USD 500 Million Additional Donation to WHO Following U.S. Withdrawal
Expanding Global Presence Amid U.S. 'America First' Policy
Using Influence to Intentionally Exclude Taiwan from the International Community

China is accelerating its efforts to expand its influence on the international stage. Since the launch of the Donald Trump administration, as the U.S. has stepped back from international organizations and agreements, China has moved to fill the void and shift the balance of power. While currently positioning itself as a guardian of multilateralism and acting with caution, experts predict that China will focus on expanding its influence without bearing significant burdens. This strategy appears to be aimed at shaping global opinion in its favor by investing heavily and becoming the largest contributor to international organizations.

U.S.: “WHO Unnecessary, Let’s Withdraw Together”

On the 21st May (local time), Reuters and Politico reported that U.S. Health Secretary Robert Kennedy Jr., in a video speech at the World Health Assembly (WHA)—the annual meeting of the WHO held at the UN's Geneva office—said, “I hope America’s withdrawal from the WHO serves as a warning to health ministers and the WHO itself.” He added, “We are already in contact with like-minded countries. We hope others will consider joining us.”

The U.S., once the WHO’s largest financial contributor, has begun the withdrawal process and halted its assessed contributions for 2024 and 2025 based on an executive order signed by President Trump on his first day in office. The U.S. urging WHO member states to withdraw is seen as part of a broader strategy to diminish the WHO—where China now has significant influence—and establish a new international health body in its place. Secretary Kennedy emphasized, “We want to liberate international health cooperation from the corrupt influence of pharmaceutical companies, hostile nations, and their (NGO) proxies.” Politico analyzed that this reflects U.S. efforts to build a global health cooperation network as an alternative to the WHO.

Kennedy also targeted China, stating, “International health cooperation remains a priority for President Trump and me, but as the COVID-19 pandemic revealed, the WHO does not function effectively.” He specifically cited the lab-leak theory and accused the WHO of helping to cover it up under China’s political pressure, suggesting the WHO is excessively influenced by the Chinese government.

China Pledges Extra USD 500 Million—Boosting Soft Power

Meanwhile, China has positioned itself as a financial savior of the WHO, which is facing a severe budget crisis following the U.S. withdrawal. On the same day, Chinese Vice Premier Liu Guozhong announced at the WHA, “China will provide an additional USD 500 million in funding to the WHO over the next five years.” He added, “In a time when unilateralism and power politics threaten global health security, the only solution is multilateralism. Through this donation, we aim to ensure the WHO operates independently and professionally, based on scientific principles.”

According to the WHO, in 2024–2025, the U.S. contributed over USD 700 million, more than 10% of the WHO’s entire budget. During the same period, China contributed about USD 200 million. If China’s new pledge is confirmed, it would surpass the U.S. and become the WHO’s largest donor. The WHO recently announced a 21% budget cut for 2026–2027 due to financial difficulties and is planning a 20% increase in member contributions over the next two years.

Experts believe this additional support will significantly enhance China’s soft power. The UK-based academic nonprofit The Conversation noted, “China has become one of the most influential countries in global health through funding health infrastructure and training medical professionals.” It added, “China is likely to continue engaging in bilateral and regional development via the WHO and expand its global health soft power agenda, especially across sub-Saharan Africa.”

In global politics, both hard power (military and economic strength) and soft power (the ability to shape preferences without force) are at play. After the collapse of the Soviet Union, China emerged as a counterbalance to the U.S. and began emphasizing soft power to compensate for its hard power limitations.

China Expands Contributions to the UN and Paris Agreement

China’s soft power expansion goes beyond the WHO. Among the five permanent members of the UN Security Council, China sends the most troops to UN peacekeeping operations. Last week, Chinese Defense Minister Dong Jun visited Europe and expressed China’s intention to play a greater role in peacekeeping.

In 2019, China surpassed Japan to become the second-largest financial contributor to the UN and has continued to increase its contribution share. This figure now approaches that of the U.S., which has maintained a 22% contribution since 2001. Compared to the final year of Trump’s first term in 2021, China's share has increased by 8 percentage points. Even within the UN, there is growing recognition of China’s leadership. UN climate chief Simon Stiell stated at COP29 in Baku, Azerbaijan, “We need China’s continued leadership,” acknowledging China’s capabilities in the climate sector.

While the U.S. decided to withdraw from the Paris Climate Agreement, China has stressed its importance and supported renewable energy transitions in countries like the Philippines. Chinese President Xi Jinping previously said, “No matter how the international situation changes, China will not slow down its efforts to tackle climate change or its push for international cooperation,” vowing to pursue “a shared future for humanity.”

Xi also emphasized four priorities: defending multilateralism, deepening international cooperation, promoting a fair green transition, and implementing concrete actions, reinforcing China’s active role in combating climate change.

