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Chinese Exports Surge in Southeast Asia Amid U.S. Tariffs, Citi Warns of Trade Diversion

by Team Lumida
June 11, 2025
in Macro
Reading Time: 5 mins read
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Key Takeaways:

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  • Chinese exports to Southeast Asia, including Vietnam, Thailand, and Indonesia, have reached record highs, as direct shipments to the U.S. have fallen sharply due to higher tariffs.
  • Citi suggests the surge may indicate trade diversion or transshipment, with China routing goods through Southeast Asia to bypass U.S. tariffs.
  • The influx of cheaper Chinese goods is pressuring local industries, such as Indonesia’s struggling garment sector, which has already seen significant layoffs.
  • U.S. authorities are increasing scrutiny on transshipment practices, prompting Southeast Asian nations to tighten rules on certificates of origin.

What Happened?

Chinese exports to Southeast Asia have soared, with shipments to countries like Vietnam, Thailand, and Indonesia hitting record levels, according to a report by Citigroup. This surge comes as China’s direct exports to the U.S. have plunged by over a third in May, the steepest drop since 2020, amid ongoing trade tensions and higher U.S. tariffs.

Citi’s analysis points to trade diversion, where China redirects goods to Southeast Asia to avoid U.S. tariffs. The report also highlights a significant correlation between increased Chinese imports in Southeast Asia and higher exports from these countries to the U.S., suggesting potential transshipment practices.

The influx of cheaper Chinese goods, particularly textiles, is creating challenges for local industries in recipient countries. For example, Indonesia’s garment sector, already under pressure, has faced layoffs as Chinese textile imports hit new monthly highs.


Why It Matters?

The surge in Chinese exports to Southeast Asia underscores the ripple effects of U.S.-China trade tensions on global supply chains. While Southeast Asian nations benefit from increased trade activity, the flood of cheaper Chinese goods threatens local industries, potentially leading to job losses and economic instability.

Transshipment practices, where goods are routed through third countries to evade tariffs, have become a focal point in U.S. trade negotiations. Washington’s efforts to clamp down on these practices could strain relations with Southeast Asian nations, which are key players in the global supply chain.

China’s strategy of shifting downstream production to third markets highlights its adaptability in maintaining dominance in global trade, even as it faces mounting tariff risks. However, this approach could lead to increased scrutiny and regulatory challenges in both Southeast Asia and the U.S.


What’s Next?

The U.S. is likely to intensify its crackdown on transshipment practices, pressuring Southeast Asian nations like Vietnam and Thailand to enforce stricter rules on certificates of origin. This could lead to tighter trade regulations and increased compliance costs for exporters in the region.

China may continue to shift production to third markets to mitigate tariff risks, further entrenching its role in the global supply chain for intermediate goods. However, this strategy could face headwinds if U.S. authorities impose additional restrictions or penalties.

Local industries in Southeast Asia will need to adapt to the influx of Chinese goods, potentially through government support or industry reforms to remain competitive. Meanwhile, investors and policymakers will closely monitor trade flows and regulatory developments to assess the long-term impact of these shifts.

Source
Tags: China
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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
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Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
‍Address: Lumida Wealth Management, 25 W 39th Street Suite 700, New York, NY 10018