China reroutes exports amid US tariffs, floods Southeast Asia

Chinese exports to Southeast Asia—particularly Vietnam, Thailand, and Indonesia—are surging as a response to rising US tariffs, raising concerns over trade diversion and transshipment, according to Citigroup.

With direct shipments to the US dropping sharply, Chinese goods—especially textiles—are entering regional markets in record volumes, straining local industries.

Vietnam, Thailand, and Indonesia are witnessing a sharp increase in Chinese imports as higher US tariffs disrupt traditional trade routes, according to a report by Citigroup Inc.

Citi’s head of emerging-markets economic research, Johanna Chua, noted that China’s rising exports to Southeast Asia may reflect trade diversion, given the steep drop in direct exports to the US in recent months. The influx of cheaper Chinese goods poses challenges for recipient countries and domestic industries. For instance, Indonesia has seen Chinese textile imports hit a new monthly record, exacerbating pressures on its already struggling garments sector, which has laid off thousands of workers.

Chinese export prices overall, including textiles, have been on a downward trend since early 2023. In contrast, exports to the US fell sharply—by more than a third in May—marking the steepest decline since 2020 amid ongoing trade tensions between the two nations.

Citi also pointed to record shipments to Southeast Asia as a potential indicator of transshipment, where Chinese goods are routed through other countries to circumvent US tariffs. The report highlighted a “significant increase in correlation” between the rise in Chinese imports by Southeast Asian nations and their subsequent exports to the US.

“Transshipment has been a focal point in Washington’s tariff negotiations with Southeast Asian nations such as Vietnam and Thailand,” both of which have agreed to tighten controls on certificates of origin.

Citi added that as scrutiny over transshipment grows in the US, “China may be shifting more of its downstream production to third markets in lieu of US tariff risk, while maintaining its dominance in the supply chain for intermediate goods.” This evolving strategy may allow China to preserve its role in global trade while adapting to the new tariff landscape.