China’s push to expand soft power influence within international organizations is also seen as a move to reshape global norms in its own favor. China has been using its influence to assert sovereignty over Taiwan, leading to Taiwan’s exclusion from the WHO General Assembly for the past nine years.

On May 19, China’s Ministry of Foreign Affairs reiterated in a statement, “Taiwan has no basis, reason, or right to participate in the WHA without central government approval.” China’s effort to establish an “International Mediation Institute” is viewed in a similar light. According to the Chinese government, a signing ceremony led by Foreign Minister Wang Yi regarding the founding of the institute will take place on May 30 in Hong Kong. The event is expected to host representatives from more than 60 countries and over 20 international organizations across Asia, Africa, South America, and Europe.

Chinese Foreign Ministry spokesperson Mao Ning stated, “This will be the world’s first intergovernmental organization dedicated to resolving international disputes through mediation,” and claimed the institute will be a key mechanism for upholding the principles of the UN Charter.

Jensen Huang: "No Packaging Alternative Besides TSMC"
No Mention of Samsung Electronics’ HBM
Beyond Mature Nodes, Core Semiconductor Competitiveness Must Be Secured

In the global semiconductor arena, where innovation moves at breakneck speed and leadership is both hard-earned and easily lost, Samsung Electronics finds itself at a crossroads. Once heralded as a formidable force in chip manufacturing, Samsung’s foundry business now faces a stark reality—being overlooked by the very partners who once counted on its capabilities. The most recent blow came from none other than NVIDIA CEO Jensen Huang, whose comments and actions during a series of high-profile industry events in Taipei have sent ripples through the tech world. While competitors TSMC and SK Hynix were lauded, Samsung received what can only be described as a cold shoulder—raising questions about the future direction of its semiconductor strategy.

Jensen Huang Draws a Line: Favoring TSMC and SK Hynix Over Samsung

At the GTC Taipei global press conference on May 21, held at the prestigious Mandarin Oriental Hotel, Jensen Huang was asked about the role of advanced packaging technologies in the evolution of artificial intelligence (AI). In response, he held up one of NVIDIA’s latest chips and remarked, “Look at the size of our chips—this is how small they are.” He went on to explain that such miniaturization and performance were made possible through TSMC’s proprietary Chip-on-Wafer-on-Substrate (CoWoS) technology. This method places multiple chips tightly together on a wafer and then bonds them onto a substrate, drastically shortening signal travel distances and thereby increasing data transfer speed and efficiency.

CoWoS, which is central to integrating GPUs and High Bandwidth Memory (HBM) in AI accelerators, has become indispensable for NVIDIA’s product architecture. When a reporter asked about Samsung's advanced packaging capabilities as an alternative, Huang gave a pointed reply: “CoWoS is a highly advanced technology at this point,” adding unequivocally, “Right now, there are no other options besides CoWoS that NVIDIA can use.” His statement made it clear—Samsung is not even under consideration.

The rationale behind this technological allegiance is rooted in the limitations of Moore’s Law. As Huang explained, the once-reliable trend of doubling transistor density every 24 months has stalled. The number of transistors that can be effectively packed into a single die has plateaued, forcing companies to adopt chiplet-based architectures. TSMC’s CoWoS is currently unmatched in enabling this transition.

But Huang’s disapproval of Samsung did not end with packaging. In the HBM sector—a key battleground for AI chip supremacy—Samsung was again bypassed. The industry had anticipated a favorable signal from Huang regarding Samsung’s long-awaited HBM3E memory. After all, nearly a year had passed since the company underwent qualification tests to supply these chips to NVIDIA. Yet, during his public appearances, Huang mentioned Samsung only once—and that in passing—when discussing a 6G AI technology partner.

In stark contrast, he showcased deep alignment with SK Hynix. On May 20, Huang visited SK Hynix’s booth at Computex 2025, Asia’s largest IT and computing trade show. There, he offered public praise for their HBM4 (6th generation) chips and even left cheerful handwritten notes: “I love SK Hynix” and “One Team.” This display of enthusiasm followed SK Hynix’s successful delivery of HBM4 samples to NVIDIA back in March, with full-scale mass production slated for the second half of the year. It was a symbolic gesture, but one with strategic weight—highlighting where NVIDIA’s trust and future investments lie.

Mature Process Demand Offers Temporary Relief

Despite these blows in next-generation technologies, Samsung has not been entirely marginalized in the foundry market. The company is experiencing surging demand in mature nodes, particularly in the 5nm and 8nm categories, which continue to play a significant role in consumer electronics and enterprise applications.

A notable example is Samsung’s win in securing the production of NVIDIA’s Tegra system-on-chip (SoC) for the upcoming Nintendo Switch 2 console. Nintendo had originally weighed the merits of Samsung’s 5nm and 8nm options. In the end, the 8nm process won out, primarily due to its cost advantages and higher production yield. This node does not rely on extreme ultraviolet (EUV) lithography—a technology that, while powerful, is also expensive and more complex to implement.

