Chinese exports flood Southeast Asia on US tariffs, Citi says
Vietnam, Thailand and Indonesia are among Asian countries seeing the sharpest surge in Chinese imports as higher US tariffs upend regional trade, according to Citigroup Inc.
China's export push in Southeast Asia may be a sign of trade diversion, as direct exports to the US have fallen sharply in recent months, Citi's head of emerging-markets economic research Johanna Chua wrote in a report Tuesday.
A flood of — often cheaper — Chinese goods could pose challenges to recipient countries and their local enterprises, Citi said. Indonesia, for one, saw textile imports from China recently reach a new monthly high, adding pressure to a struggling garments sector that's already laid off thousands of workers.
Chinese overall export prices and the price of textile shipments have been falling since early 2023. Exports to the US meanwhile plunged by just over a third in May, the most since 2020, with both countries locked in a heated trade dispute.
The record shipments to Southeast Asia could likewise be a sign of transshipment, or China directing goods through other countries to avoid the impact of higher US levies, Citi said. The report noted a 'significant increase in correlation' between Southeast Asian countries' increased Chinese imports and their exports to the US.
Transshipment has been a focal point in Washington's tariff negotiations with Southeast Asian nations such as Vietnam and Thailand, both of whom have pledged to tighten rules on issuing certificates of origin.
As the US clamps down on transshipment, 'China may be shifting more of its downstream production to third markets in lieu of US tariff risk, while maintaining its dominance in the supply chain for intermediate goods,' Citi said.
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