Asia Communique
Thai Jets Strike as Border War Flares | India–UK Seal Historic Trade Deal | US Probes China Link to Pentagon | Chinese Parts Found in RU Drones |
Asia Morning Brief: July 25
Thailand and Cambodia: the worst border clash in 13 years
The week’s most dramatic story emerged along the Thai‑Cambodian border, where artillery duels escalated into airstrikes and revived a long‑running sovereignty dispute over ancient temples.
On July 24, Thai forces scrambled six F‑16 jets after Cambodia fired artillery rounds into Thailand, killing at least 11 civilians and injuring 31 others. Thai Defense Minister Phumtham Wechayachai said the strike was a precision response to Cambodian shelling and insisted that Thailand “was provoked but remains committed to peaceful discussions.” Cambodia’s information ministry condemned the attack as “reckless and brutal military aggression,” saying a hospital was hit and calling for an international investigation.
The artillery barrages and airstrikes are the most serious fighting since 2012, when clashes around the Preah Vihear temple killed dozens of troops. The temple was awarded to Cambodia by the International Court of Justice in 1962, but the countries dispute the surrounding 4.6‑km strip of land. After Thursday’s exchange, Thailand evacuated more than 40,000 civilians and said 12 Thai nationals (11 civilians and one soldier) had died. Cambodian casualties were not immediately clear. U.N. Secretary‑General António Guterres called for an immediate ceasefire, and the U.N. Security Council scheduled an emergency meeting while the U.S. urged both sides to “cease hostilities at once.”
Refugees described chaotic evacuations, with one woman telling Reuters that she hid in a ditch with her children as shells landed nearby; another said her family fled after their neighbor’s house was hit. Despite the violence, Thai officials stressed that they want to resolve the dispute peacefully. Analysts note that both governments face domestic pressure—the Thai coalition government is fragile, while Cambodian Prime Minister Hun Manet is consolidating power after taking over from his father—making it politically risky to appear weak.
Economic headwinds: inflation and tariff talks
Tokyo inflation stays hot
Japan’s price pressures continued to confound the Bank of Japan (BOJ). Tokyo’s core consumer prices (excluding fresh food) rose 2.9 % year‑on‑year in July, staying above the BOJ’s 2 % target, while an index stripping out fresh food and fuel climbed 3.1 %. Analysts expect the central bank to revise up its inflation forecast at next week’s policy meeting and are increasingly pricing in another rate hike later this year. Persistent inflation has forced the BOJ to phase out its ultra‑loose policy faster than officials once signaled.
Malaysia pushes for low U.S. tariffs
Across Southeast Asia, Malaysia is racing to finalize a trade deal with the United States before a 1 August deadline to avoid a 25 % tariff on its goods. Investment, Trade and Industry Minister Tengku Zafrul Aziz told reporters that Kuala Lumpur aims for the “lowest possible” tariff, denying reports it is willing to accept 20 %. Malaysia is reluctant to cross certain “red lines” on non‑trade barriers that encroach on domestic interests.
The urgency stems from Washington’s new approach to trade under President Donald Trump, who has been pressing Asian partners to renegotiate bilateral deals. Vietnam, the Philippines and Indonesia have already agreed to 20 % tariffs; Malaysia fears being hit harder if it misses the August deadline. Meanwhile, U.S. negotiators are also balancing demands from domestic industries and a congressional deadline.
Seoul and Washington talk manufacturing tariffs
In Washington, South Korea’s Industry Minister Kim Jung‑kwan met U.S. Commerce Secretary Howard Lutnick to discuss lowering proposed U.S. tariffs on South Korean goods. Kim said the two sides are in the “critical final phase” of negotiations and aim to reach a deal by August 1. The talks come after Japan secured its own tariff agreement and underscore how countries across Asia are scrambling to avoid steep U.S. tariffs in sectors from cars to appliances.
Diplomacy and geopolitics
EU‑China summit: inflection point in trade
A major diplomatic event unfolded in Beijing as the European Union and China marked the 50th anniversary of diplomatic ties. European Commission President Ursula von der Leyen told Chinese President Xi Jinping that the bilateral relationship had reached an “inflection point” and that Europe would “raise concerns openly”. She warned that Chinese industrial overcapacity and the EU’s record trade deficit must be addressed.