Samsung’s influence extends beyond gaming. The company’s foundry has also clinched deals with global clients like IBM, which entrusted Samsung with the production of its Telum 2 mainframe processor and Sapphire AI accelerator. These chips—unveiled at the Hot Chips 2024 conference—are integral to IBM’s next-generation Z Series enterprise server systems, and are being manufactured using Samsung’s 5nm technology.

Looking to the future, Samsung aims to leverage its 5nm capabilities in the automotive sector. Beginning in 2030, the company plans to manufacture semiconductors for Advanced Driver Assistance Systems (ADAS) in Hyundai’s luxury Genesis line. These chips will play a critical role in enhancing vehicle safety, automation, and driver experience.

While these contracts are promising, they serve more as financial lifelines than indicators of future leadership. The revenues generated from mature process nodes help Samsung stay afloat, but they do not position the company at the cutting edge of semiconductor innovation.

The Real Race: 2nm Nodes and HBM Supremacy

The challenge for Samsung is clear. Market dominance in semiconductors will be decided not by mature processes but by who leads the charge in 2nm manufacturing and high-performance memory for AI systems. These are the frontlines of the next era in chip technology—and the areas where Samsung is currently trailing.

Industry experts caution that the situation is urgent. “Chinese foundries with aggressive pricing are quickly catching up in mature process segments,” warned one market analyst. “Samsung’s position in the 5nm and 8nm market could gradually erode.” He stressed that Samsung must not only defend its current territory but also make aggressive moves into future battlegrounds.

To do so, Samsung must first achieve a critical milestone—passing NVIDIA’s qualification tests for HBM3E. At the annual shareholders’ meeting in March, Jun Young-Hyun, head of the company’s Device Solutions (DS) division, assured investors that Samsung’s 12-layer HBM3E products would enter market leadership “as early as the second quarter, or by the second half of the year at the latest.” Yet, with the third quarter fast approaching, there is still no confirmation that the qualification has been completed.

Samsung is now caught in a race against time. The company must translate its gains in mature nodes into a solid foundation for long-term innovation. Only by accelerating its development in 2nm technologies and reclaiming relevance in HBM can Samsung hope to win back key partners—and reassert itself as a leader in the semiconductor world.

30-Year and 40-Year Japanese Government Bond Yields Hit All-Time Highs
Weakened Market Demand Amid Bank of Japan's Reduced Bond Purchases
USD/JPY Exchange Rate Falls, Driving Yen Appreciation

Yields on Japan’s ultra-long-term government bonds have reached record highs, triggering a sharp surge in market anxiety. Weak demand, combined with the Bank of Japan’s (BOJ) reduction in bond purchases, has led to increased selling pressure, particularly on long-dated bonds, causing yields on 30-year and 40-year bonds to spike. In the market, concerns over the Japanese government's fiscal health and ongoing political uncertainty are exacerbating the supply-demand imbalance in government bonds, rapidly dampening investor sentiment.

Investor Anxiety Dampens Demand for Japanese Government Bonds

On the 20th (local time), Japan’s 30-year government bond yield rose to 3.14%, marking the highest level since the bond was first issued in 1999. The yield on 40-year bonds also climbed to a record 3.61%, heightening market tension ahead of the upcoming bond auction next week. The 20-year bond yield briefly surged by 15 basis points (1bp = 0.01%) to 2.555%, reaching the highest level in 25 years since 2000. In general, bond yields and bond prices move inversely.

Experts say that the poor demand in the 20-year bond auction—its weakest in over a decade—has triggered investor anxiety and fueled the surge in yields. Katsutoshi Inadome, Chief Strategist at Sumitomo Mitsui Trust Asset Management, commented, “The 20-year auction results were far worse than expected,” explaining that “although worries over fiscal expansion and falling liquidity had already led to a sell-off in the 30- and 40-year segments, market jitters are now spreading to the 20-year space as well.”

The Bank of Japan’s (BOJ) move to reduce bond purchases has also influenced the spike in yields. Since August 2023, the BOJ has been gradually cutting its quarterly bond purchases by ¥400 billion, aiming to halve its buying volume by March next year. Further complicating matters, major institutional investors in Japan, such as insurance companies that once supported the market, are now reluctant to buy bonds, worsening the supply-demand imbalance. Bloomberg reported that globally, investor caution over increased fiscal spending has contributed to the surge in Japan’s long-term bond yields.

Political Uncertainty Ahead of Japan's Upper House Election Adds Pressure

Political instability in Japan is also amplifying market concerns. Prime Minister Shigeru Ishiba has yet to achieve tangible results in tariff negotiations with the U.S. With the Upper House election set for July, discussions over deficit-financed bonds and tax cuts have intensified, raising further alarms over fiscal sustainability. These concerns peaked after Prime Minister Ishiba stated during a budget committee session on the 19th, “Japan’s fiscal condition is worse than Greece’s,” causing investor fears to deepen.

