The ongoing trade war between the United States and China has prompted significant shifts in global supply chains and trade patterns. Recent data highlights a remarkable adaptation by Chinese exporters: despite a sharp 43% drop in direct Chinese exports to the US over the past year—amounting to a decline of $15 billion—China’s total exports have actually increased by 4.8% in the same period. This apparent paradox is largely explained by a surge in shipments routed through Southeast Asian countries, notably Vietnam and Indonesia, as well as increased trade with the European Union. In particular, May figures show Chinese exports to Vietnam soaring to $3.4 billion, up 30% year-over-year, while exports transiting through Indonesia rose by 25%. Against this backdrop, the US and Vietnam recently signed a trade agreement imposing a steep 40% tariff on goods shipped through Vietnam, in an explicit attempt to curb so-called “re-exports” from China to the US. These developments mark a new phase in the trade conflict, as multinational firms and Chinese manufacturers seek creative ways to sidestep American tariffs.

Quantitative Analysis: Trade Flows and the Scale of Circumvention

Official Chinese data, supported by independent international research, underscores the scale of adaptation within China’s export sector. While direct exports to the US have fallen dramatically, indirect exports—whereby goods produced in China are processed, assembled, or simply transshipped through third countries before arriving in the US—have increased substantially. According to Capital Economics and Financial Times charts, the estimated value of indirect exports from China to the US routed through Vietnam surpassed $0.7 billion in early 2025, while the Indonesian figure reached around $0.6 billion. The rise in these flows has closely tracked the timeline of US tariff escalation and intensified following new restrictions introduced in 2024–2025.

This growth is not merely a response to increased consumer demand in Southeast Asia. Instead, it is largely a result of companies’ deliberate efforts to reroute goods, taking advantage of free trade agreements and loopholes in country-of-origin regulations. By conducting final assembly or minimal processing in Vietnam, Indonesia, or other countries, Chinese manufacturers can have their products labeled as locally produced, thereby qualifying for lower tariffs or circumventing US restrictions altogether.

US Tariff Policy: Objectives and Unintended Consequences

The US government’s imposition of sweeping tariffs on Chinese imports has been framed as both an economic and a geopolitical maneuver. The intention is to protect domestic industries, rebalance trade, and weaken China’s technological and manufacturing competitiveness. However, rather than halting the flow of Chinese goods to the US, the tariff regime has spurred a boom in regional transshipment and assembly operations, giving rise to what some observers call a “proxy trade war.”

The recent US-Vietnam agreement, which introduces a 40% tariff on goods routed through Vietnam, is designed to close one of the primary loopholes exploited by Chinese exporters. This measure targets re-exports—Chinese goods that make a pit stop in Vietnam for assembly, packaging, or paperwork before being sent onward to the US. By increasing scrutiny and raising costs on these shipments, US policymakers hope to restore the intended impact of their tariffs and reinforce the credibility of American trade enforcement.

How Chinese Companies Circumvent Tariffs: Methods and Regional Hubs

The circumvention of US tariffs is enabled by a combination of regulatory loopholes, logistical flexibility, and aggressive supply chain management. Many Chinese firms have established or contracted assembly plants in Vietnam, Indonesia, Malaysia, and other ASEAN countries. In some cases, the goods undergo only minor modifications—such as repackaging, relabeling, or minimal final assembly—yet are legally considered local products under international trade rules. This practice, known as transshipment, is not new, but its use has intensified sharply as US-China tensions have escalated.

In addition to physical rerouting, Chinese exporters rely on regional logistics providers to mask the true origin of goods, sometimes blending Chinese components with locally sourced parts or even engaging in regulatory arbitrage. Multinational corporations also play a role, as they seek to preserve the cost advantages of Asian supply chains while managing regulatory risks.

Market Response: Adaptation, Risks, and the Future of Global Supply Chains

For Chinese companies, rerouting exports involves operational costs, logistical challenges, and some loss of control over the production process. Nevertheless, the large cost differential between East Asia and North America, along with the strong demand for affordable goods in the US, creates powerful incentives to maintain these workarounds. Southeast Asian countries benefit from increased investment, technology transfer, and job creation, even as they risk becoming embroiled in trade disputes.

Meanwhile, US manufacturers and global brands must adapt to a rapidly changing regulatory environment, balancing cost, compliance, and supply chain resilience. The new reality is one of constant adjustment, as companies and countries recalibrate their strategies in response to evolving tariffs and trade enforcement.

Strategic Analysis: Implications for Supply Chains, Global Competition, and Economic Stability

The ongoing trade conflict is reshaping the global economic landscape, with profound implications for supply chains and international relations. The US, by tightening enforcement and striking new bilateral agreements, aims to slow China’s rise and reinforce the rules of global trade. At the same time, China is deepening its economic ties across Asia, diversifying export routes, and accelerating its shift toward regional integration.

For consumers and businesses, these developments are likely to lead to higher prices for certain goods, increased volatility in supply chains, and greater uncertainty in global markets. In the medium term, the pressure on Southeast Asian countries to mediate between US and Chinese interests will only grow, as will the complexity of global production networks.

Contrasts Between Policy Aims and Market Realities

Despite Washington’s efforts to limit circumvention, the latest trade data reveal a widening gap between US intentions and real-world outcomes. As regulations tighten, Chinese and regional firms respond with greater creativity and agility, ensuring that China’s total export volume continues to rise. Vietnam and Indonesia, as the main transit points, have become pivotal players in this economic chess match—proxy arenas in a broader US-China rivalry.

Looking Forward: Challenges, Risks, and Opportunities

As the US ratchets up enforcement and imposes new tariffs on both direct and indirect Chinese exports, Chinese manufacturers are expected to move more of their value chains into Southeast Asia. This shift will benefit regional economies, but also pose regulatory and diplomatic challenges. At the same time, US and European importers will need to closely monitor their supply chains to manage risks and ensure compliance.

Ultimately, the new trade patterns reflect a world in which geopolitics, technology, and regulation are deeply intertwined. Companies that adapt quickly and invest in resilient, transparent supply chains will have a competitive edge, while those that rely on outdated models may find themselves vulnerable to sudden shifts in policy and market sentiment.