Xi urged Europe to “avoid restrictive trade tools” and maintain open markets, arguing that unilateral trade barriers would hurt global growth. The summit produced a joint statement pledging cooperation on climate change and energy transitions but left key economic issues unresolved. Analysts believe Brussels is trying to balance pressure on Beijing over unfair subsidies and intellectual property theft with the EU’s reliance on Chinese markets and materials such as rare earths.
U.S. lawmaker demands answers on Chinese engineers
In Washington, Republican Senator Tom Cotton wrote to Defense Secretary Pete Hegseth demanding details on the Pentagon’s use of Chinese engineers under a Microsoft cloud support contract. According to Reuters, a ProPublica investigation found that Chinese nationals working for a Microsoft subcontractor handled Pentagon data through 2021. Microsoft later terminated the practice and Hegseth ordered a review. Cotton asked what information the engineers accessed and whether any security incidents occurred. The incident underscores the mounting U.S. concern about supply‑chain vulnerabilities and Chinese access to sensitive defense systems.
India–UK Sign Landmark Free Trade Deal
After years of negotiations and delays, India and the UK finally inked a sweeping free trade agreement on July 24. This is the first such deal India has ever signed with a European country—and it’s being hailed as a “game changer” for both economies.
So what’s actually in the deal?
For one, tariffs are coming down in a big way. British exports to India, like Scotch whisky and premium cars, will see duties slashed dramatically. Whisky tariffs, for example, will drop from a punishing 150% to 75% immediately, and gradually head toward 40%. Indian exporters also win big—nearly 99% of Indian goods, including textiles, jewelry, and generic drugs, will now enter the UK duty-free.
There’s also a huge investment and jobs component. Officials expect it to add billions to both economies and unlock a flood of new investment. Indian professionals—think chefs, yoga instructors, musicians—will now have easier access to UK work visas. Indian companies, in turn, will get access to billions of pounds in UK public procurement contracts.
Not everything made the cut, though. India held firm on keeping key agricultural goods like dairy and apples off the table to protect domestic producers. That move raised a few eyebrows in the UK farm lobby but was expected.
UK Prime Minister Keir Starmer called the agreement “the most significant trade deal since Brexit,” while Prime Minister Modi said the day marked a new chapter in the India–UK relationship.
Industry reaction has been a mix. UK whisky and machinery exporters are thrilled. British carmakers? Less so. While tariffs will come down over time, high initial quotas and limits on luxury vehicles like Jaguars have sparked concerns. Still, analysts say those savings will add up in the years ahead.
All in all, it’s a bold move—and a timely one. As India seeks to position itself as a manufacturing and services powerhouse, and the UK looks to re-establish post-Brexit trade ties, this deal sends a clear signal: both countries are serious about doing business.
Chinese engines fueling Russian drones
A Reuters exclusive revealed that Russian drone maker IEMZ Kupol has been secretly acquiring Chinese engines disguised as “industrial refrigeration units” to power its Garpiya‑A1 attack drones. The report said shipments through Beijing allowed Kupol to quadruple production from 2,000 to 6,000 drones annually and that around 500 drones are being used each month in Ukraine.
Previously, Russia relied on engines supplied by Germany’s Limbach Aviation, but Western sanctions forced it to turn to China. A Chinese firm, Beijing Xichao International Technology and Trade, now ships engines and control systems to Moscow via Air China and Air Bridge Cargo. European officials warn that the shipments highlight a “very serious” risk of Chinese support for Russia’s war effort. Beijing insists it opposes unilateral sanctions and “controls dual‑use goods” but has not directly commented on the shipments.
The revelations add to the complicated triangle of U.S.-China-Russia relations. Washington has repeatedly pressed Beijing to stop supporting Russia’s war machine, while Beijing counters that the U.S. is fanning the conflict by sending weapons to Ukraine.
New U.S. sanctions on North Korea-related entities
On a related note, the U.S. Treasury Department announced new sanctions against three individuals and one company linked to North Korea’s arms program. The sanctions list, which reportedly includes Chinese and North Korean entities, aims to disrupt networks that help Pyongyang evade existing restrictions. Details remain scant, but the move underscores Washington’s willingness to penalize those who facilitate North Korea’s missile development despite Chinese objections.