Japan’s government debt-to-GDP ratio has surpassed 250%, the highest among developed nations, far exceeding Greece’s peak ratio of approximately 150% during its 2010 debt crisis. This situation stems from Japan’s structural challenges. After the 1990s asset bubble collapse, the BOJ implemented a decade of aggressive stimulus and quantitative easing (QE) to support the economy. While the country ended its stimulus last year and exited negative interest rates, short-term borrowing costs still remain low at just 0.5%.

In March last year, the BOJ ended its negative interest rate policy and raised the policy rate (interest on excess reserves) to 0–0.1%. This was followed by hikes to 0.25% in July 2024 and 0.5% in January 2025, marking the highest level in 16 years and 3 months. In this context, Japan’s 30-year government bond yield recently surpassed South Korea’s. On March 17, Japan’s 30-year bond yield rose to 2.638% during trading, overtaking South Korea’s 30-year bond yield peak of 2.606%—a reversal not seen since August 2016.

Fears of a Repeat of 'Black Monday' Loom Over Markets

With Japanese ultra-long-term bond yields continuing to rise, fears of a mass unwinding of yen carry trades are spreading. Markets warn that a sustained increase in Japan’s bond yields could significantly alter global capital flows. As Japan is no longer perceived as a “zero-interest” country, the incentive to borrow yen at low interest and invest in high-yield assets elsewhere—the essence of the yen carry trade—may weaken. The recent appreciation of the yen, driven by a falling USD/JPY exchange rate, adds to these concerns.

Markets have already experienced such a shock. In late July last year, when the BOJ signaled an unexpectedly early rate hike, a wave of global deleveraging hit as investors unwound carry trades funded with cheap yen. On August 5, after the weekend, the Nikkei 225 plunged 12%—its second-largest drop ever—while Korea’s KOSPI and KOSDAQ both fell nearly 8%. The U.S. S&P 500 also lost 3%, with markets across Asia and the U.S. plummeting in tandem.

Amid rising concerns, experts are now calling on the BOJ to reconsider its quantitative tightening (QT) strategy. Ryoma Nagatomo, Senior Fund Manager at Norinchukin Zenkyoren Asset Management, warned, “In the current environment of fiscal risk and supply glut, there’s no appetite for ultra-long-term bonds,” adding, “Authorities must take clear measures to restore market confidence.” There are also calls for the Japanese Ministry of Finance to adjust its long-term bond issuance schedule to mitigate volatility. Many expect the BOJ to review its bond purchase reduction plan at its June policy meeting.

"Not My War" – Trump Shifts Blame to Europe
Putin Avoids Immediate Ceasefire by Citing 'Root Causes'
Outraged EU and UK Adopt Sanctions Package Against Russia

As the war in Ukraine grinds on, hopes for a swift resolution remain elusive. Recent diplomatic efforts have failed to bring about meaningful progress, prompting European powers to take decisive action. The European Union (EU) and the United Kingdom have jointly escalated sanctions on Russia, sending a strong message demanding an immediate and unconditional ceasefire. This development follows a high-profile phone conversation between U.S. President Donald Trump and Russian President Vladimir Putin, which, despite initial optimism, yielded little more than vague assurances. Frustrated by the lack of tangible outcomes, Europe has moved to tighten the economic noose around Moscow, reinforcing its stance that diplomacy must be accompanied by firm consequences.

Europe’s Sanctions Bombshell Against Russia

On May 20 (local time), in Brussels, foreign and defense ministers from EU member states and the UK gathered to adopt the seventeenth package of sanctions against Russia. Central to this new round was a sweeping crackdown on Russia’s so-called “shadow fleet”—a network of oil tankers used to evade Western sanctions. These vessels operate by switching off their Automatic Identification Systems or conducting ship-to-ship transfers to obscure the origin of Russian oil. A total of 189 tankers were newly sanctioned under this package, bringing the total number of EU-blacklisted vessels to 342.

The sanctions reach far beyond the ships themselves. Companies based in the United Arab Emirates, Türkiye, and Hong Kong, all accused of supporting the shadow fleet’s operations, have also been targeted. Additionally, major Russian maritime insurance firms, which facilitate these covert activities, were added to the sanctions list. The crackdown extended into Russia’s military-industrial complex, with thirty-one entities from Russia, Türkiye, and Vietnam sanctioned for providing direct or indirect support to the sector. Seventeen individuals and fifty-eight organizations involved in sanction evasion and arms transfers to Russia now face personal sanctions, including asset freezes and EU travel bans. Among these is Surgutneftegas, one of Russia’s largest oil and gas conglomerates.

