Southeast Asia’s export-driven economies are facing new uncertainty due to United States President Donald Trump’s trade war, specifically his administration’s crackdown on exports directed through third countries to avoid tariffs on China. Under an executive order issued by Trump, goods imported into the US will face a punitive 40 percent tariff, plus penalties and applicable country-of-origin duties, if US Customs and Border Protection determines they have been “transshipped”.
This move has significant implications for Southeast Asia, given the region’s highly integrated supply chains with Chinese manufacturers. According to Puan Yatim, an associate professor at Universiti Kebangsaan Malaysia’s Graduate School of Business, the economic impact on ASEAN may be limited if Washington maintains a narrow interpretation of transshipments, targeting only goods imported from China, minimally processed or relabeled, and then re-exported to the US. However, a broader and more punitive interpretation could prove economically devastating for countries like Vietnam, Indonesia, Cambodia, and Malaysia.
The “China Plus One” strategy, adopted by Chinese firms to avoid US tariffs, exploit cheaper labor, and diversify supply chains, has contributed to the region’s growth. Chinese foreign direct investment into the 10 ASEAN nations grew from $7.1 billion to $19.3 billion between 2020 and 2024, while exports from China to Southeast Asia rose from $385 billion to $587 billion during the same period.
Experts warn that the transshipment tariff could create major compliance issues for the private sector. Steve Okun, founder and CEO of APAC Advisors in Singapore, notes that determining tariffs based on the presence of even small amounts of Chinese components would be extremely difficult to enforce. “You’re going to have to be doing due diligence on supply chains that you never had to do before,” Okun said, adding that the changes would “potentially redefine trade”.
A strict interpretation of transshipping could further diminish Southeast Asia’s appeal, particularly at a time when the Trump administration is already imposing tariffs on the region’s economies. According to Richard Laub, CEO and co-founder of Dragon Sourcing, Trump’s transshipment tariff potentially eats into the region’s competitive advantage. “A lot of the Chinese supply strategy has been to establish some kind of facility abroad with limited content, limited value, adding those facilities to basically circumvent those transshipments. I suspect that that will come to a standstill,” Laub said.
The impact of Trump’s tariffs on Southeast Asia will depend on various factors, including the definition of transshipments and the extent to which the region’s economies rely on exports to the US. As Nick Marro, principal economist for Asia at the Economist Intelligence Unit, noted, “Clearly, the US is concerned about transshipments… and so for those investors, those companies, those governments that have staked their premise on things like China Plus One, we are now seeing a reassessment, and that is something which investors have to be integrating into their strategies”.