Association of Southeast Asian Nations, told the Financial Times.

“They are saying, ‘Whatever you give to the US, we want the same because whatever you give to the US is at our expense,’” Zafrul said.

Zafrul’s comments, echoed on Thursday by a warning from Singapore’s trade minister that neutrality in the region was becoming harder to maintain, highlight the rising tensions between Washington and Beijing since US President Donald Trump unveiled a package of tariffs last month.

Zafrul said the economic decoupling of the US and China was putting pressure on countries in south-east Asia — many of which are important hubs in supply chains linking the two economic superpowers — to pick one side over the other.

“We have to balance it by not choosing a side and by understanding each side’s concerns,” Zafrul added. “All countries [in the region] are having to navigate that. It is tough.”

Gan Kim Yong, Singapore’s trade minister and deputy prime minister, said the city-state had avoided neutrality as its international policy, but was finding it harder to maintain ties with both the US and China as the divide between them grew.

“If you try to be neutral and walk the middle road, the road is getting narrower and narrower, eventually it will be a knife edge and you won’t be able to stand up,” Gan told a UBS conference on Thursday. “The key is we have to take sides, we have to take positions, we have to really do so based on principles.”

But he said the approach taken by Singapore — which plays a critical role linking China to the west — was to adopt positions on contentious geopolitical issues based on its own national concerns, rather than to side with one country over another.

South-east Asian countries were among the worst-hit by the package of “reciprocal” tariffs announced by Trump last month, with some, such as Vietnam and Cambodia facing levies of more than 40 per cent because of their large trade surpluses with the US.

Soon after the tariffs were unveiled, Chinese President Xi Jinping embarked on a tour of Vietnam, Malaysia and Cambodia, seeking to strengthen ties and secure its influence in the region.

Beijing has criticised a deal struck between the US and the UK this month, which it believes could be used to squeeze Chinese products out of British supply chains.

Washington has granted a 90-day reprieve to provide affected countries a window to negotiate. Zafrul has since been in talks with US commerce secretary Howard Lutnick and trade representative Jamieson Greer, including at an Asia-Pacific Economic Cooperation gathering in South Korea last week.

“They seem to understand [our position],” said Zafrul. “But the caveat is, they still need to convince the boss. This still depends on Trump.”

He added that if Washington were to implement tariffs specifically targeting the chipmaking industry, it would have a “big impact” on his own country’s economy since semiconductors account for more than 60 per cent of Malaysia’s exports to the US.

“This is an ecosystem that has been built over 60 years,” he said. “For each multinational that is present in Malaysia doing this business, there are at least a few hundred Malaysian companies supporting it.”

Heads of state and government from Asean and the Gulf Cooperation Council countries will gather in Kuala Lumpur next week to try to build a broad trade agreement between the two blocs against the backdrop of a collapse in the world trading system. Chinese Premier Li Qiang will also attend.

Worries about trade wars and a rising debt load have shaken faith in the Treasury market

Big investors say they are diversifying their bond portfolios to include greater exposure to markets outside the US as Donald Trump’s trade war and the country’s growing deficit erode the appeal of the world’s biggest debt market.

US debt markets have been hit in recent days by the president’s “big, beautiful” tax bill, which was passed by the House of Representatives on Thursday and threatens to sharply increase the country’s public debt.

The rising concerns over the level of government borrowing follow wild swings for Treasuries during the fallout from Trump’s tariff blitz last month, when US debt failed to play its traditional role as a refuge from market stress.

“The US is no longer the ultimate and only perceived safe haven,” said Vincent Mortier, chief investment officer at Amundi, Europe’s largest asset manager. “The country has become the home of extreme fiscal undiscipline.”

Investment chiefs stressed that the dollar would remain the world’s reserve currency for the foreseeable future and Treasuries would maintain their role as a central component of bond portfolios.

However, they added that the recent turmoil sparked by Trump’s trade war and his “liberation day” tariffs on April 2 had underscored the benefits of international allocation, particularly while many regions’ debt markets were suddenly generating strong returns.

