As Trump and Xi Prepare to Meet, What Should Southeast Asia be Watching?

President Xi Jinping lands in Washington this week for a much-anticipated meeting with President Donald Trump. While any meeting between these leaders will hold implications for Southeast Asia, there is one issue in particular that countries in the region should be keeping a close eye on: the disposition of the US-China trade truce agreed last year on the sidelines of the Asia-Pacific Economic Cooperation (APEC) Summit in South Korea.

The trade truce — set to expire on 10 November — dramatically reduced the triple-digit tariffs both countries had placed on each other, and eased export restrictions on critical minerals and technology. Failure to extend the truce would open the door to a snap-back in prohibitive tariffs and other forceful actions, including a reimposition of export restrictions.

For Southeast Asia, the stakes are high. With the status of the trade truce uncertain, and other trade actions under consideration, the respective tariff levels China and its neighbors in Southeast Asia will ultimately face on exports to the US remain unclear.

Should the leaders fail to agree to an extension of the trade truce and US tariffs revert to anywhere near the triple-digit range, Southeast Asian nations will grow even more attractive as production platforms for Chinese companies looking to move manufacturing facilities out of China in order to evade prohibitive US tariffs.

Conversely, if Trump and Xi arrive at some understanding that would set China tariffs roughly in line with those faced by Southeast Asian countries, a primary competitive advantage that had driven Chinese production facilities into Southeast Asia would be removed.  (As an indication of the tariff differential just before the trade truce, the average tariff on China was approaching 60 per cent while Vietnam was roughly 20 per cent).

Broadly speaking, the tariff picture is far from settled. Although the Supreme Court struck down the legal authority the Trump administration used to implement reciprocal tariffs, it pivoted almost immediately to utilise other legal instruments — in particular, two expansive Section 301 investigations — to reconstruct its desired high-tariff regime.

One of those investigations (forced labor) has been completed, while the other (excess industrial capacity) is still underway. Beyond the Section 301 cases, additional tariff actions or threats continue to be issued from the White House on an almost routine basis, utilising the various other trade instruments the President has at his disposal. Canada has recently been hit with 50 per cent tariffs under Section 338 and the threatened retaliation against countries doing business with Iran would proceed under Section 232 national security provisions.

The precise tariff picture will continue to be hazy for the foreseeable future. A decision by Trump and Xi to either extend the trade truce or allow it to lapse will, however, provide much greater clarity on both countries’ assessment of their best interests and on the competitive position of Southeast Asia arising from tariff differentials.

…the US-China relationship has settled into a “stabilising stand-off” thanks to the respective chokepoints each side possesses.

Beyond the trade truce, several other issues will bear close watching from Southeast Asia.

One of the key takeaways from the previous Trump-Xi meeting in May was the establishment of a bilateral Board of Trade. Although details were scant, the basic idea is to identify non-sensitive sectors where both sides would be comfortable reducing tariffs and expanding trade. U.S. Treasury Secretary Scott Bessent has indicated that the products under consideration “probably are USD30 billion of non-strategic, non-critical goods on each side”, which would amount to roughly 15 per cent of total bilateral trade. Given the advanced signaling, consider progress here to be very likely. Again, for Southeast Asia the critical issue will be to watch whether China can secure a favorable tariff differential on product categories the region exports to the US.

To a certain extent, the US-China relationship has settled into a “stabilising stand-off” thanks to the respective chokepoints each side possesses. China’s near monopoly on critical minerals — and the threat of restrictions on US access — helped drive the trade truce in Korea. The US, for its part, maintains a tenuous lead on technologies, especially AI chips, that are essential for China’s AI aspirations. The trade truce included commitments by the US to pause expansion of an export control blacklist.

Recognising the pain each side is capable of inflicting on the other has established a floor underneath the relationship and forestalled any dramatic intensification of bilateral frictions. For the time being at least, expect both leaders to seek to maintain this rough equilibrium on the critical minerals and technology chokepoints.

This will be the first time the leaders have met since the stunning OpenAI rogue hack into Hugging Face. Both the US and China share similar concerns about what AI could mean economically, militarily and socially, and would like to see greater guardrails put into place — but neither side wants to compromise its ability to “win” the race for AI superiority. What realistically could be agreed to? Given the lack of trust between the countries, the strategic importance of the issue, and the lack of consensus over how to best rein in AI’s malicious potential, the best that can be hoped for is a commitment to deeper dialogues.

Looking Ahead

It has already been signaled that no “Grand Bargain” will emerge from the September discussions.  Anytime these leaders meet, however, there will inevitably be some “deliverables” announced on one or more of the agenda items. For Southeast Asia, no agenda item will be more important than the disposition of the trade truce, and the additional clarity that can be gleaned on the tariff differentials between the region and China.

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