Defense and security trends
AUKUS: new treaty and giant war games
Defense ministers from Australia and Britain met in Sydney to deepen cooperation under the AUKUS trilateral pact with the United States. British Defense Secretary John Healey announced that a new treaty underpinning each country’s submarine programs would be worth up to £20 billion to Britain over 25 years, emphasising that AUKUS is “central to our national security”. Australia’s government is under pressure from Washington to spend more on defense, but officials say they need time to scale up shipyard capacity and workforce.
The visit coincided with Talisman Sabre 2025, a multilateral exercise involving 40,000 troops from 19 nations across thousands of kilometres of Australia’s land and sea. Britain’s aircraft carrier HMS Prince of Wales docked in Darwin, where soldiers from the U.S., Japan and other partners practised amphibious landings and long‑range missile strikes. Such drills are widely seen as a signal to China that AUKUS partners are building a network of forces to deter aggression in the Indo‑Pacific.
South Korea and the U.S. inch toward a trade deal
Trade overlaps with defense because economic ties underpin alliances. South Korea’s Kim Jung‑kwan said Washington and Seoul would “make sure our companies are not disadvantaged” by high U.S. tariffs. The negotiations come as President Trump pressures allies to buy more U.S. goods and invests heavily in domestic defense production.
Thai jets over Cambodia and risk of broader conflict
As discussed above, Thailand’s use of F‑16 jets represented its biggest deployment of air power along the Cambodian border in over a decade. Observers worry that continued clashes could involve other Southeast Asian countries through ASEAN’s mutual defense dialogues. For now, diplomatic channels remain open and the U.N. is mediating.
Other regional developments
Myanmar sanctions relief
The U.S. quietly lifted sanctions on four Myanmar individuals and entities tied to the military junta. The sanctions had targeted defense companies providing rare‑earth minerals critical for advanced electronics. The move came after junta chief Min Aung Hlaing publicly praised President Trump and offered a negotiating team to Washington. Human rights groups criticized the decision, warning that it sends the wrong signal as the junta continues to suppress dissent.
Vietnam floods
In central Vietnam, Tropical Storm Wipha unleashed torrential rains that caused widespread flooding. At least three people died, and one remains missing as flash floods submerged 3,700 houses and damaged hundreds more. Rice fields and livestock were destroyed, deepening economic pain in an area already recovering from earlier storms. A villager interviewed by Reuters said his entire house was flooded and “all belongings were swept away”. Authorities warned that more rain is expected.
Chinese mine accident
Six university students and a professor from Northeastern University in Shenyang died after falling into a flotation cell at a copper‑molybdenum mine in northern China. The incident occurred when protective grates collapsed during a field visit. The mine, operated by state‑run Zhongjin Gold, has suspended operations and local authorities are investigating. The accident highlights the risks associated with fieldwork at industrial sites and has prompted calls for stricter safety protocols.
Trade and market updates
U.S.–Australia beef deal
President Donald Trump announced that Australia will fully open its market to U.S. beef by relaxing country‑of‑origin rules. Previously, Australia only allowed beef from cattle born and raised in the United States; under the new rules, animals can be born in Canada or Mexico as long as they are legally imported and slaughtered in the U.S.. Analysts say the deal is unlikely to significantly boost U.S. exports because Australian beef remains cheaper. Nevertheless, Trump warned that countries refusing U.S. beef are “on notice.” The agreement took effect July 28, and the U.S. Department of Agriculture said import permits would be issued immediately.
Rare‑earth focus
The EU‑China summit and the U.S. lifting of Myanmar sanctions underscore the importance of rare earths in geopolitics. Europe wants stable supplies to feed its green‑technology ambitions, and the U.S. hopes to diversify supply chains away from China. Beijing, for its part, has vowed to control exports of some rare‑earth metals, prompting Western countries to race to secure alternative sources.
Snapshot of the week ahead
July 26: Taiwan’s High-Stakes Recall Vote
July 30‑31: Bank of Japan policy meeting. Markets expect modest tightening if inflation remains elevated.
August 1: Deadlines for Malaysia and South Korea to finalize tariff deals with the U.S. to avoid tariffs of up to 25 %.
TBD: U.N. Security Council meeting on the Thai‑Cambodian crisis. Continued monitoring of border tensions is essential.
Late July/Early August: Possible Indian and Chinese diplomatic visits as the two sides seek to consolidate a thaw in relations.