“Our client base is looking at their allocations, and they’re feeling heavily overweight dollar assets relative to where they’ve been historically,” said Bob Michele, chief investment officer and head of global fixed income at JPMorgan Asset Management.

“They’re concerned now about all things in the US, the impact of tariffs, the size of the budget deficit and the federal deficit and on and on and on. Why not use that opportunity to diversify into other markets?”

Long-dated US government bonds sold off sharply in the run-up to the passage of Trump’s tax bill, extending a multi-day decline after a weak Treasury auction highlighted intensifying fears over America’s fiscal trajectory. The 30-year yield climbed above 5.1 per cent on Thursday, its highest level since late 2023, reflecting a sharp drop in price.

The dollar, meanwhile, has dropped 8 per cent this year against six major peers.

“The dollar is the story,” said Lindsay Rosner, head of multisector investing at Goldman Sachs Asset Management. “It is hard to find an equivalently liquid, deep rule-of-law market” but “the impact on the dollar has been meaningful. There is weakness in the dollar that has some permanence. There is power in diversification outside the US.”

Bond fund giant Pimco’s management team told the Financial Times earlier in May that it was “prudent” to “look for other high-quality markets to diversify into” amid heightened recession risks caused by Trump’s tariffs.

Investors particularly highlighted the appeal of European bond markets, along with Japanese and Australian debt, all of which were offering strong yields together with increasingly upbeat economic narratives.

“I would say there’s an acceleration in interest in looking outside of US markets at non-dollar assets, particularly now where you get a considerable amount of yield in Europe,” said Michele, who observed that a “new core is developing” in the region.

“Historically, everyone had looked at Germany and France.” But “because there’s concern about fiscal expansion there, we’re now looking at what 15 years ago were considered the peripheral borrower: Italy and Spain”.

Concerns over US public finances have dominated the conversation in the market in recent days, as Congress moves ahead with a bill that would extend Trump’s 2017 tax cuts. Independent analysts say the legislation would markedly increase annual deficits and the country’s debt burden.

“The US will most probably maintain a budget deficit of between 6 and 7 per cent of GDP,” said Amundi’s Mortier. “That is a lot by any standard and will result in more refinancing needs . . . so more supply of Treasuries to the market.

“Can demand follow? Yes, but many buyers will request higher yields.”

Henry McVey, head of global macro and asset allocation at private capital firm KKR, said in a report this week that “liberation day”, when Trump launched his global trade war, had “been a catalyst for engaging in serious conversations with global investors and their boards about diversifying beyond the US capital markets.

“When the US [earlier this year] experienced the trifecta of a weaker dollar, falling equities and rising rates, it set off risk alarm bells that forced everyone from sovereign wealth funds to family offices to not only de-risk but also to look for ways to reduce their overweights to US assets.”

McVey suggested that “the traditional role of US government bonds may diminish due to the country’s fiscal deficit and high leverage”.

China vies for lead in the race to self-driving vehicles

Chinese car manufacturers are pushing to replicate their success with EVs

Chinese carmakers have shocked the world’s auto brands with their rapid adoption of electric vehicles. Now the battleground is shifting to autonomous vehicles and many experts believe China is again claiming an early advantage.

The battle sees US groups such as Tesla and Waymo, Google’s self-driving project, pitched against BYD, China’s biggest EV group, as well as robotaxis from Pony.ai, Baidu and WeRide.

While autonomous driving for several years was viewed as an Achilles heel for BYD, the Warren Buffett-backed group rocked the auto industry in January when it revealed plans to deploy its God’s Eye advanced driving system to 21 new car models, without additional charges for customers.

Tu Le, founder of the Sino Auto Insights consultancy, says BYD — which challenges Tesla for the crown of the world’s biggest EV maker — appears to be moving into pole position in the race to develop advanced driving assistance systems. These are technologies such as automatic emergency braking, adaptive cruise control and monitoring of driver attention and potential collisions, and are seen as forerunners to fully autonomous vehicles.

