According to Citigroup Inc., Vietnam, Thailand, and Indonesia are among the Asian nations experiencing the most significant increase in Chinese imports as US tariffs disrupt regional trade dynamics.
The surge in Chinese exports to Southeast Asia may be an example of trade diversion, as direct Chinese shipments to the United States have notably declined in recent months, noted Johanna Chua, Citi’s head of emerging markets economic research, in a Tuesday report.
This influx of often more affordable Chinese goods could create challenges for local businesses and economies, Citi warned. For instance, Indonesia recently recorded a new monthly high in textile imports from China, adding pressure to its already struggling garment industry, which has laid off thousands of workers.
Since early 2023, both overall Chinese export prices and textile shipment costs have been declining. Meanwhile, exports to the US in May dropped by over a third—the largest decline since 2020—amid ongoing trade tensions.
The record levels of shipments to Southeast Asia might also indicate transshipment activities, where China reroutes goods through other countries to circumvent the impact of increased US tariffs, Citi stated. The report highlighted a “significant increase in correlation” between Southeast Asian nations’ rising Chinese imports and their exports to the US.
Transshipment has been a contentious issue in US tariff negotiations with Southeast Asian countries like Vietnam and Thailand, both of which have pledged to tighten rules regarding certificates of origin.
As the US intensifies efforts to curb transshipment, Citi suggested that China might be shifting more of its downstream production to third markets to avoid US tariffs, while continuing to dominate the supply chain for intermediate goods.
Last week, Thai Finance Minister Pichai Chunhavajira announced that the US has agreed to initiate official tariff negotiations with Thailand. Thailand faces a 36% US tariff unless a deal is reached before the upcoming moratorium deadline in July.
