US Targets Southeast Asian Transshipments as China Tariff Fight Reshapes Trade

Vietnam's 20% and 40% Tariff Rates Put Product Origins at the Centre of Trade

A US trade agreement with Vietnam sets out a sharp divide: direct Vietnamese exports face a 20% tariff, while goods deemed to have been transshipped from China face 40%. As of August 1, 2025, the rules for deciding which products belong in each category remain unfinished, leaving manufacturers and customs officials uncertain about how the higher rate will apply.

President Donald Trump's administration is pressing Vietnam, Malaysia, Thailand and Singapore to stop Chinese exporters from using their territories to avoid US tariffs. After years of American complaints, the focus on Southeast Asia has become a new front in the trade conflict between Washington and Beijing.

The central problem is deciding where a product really comes from. A Chinese item sent through another country and given a new label presents one enforcement problem. A product assembled in a Southeast Asian factory using Chinese components presents a more complicated question about how much manufacturing must take place locally.

Southeast Asia has built much of its prosperity on open trade, manufacturing and efficient transport links. The US push now asks governments to police those connections more closely while preserving access to American buyers and economic ties with China.

China, meanwhile, is encouraging its businesses to become more deeply rooted in Southeast Asian economies. The competing pressures are reshaping where goods are made, how companies document their production and how governments balance relations with their two major trading partners.

When Does Moving Goods Become Tariff Evasion?

Transshipment means sending goods through an intermediate country before they reach their final destination. It can be a routine part of international logistics, especially where manufacturing and transport networks cross several borders.

US concerns centre on goods routed through Southeast Asia to conceal their Chinese origin. Exporters may change labels or carry out only limited processing before shipping products to the United States as goods from the intermediate country, avoiding the higher tariffs attached to Chinese products.

The US Commerce Department has ruled that solar modules assembled in Cambodia, Malaysia, Thailand and Vietnam using Chinese inputs violated US trade laws. The solar module dispute illustrates how assembly in another country can still attract scrutiny over the origin of components and the production involved.

Vietnam has also intercepted thousands of shipments falsely labelled as made in Vietnam but traced back to factories in China. Such cases put pressure on authorities to check whether export documents match the goods and the factories said to have produced them.

Legitimate manufacturers face a related difficulty. Many Southeast Asian factories depend on Chinese components, so customs officials must distinguish real production from simple relabelling. That requires rules of origin, the standards used to decide which country a product comes from, and evidence about what happened during manufacturing.

Trade Growth Shows Why Vietnam Is Under Scrutiny

Since the trade war began in 2018, US tariffs on Chinese goods have ranged from 10% to more than 40%. Those charges have given exporters a financial reason to find alternative ways of reaching American customers.

Vietnam's imports from China grew at an annual rate of nearly 19% between 2018 and 2024. Over the same period, Vietnamese exports to the United States nearly tripled. The closely matching expansion has strengthened US concerns that some Chinese goods are passing through Vietnam to avoid tariffs.

Those trade flows also reflect the enforcement challenge: Southeast Asian factories draw on Chinese supplies while selling finished products to American buyers. Officials trying to identify evasion must examine the manufacturing behind a shipment, alongside its route across borders.

The main developments span several years:

• 2018: The US-China trade war began, bringing tariffs that encouraged changes in trade routes and production.
• 2018 to 2024: Vietnam's imports from China grew by nearly 19% annually, while its exports to the United States nearly tripled.
• 2024: Goods trade between China and ASEAN reached nearly $1 trillion, rising almost 8% from the previous year.
• By August 1, 2025: The US-Vietnam agreement provided for a 20% tariff on direct Vietnamese exports and a 40% rate on goods deemed transshipped from China, with key origin rules still unresolved.

Washington is also negotiating similar provisions with Indonesia, the Philippines and Thailand. The approach would extend scrutiny beyond individual shipments and make origin requirements a central part of US trade arrangements with the region.

Governments Tighten Checks While Protecting Trade

Vietnam has agreed to tougher penalties for illegal transshipment and trade fraud. Its response includes inspections focused on Chinese products and new decrees to monitor companies that certify the origin of their own goods.

Self-certification allows a business to declare where its products come from. Closer monitoring puts greater responsibility on authorities to check those declarations and on companies to support them with accurate information about production.

Malaysia and Thailand have also promised to curb tariff evasion. Customs authorities are increasing audits and monitoring illegal imports as part of the regional enforcement pledges. Singapore is among the countries facing US pressure to prevent its territory from being used to bypass tariffs.

The rapid increase in Chinese investment across Southeast Asia makes enforcement more demanding. New factories, suppliers and commercial relationships add to the complexity of tracing where a product was made and how much work occurred in each country.

Businesses also retain a strong incentive to find cheaper routes into the US market. Where tariff differences create opportunities for profit, companies may seek ways around the charges, through either lawful changes in production or illegal evasion.

Southeast Asian governments therefore face two connected tasks: stopping false origin claims and keeping legitimate investment and exports moving. Weak enforcement risks losing the trust of trading partners, while expensive or unclear checks can burden manufacturers that depend on regional supply networks.

Why Regional Trade Rules Complicate US Enforcement

The Regional Comprehensive Economic Partnership, known as RCEP, has reduced tariffs and simplified customs procedures among participating Asia-Pacific economies. It has helped goods move more easily across borders and supported closer regional economic integration.