“When you ask me ‘who’s winning?’ I have to get back to ‘how many cars are being sold?’” Le says. “And if it is a numbers game — because we need to point back to how much data is being collected, how much data is feeding into the algorithm — then clearly that would indicate that BYD will win, because they are making it standard on every vehicle.”

As the fledgling autonomous driving industry grows, companies are vying for hundreds of billions of dollars in potential new revenues as logistics and transport fleets adopt vehicles expected to be safer, cheaper and more efficient. 

This month, Goldman Sachs analysts forecast the value of China’s robotaxi market alone will surge to $47bn by 2035, from $54mn in 2025. This, the bank’s analysts said, would be driven by decreasing costs of hardware and algorithms. It estimates the unit cost of a vehicle with intelligent driving falling to $32,000 by 2035, from $44,000 today.

And coupled with the demise of the industry producing the internal combustion engine, the prospect of driverless cars is also opening the door to hardware and software companies.

Among the top contenders is Beijing-based Baidu, China’s rival to Google and its biggest robotaxi operator. In January the company said its Apollo Go vehicles provided 1.1mn rides to the public in the fourth quarter of last year, up 36 per cent year-on-year, and taking its cumulative rides to more than 9mn. 

Excitement is also brewing over the emergence of Huawei, based in China’s tech manufacturing hub of Shenzhen, as another key challenger. While the world’s biggest telecoms group has no plans to build cars, it may be poised to dominate large swaths of the supply chain for autonomous driving despite being heavily targeted by US sanctions.

“Huawei has a distinct advantage,” says Le. “They’re trying to go completely vertical, meaning: building the chips, building the software, building the infotainment, building the data in the cloud.”

However, regulatory uncertainty may prove a constraint, both in China and the US, Shihao Fu, a technology analyst at IDTechEx, a UK-based tech research group, notes that while up to 10 per cent of new vehicle sales in China may be “L2-plus or L3 ready”, China’s current regulations do not yet permit their full operation at these levels. L2 technologies allow “hands-off, eyes on” driving, while L3 enables “hands-off, eyes-off” — but typically in only in predefined conditions. A big leap remains from these technologies to full driverless cars on all roads.

Officials are being called on to answer difficult questions which stand in the way of the industry’s development, including over safety and liability, as more cars with self-driving functions take to Chinese roads. Their answers could define the pace of new technology becoming available, just as China tries to stay ahead of the US. 

“The number one concern is definitely safety — the technology needs to be proven, that is non-negotiable,” says Raymond Tsang, an automotive technology expert with Bain in Shanghai. “The second [concern] is insurance and liability: when something bad happens, then who is responsible? The insurance company, or the manufacturer or the owner? That needs to be sorted out.”

Meanwhile in the US, Tesla will launch a driverless ride-hailing service in Austin, Texas, by June and start production of a fleet of autonomous vehicles next year. But regulatory questions are also emerging in the US over whether Elon Musk’s so-called “Cybercabs” would be allowed to drive on American roads without pedals or a steering wheel.

Another uncertainty stems from the trade war between the US and China, which threatens to further decouple the world’s biggest economies. In this context, Christoph Weber, who leads the China business of Swiss engineering software group AutoForm, says Germany’s Volkswagen appears well-positioned to stay in the autonomous driving fight.

VW was in recent years caught off guard by Chinese advances and its share in the world’s biggest auto market has been battered. But it has since overhauled its global strategy. Now, Weber says, VW appears to be essentially becoming “two companies”, one in China and one in the US, with separate tech platforms, supply chains and research and development teams.

“This split in geopolitics and technology between the US and China is happening. And they have a very clean answer,” he says. “Maybe some people don’t like this answer because basically it means you have to double your investment and resources. But having two platforms, one west, one east, that is actually reasonable.”