On the same day, the UK launched over one hundred new sanctions targeting Russia’s military, energy, and financial sectors. These included restrictions on the Iskander missile supply chain, a key component of Russia’s offensive capabilities. The UK also imposed sanctions on fourteen individuals affiliated with the Social Design Agency, an entity accused of conducting disinformation campaigns with funding from the Kremlin. Additionally, forty-six Russian financial institutions, such as the St. Petersburg Currency Exchange and the Russian Deposit Insurance Agency, were designated for their roles in facilitating sanctions evasion. The concerted push by the EU and UK signaled not only deepening resolve but also growing dissatisfaction with the diplomatic status quo.

Diplomatic Dialogue Falls Flat

The immediate catalyst for Europe’s latest sanctions was the much-anticipated phone call between Presidents Trump and Putin on May 19. Spanning two hours, the conversation was touted by Trump as productive. On his social media platform, Truth Social, he declared that the discussion had gone “very well” and predicted that Russia and Ukraine would begin negotiations toward a ceasefire and, more importantly, an end to the war. However, he also emphasized that the terms of any truce must be decided solely by Russia and Ukraine, as only they knew the specific details required for negotiation. This statement suggested a limited role for outside mediation and placed the burden squarely on the two warring nations.

Later that day, Trump appeared to distance himself further from the process. Speaking to reporters, he acknowledged his hope for progress but warned that he would “back away” if a deal seemed unlikely. He added that he believed Putin wanted to end the war and that if he had thought otherwise, he would not have engaged with the issue at all. These remarks indicated a willingness to withdraw from diplomatic involvement should talks stall—a message that stood in sharp contrast to the assertive tone of European allies.

Trump also made a pointed effort to shift responsibility onto Europe. Declaring, “This is not my war,” he argued that the conflict was a European matter and should have remained so. Dismissing the prospect of new U.S. sanctions on Russia, he cited the possibility of progress in ceasefire talks as justification. However, foreign policy analysts noted that the U.S. has already scaled back its involvement in the war and now finds itself with limited strategic or financial incentive to re-engage. By effectively transferring the burden to Europe, Washington’s disengagement has raised concerns among allies who view the conflict as an urgent threat to regional security.

Mutual Indifference Sparks Global Criticism

President Putin’s stance mirrored Trump’s caution. Following the call, he told reporters that Russia had offered Ukraine a memorandum on a possible peace agreement and was willing to cooperate if a mutually acceptable deal could be reached. However, he stressed that the underlying causes of the conflict must be addressed first, reiterating Russia’s position that the war was provoked by Ukraine’s bid to join NATO and Western interference in the region. By framing the war as a reaction to external threats, Putin deflected responsibility and offered little indication that a ceasefire was imminent.

The lack of decisive action from both leaders triggered a wave of criticism from the international press. CNN reported that Trump appeared to have disengaged from the conflict entirely, suggesting he spoke as if he hoped someone else would assume the role of mediator. The network also noted that Putin seemed to convey that Trump was of little importance to Russia’s strategic calculations. The New York Times criticized Trump for stepping back from a firm demand for a ceasefire, interpreting his emphasis on bilateral talks as a tacit endorsement of Putin’s refusal to end the war unconditionally. The Washington Post observed that the conversation gave Russia just enough of a diplomatic façade to deflect blame for its intransigence. Meanwhile, the UK’s Telegraph accused Trump of abandoning his peace plan altogether, arguing that he appeared more focused on potential trade opportunities with Russia than on understanding the origins of the conflict.

As diplomatic channels falter and sanctions mount, the gap between rhetoric and resolution has become stark. While Europe continues to press for a ceasefire with increasing urgency, the absence of unified global leadership casts doubts on the prospects for peace. The coordinated pressure from Brussels and London may yet influence the Kremlin, but unless major powers take a firmer stand, the war risks becoming a drawn-out struggle with no end in sight.

Clear Limitations in Europe’s Rearmament Strategy
Southeast Asian Exports Emerge as Strategic Breakthrough
Technology Becomes Key Competitive Edge—South Korea Joins the Race

As global power dynamics shift and tensions simmer between the United States and China, the stage is set for a new kind of strategic competition—one not waged through traditional military standoffs, but through defense exports, regional partnerships, and influence-building in Southeast Asia. Once viewed primarily as a passive recipient of great power interests, the region has now emerged as an active marketplace for advanced military technology, naval modernization, and defense alliances.

European defense firms, grappling with internal structural limits and the challenges of rearmament at home, are turning outward with increasing urgency. They are seeking new opportunities in the Indo-Pacific, a region defined today by rising demand, growing geopolitical risk, and the desire among local governments to diversify their security relationships beyond traditional ties with the U.S. and China. Korea, too, has sensed this strategic opening, with its defense companies making swift moves to enter the fray.

