A strategic bind is now facing Southeast Asia. The region is not simply managing ordinary trade volatility. It is confronting a new and more complex issue: the expansion of China-centered supply chains into Southeast Asia at the same time that the United States is tightening scrutiny of Chinese content, transshipment, and rules of origin.
China remains the region’s largest source of imports. As Beijing’s industrial policy continues to generate excess capacity, Southeast Asian markets are absorbing a growing wave of Chinese exports across the value chain—from textiles, footwear, appliances, and consumer goods to machinery, intermediate inputs, and advanced manufacturing components. At the same time, the United States remains the region’s most important export market, and U.S. tariff policy continues to reshape sourcing patterns. Washington and Beijing may be pulling apart, but Southeast Asia is being stretched in between.
The shift is already visible in U.S. trade data. For the first four months of this year, U.S. imports from China fell sharply compared with the same period in 2025 and 2024, while imports from ASEAN rose dramatically, even in the face of elevated tariffs. From January through April, U.S. imports from ASEAN were roughly double those from China.
When was the last time that happened? Not in this century.
The shift extends beyond China. During the same period, the United States imported more from ASEAN than from Canada. The last time that happened: never. The United States also imported more from ASEAN than from the European Union. Again: never. Taken together, ASEAN ranked behind only Mexico as a source of U.S. merchandise imports, and even that gap has narrowed sharply.
The Chamber's Southeast Asia team advocates for open markets, trade and investment opportunities, and a level playing field for American businesses to compete and prosper in Southeast Asia.
Meanwhile, Chinese exports to Southeast Asia continue to surge. In the first four months of this year, Southeast Asia accounted for more than 24% of China’s total exports, compared with 17% during the same period last year.
These trends point to two related developments. First, China is pushing excess production into Southeast Asia and other markets around the world. Second, supply chains are migrating out of China—but not necessarily away from China.
That distinction is critical.
Chinese exports of finished goods are displacing local industry across Southeast Asia, especially in labor-intensive and consumer-facing sectors. Local manufacturers are facing intense price pressure, factory closures, and growing competition from Chinese firms that benefit from scale, subsidies, weak domestic demand, and state-directed industrial policy. Not surprisingly, Southeast Asian governments are increasingly turning to trade remedy actions to defend local producers.
At the same time, Chinese exports of intermediate goods are supporting Southeast Asia’s own export growth. Chinese investment in the region, including in manufacturing hubs and industrial parks, often brings Chinese inputs, Chinese machinery, Chinese engineers, Chinese technology, and Chinese supplier ecosystems with it. That can boost short-term export competitiveness, but it also risks locking Southeast Asia into a subordinate role inside China-centered supply chains.
The Rhodium report commissioned by the U.S. Chamber, “China’s Next-Generation Industrial Policy,” makes clear that Chinese outward investment is not necessarily designed to relocate supply chains out of China in any meaningful sense. In many cases, it is structured to reinforce China’s upstream position, preserve China’s industrial scale, and deepen foreign dependence on Chinese inputs and technology. The result is that a meaningful share of U.S.-bound exports from Southeast Asia may contain substantial Chinese content, even when final assembly takes place in the region.
That is where the challenge becomes acute.
Depending on how transshipment rules and rules of origin are defined, implemented, and enforced, the impact on Southeast Asia could be substantial. Strict rules designed to minimize Chinese content in Southeast Asian exports to the United States could disrupt existing supply chains, raise compliance costs, and expose some goods from the region to higher U.S. tariffs. Absent clear definitions, the United States may instead take targeted tariff action against products or sectors where Chinese investment, ownership, or input dependence is especially visible.
Southeast Asian countries also face pressure from the other direction. Beijing is unlikely to respond passively if governments in the region adopt rules, under U.S. pressure, that limit Chinese exports, restrict Chinese content, or complicate China’s role in regional supply chains. China has already shown a willingness to use economic tools coercively. Countries that move too quickly or too visibly against Chinese supply-chain interests could face retaliation, licensing delays, market-access pressure, or other forms of economic coercion.
This is the new Chinese challenge in Southeast Asia: not a single product surge, not a single tariff dispute, and not simply the relocation of factories from China to ASEAN. It is the risk that Southeast Asia becomes the release valve for China’s excess capacity, the assembly platform for China-linked exports to the United States, and the frontline of U.S.-China tariff enforcement all at once.
Despite repeated tariff actions from Washington, U.S. imports from Southeast Asia continue to grow sharply. That export growth is positive for the region, but the resulting trade deficits may create new political and policy risks. If U.S. imports from Southeast Asia keep rising while a substantial share of those goods contain Chinese content, the region could become a larger target for U.S. enforcement actions.
The legal and policy environment is also shifting. Following the Supreme Court’s ruling invalidating the administration’s IEEPA tariffs, the tariff differential between goods coming directly from China and goods coming from Southeast Asia narrowed considerably. As the administration recalibrates its approach through Section 301 and other trade tools, that gap could narrow further or disappear for some product categories. For Southeast Asia, that would be a nightmare scenario: the region could lose much of the tariff advantage that helped attract investment in the first place, while still facing the costs of Chinese supply-chain dependence.
The risks are real and rising. Southeast Asian countries will need to work more closely with the United States to address transshipment, strengthen customs enforcement, clarify rules of origin, and reduce excessive dependence on Chinese inputs in U.S.-bound exports. At the same time, Washington should recognize that Southeast Asia is not merely a transshipment problem to be solved. It is a strategically important region trying to build its own industrial future under intense pressure from China’s scale, subsidies, and supply-chain leverage.
The goal should be clear: support genuine diversification across the global economy without reinforcing China’s already-excessive economies of scale. That means helping Southeast Asian economies move beyond final assembly, deepen local value-added production, strengthen technological capacity, and build more resilient supply chains with trusted partners.
Southeast Asia does not want to choose between the United States and China. But if current trends continue, the region may find that China has already made the choice harder—by embedding itself so deeply in the region’s manufacturing base that diversification becomes more difficult, more costly, and more politically fraught.
About the author
John Goyer
John Goyer is executive director of Southeast Asia at the U.S. Chamber of Commerce. Goyer focuses on issues of market access, investment barriers, regulatory and other issues that pose challenges for U.S. business in Southeast Asia.