Merz backs Nord Stream ban to prevent US and Russia restarting gas link

German chancellor worried about reigniting domestic row over Russian gas imports

German chancellor Friedrich Merz is “actively” backing a proposed EU ban on the Nord Stream pipelines connecting Russia to Germany in a bid to stop any US and Russian efforts to reactivate the gas links.

Merz’s government earlier this week said it endorsed the ban as part of the bloc’s upcoming round of sanctions against Russia for its war in Ukraine. According to three officials familiar with the matter, the chancellor sought to quell any domestic debates about the merits of a potential reactivation.

Reports in the Financial Times in March about Kremlin-linked Russian and US business people seeking to restart the privately owned pipelines prompted Merz to start discussions with officials in Berlin and Brussels about how to prevent that, one of the people said.

Adding Nord Stream to the EU sanctions list “potentially removes a political problem for him”, they said.

The punitive measures are also a way for Merz to “Europeanise” the fate of the pipeline, instead of Berlin facing up potential US and Russian pressure on its own, another official said.

While it has no state control over any of the four pipelines currently disabled after explosions damaged three of them in 2022, Berlin would have to grant a certification for any activation of the gas link.

The EU restrictions would target Nord Stream 2 AG, the Switzerland-based entity that owns the pipelines, and any other companies — Russian or otherwise — that are necessary for its restart and operation, people familiar with the plans told the FT.

European Commission president Ursula von der Leyen last week mentioned Nord Stream as part of the “new package of sanctions” her team was working on. She made those remarks having first consulted with Merz, who gave his support for the move, according to a person familiar with the discussions.

The commission was set to begin formal discussions with EU governments this weekend, the people added. They can only be adopted with the unanimous support of all capitals.

A brainchild of former chancellor Gerhard Schröder, who had close relations with Putin and was later hired by Kremlin-backed Gazprom, Nord Stream was once a symbol of the deep economic ties between Russia and Germany.

Even before Moscow launched its full-scale invasion of Ukraine in 2022, the link was a bone of contention between Berlin and Washington, with the first Trump administration urging then chancellor Angela Merkel to reduce her country’s energy dependence on Russia.

Matthias Warnig, a former Stasi spy and close friend of Putin, has discussed a restart of the pipeline with the backing of US investors, people with knowledge of the talks said previously. Warnig was seeking to leverage US President Donald Trump’s desire for economic rapprochement with Moscow, they said.

“It is correct that the chancellor actively supports sanctions against Nord Stream 2,” a government spokesman said, adding: “One of the aims of our sanctions is to cut off Russia from revenues that could be used to finance its war of aggression against Ukraine in violation of international law. This includes revenues from the export of fossil fuels.”

Trump’s efforts to negotiate a settlement with Russia over Ukraine have rekindled a debate in Germany over Nord Stream and Russia gas, which accounted for more than half of German gas imports before 2022.

A survey by Forsa found that 49 per cent of residents of Mecklenburg-Vorpommern, the German state where Lubmin, the pipeline’s terminus, is located, were in favour of resuming Russian gas supplies.

The far-right Alternative for Germany, which has secured more than 20 per cent of the votes nationwide in February elections, has called for bringing the pipelines back online as the Eurozone’s largest economy grapples with high energy prices and stagnation.

This view is shared by some business leaders and politicians from Merz’s centre-right Christian Democratic Union (CDU) and his centre-left coalition partners, the Social Democrats. The Green opposition has blamed remnants of the “Moscow connection” within Germany’s mainstream parties.

In March, Michael Kretschmer, the CDU prime minister of the east German state of Saxony, said that maintaining punitive measures against Moscow was “completely out of date and does not fit at all with what the Americans are doing right now”.

Responding to reports by the FT and others about Nord Stream, CDU MP Thomas Bareiß in a LinkedIn post saluted “how business-minded our American friends are”.

Dietmar Woidke, the SPD prime minister of the east German state of Brandenburg, called for a normalisation of Germany’s trade relations with Russia after a peace agreement.