Rearmament Challenges at Home Fuel European Expansion

Europe’s strategic pivot toward Southeast Asia is being driven by a mix of ambition and necessity. One of the most visible moves in this direction comes from Italy’s Fincantieri, the country’s largest shipbuilder. The firm plans to deliver two 6,000-ton PPA (Pattugliatore Polivalente d’Altura) multi-purpose frigates to Indonesia before the end of the year. Indonesian naval personnel are already undergoing training to operate these state-of-the-art vessels, which are scheduled for delivery in June and December.

The arrival of the PPA frigates is expected to make Indonesia the regional leader in naval capabilities, and Fincantieri anticipates this milestone will trigger increased demand for advanced warships in neighboring countries. This is not just an isolated transaction but part of a broader strategic campaign by European firms to expand their foothold in Southeast Asia.

Indeed, other major European players have joined the push. Leonardo, Airbus, Dassault, and Thales are actively lobbying for defense contracts across the region. Many eyes are now on French President Emmanuel Macron’s upcoming tour of Southeast Asia, which is expected to further energize these efforts. For Leonardo, the expansion is already well underway. After formalizing the sale of a customized PPA combat system for Indonesia in 2023, the company recently opened a regional office in Vietnam, signaling long-term commitment.

This aggressive outreach is partly rooted in the stagnation of the European defense market. While the Russian invasion of Ukraine has reinvigorated discussions around national defense and NATO-wide rearmament, actual implementation remains bogged down by financial constraints and regulatory bottlenecks. In this context, exports to emerging defense markets offer a faster, more scalable path to growth. Additionally, with the U.S. signaling reductions in its overseas defense footprint, especially in Asia, the pressure has intensified for European firms—historically reliant on transatlantic security alignments—to secure new markets before American support wanes further.

Southeast Asia Emerges as Strategic Battleground

Southeast Asia’s strategic allure lies not only in its location and economic potential but in the security vacuum left by shifting global alliances. Caught between China’s assertiveness and America’s slow strategic drawdown, nations in the region are increasingly seeking diversified defense partnerships—and European defense firms are ready to meet that demand.

Although current military procurement volumes in Southeast Asia may not match those of larger global powers, they offer a valuable foothold for long-term engagement. Industry experts note that the defense sector is not about one-time deals but ongoing relationships grounded in technology transfer, maintenance support, and local capacity-building. European suppliers, by offering flexible, partnership-oriented solutions, are aligning themselves with the region’s evolving needs.

At the center of this opportunity is the South China Sea, a flashpoint for territorial disputes and regional insecurity. China's expansive claims—covering 90% of the sea—have intensified confrontations with countries such as the Philippines, Vietnam, and Malaysia. These tensions are leading many Southeast Asian governments to rethink their reliance on Chinese military imports, opening the door to new, trusted suppliers.

Moreover, as the United States pivots toward an indirect containment strategy, focusing on empowering allies rather than direct military intervention, European companies are stepping in with attractive alternatives. Firms from France, Italy, and Germany are competing fiercely, not just on price or capability, but by offering custom-tailored packages that include technology transfers, local assembly, and long-term support agreements. The once-dominant perception that "U.S. weapons are the most technologically advanced" and "Chinese systems are the most affordable" is quickly eroding as European players close the gap in both areas.

South Korea Joins the Race with Submarine Deals and Strategic Bases

South Korea, already a rising power in global arms exports, has also recognized the strategic significance of Southeast Asia. Korean defense firms are stepping forward to compete head-to-head with Western manufacturers. In the second half of 2023, Hanwha Ocean made a notable appearance at a defense exhibition in Bangkok, where it engaged with Philippine defense officials to discuss a submarine acquisition program.

These talks bore fruit in 2024 when Hanwha formally secured approximately USD 2.2 billion submarine deal with the Philippine Department of National Defense. The Philippines responded proactively, with Deputy Defense Minister Irineo Espino visiting Hanwha Ocean’s Geoje Shipyard to inspect its capabilities in submarine construction and maintenance. The move signaled not only interest but a strong government-to-government confidence-building step, reinforcing the company’s position as a trusted supplier.

HD Hyundai Heavy Industries was even more proactive. It had begun engaging with the Philippine Navy as early as 2016 under the country's “Horizon Program”, which aimed to modernize naval forces. Initially focused on acquiring six frigates and twelve patrol vessels, the program was updated in 2024 to include two submarines. Between 2016 and 2022, Hyundai won contracts for ten ships—including two frigates, two patrol vessels, and six offshore patrol vessels—with the two frigates already delivered.

In March 2025, Hyundai took its Southeast Asian ambitions a step further by opening a new regional office in Manila, which will serve as a technical base for special-purpose vessels. The decision reflects not just commercial interest but a strategic investment in the region’s defense infrastructure. As conflict risks rise in the South China Sea, this office will help Hyundai solidify its presence and provide on-the-ground support to client navies.

