Southeast Asia was one of the biggest winners from United States President Donald Trump’s trade war with China in 2018, luring manufacturers to the region to avoid new tariffs on Chinese goods.
It benefitted from investment, tax revenues and technology transfers that came with the expanding “China Plus One” supply chain concept.
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Seven years later, Southeast Asia finds itself in a very different situation as Trump’s second trade war drags on, and it gets squeezed by the world’s top two economic powers. New tariffs from the US threaten its export-driven economy, while it’s also facing a separate surge in Chinese goods looking for an alternative to the US market.
It’s now trying to find its way forward despite the economic pressure, said Jayant Menon, a senior fellow at the ISEAS-Yusof Ishak Institute in Singapore.
“Southeast Asia has been trying to walk the tightrope and do a balancing act of not picking sides between the US and China. Both are important economic partners,” he told Al Jazeera.
China is the largest trading partner of the Association of Southeast Asian Nations (ASEAN) – a regional bloc of 10 countries plus new member, East Timor. The US is its fourth-largest trade partner, but it holds an outsized importance in other areas like regional security.
The region’s relationship with the US has been under significant stress since Trump returned to the White House earlier this year on the promise of slashing the US trade deficit by imposing tariffs on most trade partners.
Southeast Asia was hit hard in April by Trump’s “liberation day” tariffs, when he added duties of 49 percent on Cambodia, 48 percent on Laos, and 46 percent on Vietnam. Even Thailand and the Philippines, both US military allies, were initially hit with tariffs of 36 percent and 17 percent.
Regional tariffs have since fallen to 10 to 20 percent for most ASEAN countries after individual countries negotiated with Trump, but they remain at a high 40 percent for Myanmar and Laos. Further tariffs remain on specific exports like steel, aluminium and auto parts. In late July, the White House announced an additional 40 percent tariff on so-called “transshipments”.
The term refers to goods that are shipped through the region to avoid tariffs – in this case, pre-existing tariffs on Chinese goods – as Beijing and Washington continue to negotiate a separate tariff deal.
The transshipment tariff has put the China Plus One production model in the “crosshairs” of Washington, said Nick Marro, lead analyst for global trade at the Economist Intelligence Unit.
“[It’s] a risk, especially now because you have a threatened tariff of 40 percent on transshipments which seems pretty squarely aimed at emerging markets,” he said.
Against this backdrop, the Asian Development Bank revised its 2025 growth forecast for Southeast Asia from 4.7 percent to 4.3 percent, citing the emergence of a “new global trade environment, shaped by tariffs and updated trade agreements”. ADB’s growth forecast for 2026 is also 4.3 percent.
Complicating the picture, though, is that Chinese exports to Southeast Asia are on the rise. The trend began before Trump returned to the White House, but it’s accelerated over the past year.
Chinese customs data shows that exports to ASEAN rose 12 percent to $586bn year on year in 2024. The trend is set to continue in 2025 as Chinese exports to the region are up 14.7 percent, hitting $487.5bn in the first nine months of the year. The total volume of trade in 2025 is also up 8.6 percent and hit $776.7bn in September.
Conversely, Chinese exports to the US have been falling. They hit $317bn between January and September 2025, a drop of 16.9 percent over the same period, according to Chinese customs data. China’s total volume of trade has also fallen 15.6 percent year on year to $425.8bn, according to the same data.
Customs data alone doesn’t explain the reasons for these parallel trends, according to experts, but they say that two factors could be driving this shift.
Experts told Al Jazeera that Chinese manufacturers might be shipping more goods through Southeast Asia.
“Exports from Southeast Asia to the US have grown in tandem with exports from China to Southeast Asia. This tells you that this trade is being diverted through these countries to some extent,” said ISEAS’s Menon.
ASEAN exported $352.1bn worth of goods and services to the US in 2024, up 13.3 percent from a year earlier, according to data from the US Trade Representative.
The figure is also nearly double the value of ASEAN’s US exports in 2017, just before Trump started his first trade war. That year, ASEAN exported $192bn in goods and services to the US, according to the USTR.
But Chinese companies are also shipping finished goods to Southeast Asia as the final destination, as they seek out new customers to replace the US.
“There’s no precise data on how much is exported and how much is then re-exported. Survey [data] seems to suggest that the majority is part of the supply chain, but there’s a growing share of exports that are destined to be finally consumed in the Southeast Asian countries,” Menon said.
A survey of more than 300 companies in the Asia Pacific exporting to the US and 30 US importers by New York-based consultancy GLG in July found that 66 percent of Chinese exporters said they were looking for markets beyond the US, as it had become a “challenging and less predictable trade partner”.
Eighty-three percent said they were looking at the European Union as an alternative, followed by another 71 percent who cited ASEAN as a potential market, according to the report, which was written by Menon.
While consumers in Southeast Asia may welcome more products on e-commerce sites like Shein, Temu, Alibaba, Lazada and Shoppee, the uptick in Chinese goods is also making some local industries nervous, said the EIU’s Marro.
Chinese exports are extra competitive this year thanks to a depreciation in the dollar, and with it the Chinese renminbi, but China also has a longstanding problem of making more than it needs. The issue has been exacerbated with its post-pandemic economic slowdown and a fall in domestic demand, which means it needs somewhere to send this “overcapacity”.
While exporters have looked for new markets overseas, some have been accused of “dumping,” or deliberately undercutting local markets with artificially low prices in countries like Vietnam, Thailand and Indonesia.
“We have started to see a lot more anxiety among various governments in the last couple of months around a potential flood of Chinese goods into certain markets. This doesn’t necessarily restrict itself to things like phones or electric vehicles. It can also include commodities like steel or other types of things like textiles or apparel,” Marro said.
“There is a very big risk that Southeast Asia is also going to get hit by the distortions in China’s economy,” he added.
Much like transshipments, whether exports are “dumping” is in the eye of the beholder, said Chris Beddor, deputy director of China Research at the Beijing-based Gavekal Dragonomics.
Investigating another country for dumping can be a politically and economically costly move that can end in tariffs or trade disruptions on both sides. It’s a risk many countries are not willing to take with China, he said.
“A lot of the ASEAN countries, frankly, don’t have a lot of incentive to be pointing fingers at China for dumping because of the supply chains being rerouted. They want a slice of the action,” he told Al Jazeera.
It’s much like the approach that Southeast Asia has taken with the US. Rather than push back against Trump’s tariffs, regional leaders lined up to negotiate with the White House one-on-one rather than as a bloc – much the way that Trump prefers.
Ian Chong, a political scientist at the National University of Singapore, told Al Jazeera this strategy could, however, cost Southeast Asia in the long run.
“This is a result of ASEAN’s passive ‘not choosing sides’. They thought they could have some side help them or that Washington and Beijing could always court them,” he said. That optimism ignored the possibility that they could be squeezed by both sides. They may end up not having to make choices, since these have been made for them elsewhere.”
ISEAS’s Menon said he was also worried that more trouble could still be on the horizon. The US and China have yet to reach a deal on tariffs, and even if they succeed, the famously mercurial Trump could still change his mind.
“My big fear is that this is not the end, but the beginning of a continuing process of tariff increases,” said ISEAS’s Menon. “Trump has been very clear about two things. One is that he loves tariffs. The second thing is that he wants to use them to reduce bilateral deficits. The bottom line is, I don’t think he can be stopped.”