That openness also complicates efforts to track goods through several countries. A production network may involve Chinese components, assembly elsewhere in Southeast Asia and final shipment to an American customer. US tariff enforcement must deal with those connected stages.

Southeast Asian governments want to preserve the benefits of regional trade while preventing their economies from becoming channels for regulatory evasion. Their choices also affect their ability to shape future trade and technology rules independently, rather than having those rules determined by pressure from larger powers.

Stronger coordination across borders, better disclosure requirements and jointly developed export control mechanisms are among the responses proposed for the region. The aim is to maintain open commerce while giving authorities a clearer view of goods and businesses moving through their jurisdictions.

For exporters, the practical issue is whether the rules applied to a product are predictable. A factory can plan its suppliers and production around a known requirement. An unsettled definition of origin makes it harder to calculate the tariff that will be due when goods reach the United States.

China Pushes for Deeper Roots in ASEAN

China is responding to US pressure by strengthening its economic relationship with the Association of Southeast Asian Nations, or ASEAN. Goods trade between China and ASEAN approached $1 trillion in 2024, almost 8% more than a year earlier, underlining the scale of the relationship.

Chinese officials and economists have urged businesses to integrate more fully into local ASEAN economies instead of using the region simply as a route for transshipment. The strategy seeks to protect Chinese exports against unpredictable tariffs while consolidating China's position as ASEAN's largest trading partner.

Deeper integration means placing more of a business's activity within the local economy. In the current dispute, the practical question remains how that activity will meet US requirements for a product to qualify as originating in its country of export.

President Xi Jinping has also toured the region, urging countries to join China in defending free trade and warning about protectionism. His diplomatic push places trade cooperation alongside China's broader effort to preserve its commercial connections.

Southeast Asian governments remain cautious. They seek to satisfy Washington's concerns without damaging relations with Beijing, whose companies and components are deeply connected to regional manufacturing. Preserving neutrality becomes harder when measures acceptable to one trading partner put pressure on ties with the other.

The Missing Definition Behind the 40% Rate

The United States has yet to finalise the rules of origin that will determine which products count as transshipped goods under the new measures. Vietnam is awaiting clarification on the definition of illegal transshipment and on how much value must be added to imported products to avoid the 40% tariff.

Thailand's finance minister has argued that local content should exceed 40% for a product to be classified as Thai. No agreement with Washington has been reached on that proposal. Local content concerns the share of a product attributed to activity or inputs within the country claiming it as an export.

The missing details affect both enforcement and business planning. Customs officials need a workable test, while manufacturers need to know whether their use of imported components will expose a shipment to a higher charge.

An analyst assessing the 40% tariff's missing details warned that enforcement difficulties could limit its effect on Chinese exporters:

The punitive tariff may have little impact on China or its manufacturers' ability to reach American buyers, as enforcement will be challenging and trade diversion may continue to reduce the effect of US tariffs on China's exports.

Trade diversion means goods taking different routes or reaching buyers through different production arrangements in response to trade barriers. In this dispute, continued diversion could weaken the pressure that US tariffs place on exports from China.

Factories and Banks Adjust to More Fragmented Supply Chains

The US campaign is also an attempt to reshape the geography of production by encouraging companies to move manufacturing out of China. Complete separation is unlikely. Supply chains are instead becoming more fragmented, with China providing components and Southeast Asian factories carrying out assembly for exports to the United States.

Manufacturers face higher compliance costs as they work to show where their products come from. Companies are investing in digital tools to track trade flows and verify origin, while the more complicated movement of goods is increasing demand for trade financing and services across borders.

Banks must account for those changes as they finance businesses exposed to shifting tariffs and trading conditions. For OCBC, the new environment has required tighter credit risk buffers, cost discipline and a shift towards sectors with stronger growth that are less exposed to US-China volatility.

Southeast Asia faces a combination of commercial risks and investment opportunities. Higher tariffs and compliance costs can make exports less competitive. Tighter enforcement requires resources and more capable customs systems, while diplomatic friction can complicate efforts to maintain neutrality.

Genuine relocation of manufacturing could also bring investment and allow local businesses to take on more valuable stages of production. Whether that happens depends partly on companies building substantial operations in the region and on governments providing rules that businesses can understand and follow.

China's task is to adapt to a trading system split across more locations while deepening ties with key partners. Washington's task is to enforce its tariff rules while maintaining relationships with the Southeast Asian governments whose cooperation it needs.

Southeast Asia remains central to both efforts. Its response will shape how much openness it can preserve, how effectively it can prevent evasion and how much control it retains over its own trade and technology policies.

Key Points

• The United States is pressing Southeast Asian governments to stop Chinese goods from passing through their territories to avoid tariffs.
• The US-Vietnam agreement sets a 20% tariff on direct Vietnamese exports and a 40% rate on goods deemed transshipped from China.
• Vietnam's imports from China grew nearly 19% annually from 2018 to 2024, while its exports to the United States nearly tripled.
• Vietnam, Malaysia and Thailand are tightening enforcement, but integrated manufacturing networks make product origins difficult to assess.
• China-ASEAN goods trade approached $1 trillion in 2024, up almost 8%, as Beijing pursued deeper regional ties.
• As of August 1, 2025, key US origin rules remained unfinished, including the treatment of local manufacturing and imported components.
• Manufacturers and banks face higher compliance demands as production becomes more fragmented across China and Southeast Asia.