This momentum aligns with regional trends. According to data from British defense intelligence firm Janes, maritime defense spending in Southeast Asia—particularly around the South China Sea—is projected to rise from USD 8 billion in 2023 to USD 10 billion by 2030. Both European and Korean firms are keen to secure as much of that market as possible before it matures and consolidates.

‘Penang Effect’ in Full Swing as It Attracts Factories and Capital
Strategic Positioning Between U.S. and China
Malaysia’s Rise Shakes South Korea’s Semiconductor Dominance

Known as the “Silicon Valley of the East,” Penang is attracting concentrated investments from global semiconductor companies, while Malaysia is leveraging its neutral diplomacy to simultaneously gain support from both the U.S. and China. Consequently, South Korea’s semiconductor industry faces growing pressure to strengthen its post-production competitiveness and strategically reinforce its supply chains.

Emphasizing Role as Neutral, Non-Aligned Semiconductor Hub

On 20th May (local time), the UK’s Financial Times o, as the technology hegemony competition between the U.S. and China intensifies, emerging Southeast Asian countries are being recognized as alternative suppliers replacing China. In particular, Malaysia—with its cluster of semiconductor factories centered in northern Penang (Pulau Pinang)—is rising not only as a manufacturing base but also as a core country in the global semiconductor supply chain restructuring.

Intel was the first semiconductor company to set foot in Penang. When Intel established its factory in Malaysia in 1972, it selected Penang as its first production base outside the U.S. Following Intel’s entry, AMD, Japan’s Renesas (formerly Hitachi), and Keysight Technologies (formerly Hewlett-Packard) followed suit. In the 2020s, dozens more, including European semiconductor firms like AMS Osram and Infineon, also established operations nearby. As of the end of last year, 55 global semiconductor companies had production facilities in Penang.

Along with its rise as a global semiconductor production hub, capital has flowed heavily into Penang. According to the Penang state government, in 2023 alone, the region attracted $12.8 billion (about 17.8 trillion KRW) in foreign direct investment (FDI), surpassing the total FDI attracted from 2013 to 2020. Malaysia’s total FDI in 2023 reached $69.4 billion (about 96.2 trillion KRW), more than quadrupling the previous year’s $16.9 billion (about 23.4 trillion KRW).

Industry observers interpret the steady inflow of semiconductor companies into Penang as more than simple factory relocations. For these firms, the geopolitical advantage of reducing reliance on China—amid tensions with the U.S.—and the ability to leverage Malaysia’s decades-old semiconductor assembly and packaging infrastructure make this a strategic redeployment of assets.

Malaysian officials welcome this shift. Malaysian Prime Minister Anwar Ibrahim declared at the “Semicon Southeast Asia 2024” conference in Kuala Lumpur earlier this month, “Today, I announce that our country will be the most neutral and non-aligned semiconductor manufacturing hub, making the global semiconductor supply chain more stable and resilient.” This reflects confidence in Malaysia’s dual role as a risk-averse “safe haven” and an optimal production base amid growing supply chain uncertainties due to U.S.-China conflicts.

Pragmatic Diplomacy Expands Industrial Ecosystem

Malaysia’s emergence as a key semiconductor beneficiary also highlights its increasingly important role as a diplomatic “balancer.” Amid escalating U.S.-China tech rivalry, Malaysia pursues maximum benefit through carefully balanced diplomacy that avoids siding with either power. Its status as ASEAN Chair in 2025 provides a critical platform for this approach.

Malaysia maintains close trade relations with the U.S. while continuously engaging in strategic exchanges with China. It actively courts American semiconductor investments but also signs parts supply agreements with Chinese firms to diversify its supply chain. This reflects a desire to avoid “complete dependence” on either side while nurturing its domestic industrial ecosystem.

Recently, Malaysia has made clear that it excludes neither China nor the U.S. Tengku Zafrul Abdul Aziz, Malaysia’s Minister of International Trade and Industry, said ahead of talks with U.S. trade officials last month, “We will focus on explaining Malaysia’s role as a ‘neutral’ actor connecting Asian and American supply chains.” This represents Malaysia’s pragmatic diplomacy prioritizing industrial growth over technology security concerns.

However, the longevity of this neutral stance remains uncertain, given the likelihood of increased pressure from either the U.S. or China as tensions rise. Malaysian geopolitical analyst Asrul Hadi Abdullah Sani noted, “Malaysia and ASEAN are caught in a dilemma between two undesirable choices: the U.S. and China.” Many foreign policy experts doubt Malaysia’s diplomatic strategy can withstand a hardline U.S. stance, like that of the Trump administration’s aggressive China containment.

A “Forewarned Competitor” Emerges for South Korean Semiconductors

As Malaysia rapidly rises from a quiet hub for semiconductor back-end processes, established semiconductor powerhouses like South Korea must remain vigilant. The relocation of equipment and workforce for all processes—including foundry, packaging, and testing—raises concerns about South Korea’s back-end industrial base weakening comparatively.

