Summarize this content to 2000 words in 6 paragraphs in Arabic Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is the author of ‘Chip War’As US President Donald Trump wields tariff threats, and China’s record trade surplus approaches $1tn, how are other countries navigating trade and tech tension? South-east Asia — economically interlinked, politically often neutral — is a laboratory for efforts not only to mitigate the cost of trade disputes, but to capitalise on them. Some south-east Asian leaders perceive a once-in-a-generation chance for re-industrialisation. Countries like Thailand and Malaysia used to be considered rising tigers. Yet in the wake of the Asian financial crisis of 1997, China entered the World Trade Organization and sucked in so much foreign investment that little was left for south-east Asia. This has now changed. It isn’t only western firms seeking non-China manufacturing bases with low tariffs and competitive costs. Chinese companies are looking for offshore assembly to evade tariffs and restrictions. Investment is therefore pouring into south-east Asia. But extracting value has proven trickier than expected. Companies are adept at playing governments off each other in demanding tax credits and subsidies, with many regions competing for the same business. A second challenge is that manufacturers seeking regulatory arbitrage often add little economic value. Malaysia has benefited from a data centre boom, partly because it has surplus electricity, but partly because US export controls until recently permitted unlimited shipment of AI chips to the country. Some of these data centres serve the domestic market, but some provide AI cloud computing services to Chinese customers that lack access at home. As much as $25bn has been invested in data centres in Malaysia. But how much value accrued to local companies? The country can sell surplus power to data centres, and it wins construction jobs. But the largest cost of a datacentre is the chips and servers inside — gear largely imported from abroad. The profit in cloud computing mostly accrues to chipmakers and software providers, not the country that owns the land on which data centres sit. Some south-east Asian officials have similar concerns about Chinese manufacturing plants opening in the region. When western companies open factories there, they do so because they want access to local labour and component supply, which are cheaper than at home. When Chinese firms arrive, they don’t only import most components from China — they often import Chinese workers, too. Can south-east Asian countries induce Chinese companies to buy local and share technology? China grew rich by encouraging foreign companies to transfer technology, so Beijing knows to oppose tech transfer obligations imposed on its own companies. China is already imposing export controls on equipment for electronics assembly and EV technology, lest this help build industry abroad. Beijing is also stopping certain skilled workers from travelling abroad to slow the outflow of expertise. Reindustrialising south-east Asia is an attractive slogan in the region’s capitals, but the world’s largest industrial power sees it as a competitive challenge. Local manufacturers in south-east Asia often see new Chinese factories in their countries as competition, too. True, officials often celebrate Chinese investment. Yet south-east Asia’s manufacturing and assembly base has grown up in deep integration with western supply chains. Japan’s automakers have for decades sourced from parts suppliers in Thailand, for example, while Malaysia’s chip assembly and test plants provide services largely to western semiconductor firms. An expansion of Chinese companies’ global market share in autos or chips only benefits south-east Asian economies if Chinese manufacturers integrate with the region’s supply chains. Yet business leaders in the region grumble that this happens too rarely. China’s electric vehicle leaders are highly vertically integrated, and their supplier base is disproportionately Chinese. Small and medium-sized firms in the region have learned to sell into the western supply chain. They perceive much less opportunity to sell to China’s manufacturing juggernaut. “When elephants fight, the grass suffers,” runs one proverb often cited by countries feeling squeezed by both superpowers. Yet alongside fear of Trump’s tariffs and China’s inexorable export growth, countries in south-east Asia are trying to capitalise on trade war opportunities, too. Playing the world’s two largest economies off each other is an obvious strategy, as multinationals seek neutral ground. But extracting value from supply chain shifts is harder than it might seem.