These concerns are reflected in various data points. According to a survey by the Korea Trade-Investment Promotion Agency (KOTRA), Malaysia accounted for 13% of global semiconductor assembly, testing, and packaging (ATP) processes as of Q3 last year. The export competition index between South Korea and Malaysia has risen to 50.5, up 6 points from 2019, indicating that the semiconductor export structures of the two countries overlap by 50.5%.

Experts agree that South Korea must strengthen its post-production processes' quality and technological sophistication to maintain competitiveness. Given Malaysia’s aggressive attraction of global capital under the image of “Silicon Valley of the East,” competition over research and development (R&D) and talent acquisition is also expected to intensify. An industry insider advised, “It is not enough to simply maintain production facilities domestically; South Korea needs to redefine its role within the global value chain and adopt multi-layered strategies that combine cooperation and competition with Malaysia.”

U.S. Standoff Prompts Strategy Shift for Both Nations
Can Japan Secure Gains in Key Auto Exports?
China’s Disruption of Negotiating Landscape Stirs Japanese Anxiety

Japan has backed away from its original demand for complete tariff elimination in trade talks with the U.S., pivoting instead toward securing tangible benefits like tariff reductions and cooperation in the auto sector. The shift comes as China swiftly reached a tariff agreement with Washington, undermining Tokyo’s leverage and prompting fears of diplomatic isolation. The high-stakes negotiations are drawing global attention for their potential to reshape the broader trade order.

U.S. Regains Upper Hand in Negotiations

On May 21, Nikkei reported that the Japanese government is now considering accepting reductions to U.S. tariffs on core exports such as automobiles, signaling a softening from its previous hardline stance. Once deemed a non-negotiable issue, Japan's willingness to compromise is seen as a move to break the deadlock in stalled trade talks. The paper reported growing anxiety within Tokyo, suggesting Japan may lower its demand from full tariff removal to partial reductions.

Currently, the U.S. imposes a 25% additional tariff on automobiles and parts, as well as on steel and aluminum imports globally. It also sets a base 10% tariff on all countries under the reciprocal tariff system, with Japan facing an additional 14% tariff. While a 90-day grace period is in place, that deadline expires on July 9.

The U.S. maintains that the 25% tariffs on cars and metals are non-negotiable and that only the 14% additional duty on Japan is subject to potential adjustment. This firm stance has clashed with Japan’s call for a broader review, stalling progress.

The two countries held negotiation rounds on April 16 and May 1, with a third set for May 23. Working-level discussions began on May 19. The upcoming talks will focus on trade expansion, non-tariff measures, and economic-security cooperation. While Prime Minister Shigeru Ishiba is pushing for maximum results, Economic Revitalization Minister Ryosei Akazawa is said to be pursuing more pragmatic compromises.

Mutual Recognition of Auto Standards Floated as Compromise

Abandoning its insistence on tariff elimination, Japan is now pursuing proposals that could still yield economic benefits—chief among them, mutual recognition of automobile safety standards. This approach would reduce regulatory barriers by having both nations accept each other’s testing results, thereby lowering costs and expanding market access. For Japan, this represents a shift toward securing “minimal but meaningful” outcomes.

Notably, autos, not steel or agriculture, are Japan’s top priority in the negotiations. As the world’s third-largest car producer, Japan exports 1.36 million vehicles annually to the U.S., underscoring its dependency on the American market. Even without tariff elimination, harmonizing safety regulations would boost production efficiency and competitiveness for Japanese automakers.

Japan also hopes to revive provisions from past trade deals to persuade Washington. During the Trans-Pacific Partnership (TPP) negotiations, the U.S. and Japan agreed on mutual recognition in seven areas, including rear-view mirror standards. Citing government sources, Yomiuri Shimbun reports Japan is now evaluating whether to expand that agreement.

China’s Rapid Deal Reshapes Japan’s Strategy—and Raises the Stakes

China’s decisive move to strike a quick deal with the U.S. played a pivotal role in Japan’s strategic recalibration. On May 12, Washington and Beijing issued a joint statement agreeing to reduce reciprocal tariffs by 115 percentage points from previously sky-high levels of 145% and 125%, respectively. Japan, which had hoped to benefit as the U.S. clashed with China, now finds itself at a disadvantage.

The U.S. is also seeking to apply its agreement with China as a template for talks with other countries, making it difficult for Japan to negotiate more favorable terms without inviting criticism over fairness. Washington is currently negotiating with 18 other major trade partners alongside China.

This context is amplifying domestic political pressure in Japan. If Tokyo fails to secure full tariff removal, critics may label it a diplomatic failure, especially when compared to countries like the U.K. and China, which have already extracted concessions. With these talks tied to broader global trade and diplomacy shifts, observers say Japan cannot afford strategic marginalization.