China recently Record $1.1 trillion trade surplus Show that despite president donald trumpIn an effort to use tariff policy to slow China’s manufacturing export strength, the geopolitical and economic rival has not only found a global solution, but thrived. Trade and supply chain data shared with CNBC show two important factors behind China’s success in mitigating the impact of U.S. tariffs: the use of secondary manufacturing markets, especially in Asia, to produce products, and forced labor.

In recent years, Chinese companies have moved manufacturing to Southeast Asian countries, including Vietnam, to offset tariffs imposed since Trump’s first-term trade war in 2018, a shift that still benefits China today. Trade between China and Southeast Asia, which includes Malaysia, Singapore, Thailand, Vietnam, Indonesia, the Philippines, Cambodia, Laos, Myanmar, Brunei and Timor-Leste, tracked by freight data tracker Vizion, shows many manufacturers and importers are loading up on Chinese goods in 2025 to avoid the imposition of the first tariffs of Trump’s second term ahead of so-called “Liberation Day” in April.

As the intensity of trade flows increases U.S. efforts to reverse trade balance Still in flux: The U.S. deficit with its global trading partners has nearly doubled to $56.8 billion, with the EU accounting for a third, according to the latest data from November, while the goods deficit with China has shrunk by about $1 billion to $13.9 billion. Compared with the same period last year, the U.S. trade deficit increased by 4%.

“Freight volumes in Southeast Asia are growing as shippers shift imports from China to countries with lower tariffs,” said Paul Brashier, vice president of global supply chain at ITS Logistics. “Import volumes from major Southeast Asian countries (Vietnam, Thailand, Indonesia) each increased by approximately 20% year-on-year.”

“The $1.1 trillion surplus is the result of the country effectively relocating manufacturing globally by reshipping products to other Asian countries,” said Brandon Daniels, CEO of Exiger. Exiger provides supply chain and third-party risk management and regulatory compliance solutions to more than 150 Fortune 500 companies and more than 60 government agencies, including the U.S. Department of Defense and U.S. Customs and Border Protection. “China has established special economic zones in these countries. The reality is that the vast majority of products are manufactured in China and then transferred to these countries for assembly,” he said.

Transshipment and tax evasion in times of trade war

According to Exiger’s 2024 full-year data, Vietnam accounts for 80% of the top 10 countries with shipments to the United States from companies 100% controlled by Chinese companies. Italy ranks second, followed by Thailand and Malaysia. Daniels said he expects full-year 2025 numbers to be consistent with 2024, as Trump’s additional trade policy initiatives change faster than existing structural changes. The impact of reshoring and the creation of additional tax evasion facilities is more likely to be felt in the 2026-2027 period.

“When you look at weekly export flows, you see how persistent the shift in trade away from China and towards South Asian countries has been since the end of 2025,” said Kyle Henderson, CEO and co-founder of Vizion. “China’s export volumes established a higher baseline in Vietnam, Indonesia, Malaysia and Thailand, and these levels have been maintained through 2026. year. This pattern suggests the formation of new buyers and more permanent sourcing relationships across Southeast Asia, rather than temporary changes of course tied to headlines or tariffs.”

One such example mentioned by Daniels is HHC Changzhou Corp., which does business as MotoMotion China and is headquartered in Changzhou, China. The company founded Jiangxin Home Furnishing in 2002 to produce metal machinery parts. Today, the company designs and manufactures structural mechanisms for smart furniture under the MotoMotion brand. The company’s products exported from China to the United States have been subject to a 10% tariff since September 2018, and a 25% tariff since May 2019. To avoid these tariffs, the company Establish a wholly-owned subsidiaryCraftsmanship Vietnam (also known as MotoMotion Vietnam), was held in June 2019 in Binh Duong Province, Vietnam.

At HHC Changzhou Company 2021 annual reportthe company mentioned that setting up the factory in Vietnam was in response to tariffs imposed under Section 301 of the Trade Act of 1974.

Essig said these transshipment practices could harm various parts of the U.S. industrial supply chain because jobs that could be created in the U.S. are being completed in shadow factories in China. Exiger said these practices are not limited to Asian markets. “Let’s take the molding world as an example, where companies are reshipping through Taiwan, Vietnam, Malaysia, Mexico and South America,” Daniels said. “This is a strategy that is winning, but it puts millions of jobs in the United States and other countries at risk,” he said.

Last summer’s U.S.-Vietnam trade deal Includes 40% transshipment duty Beyond standard tariffs, however, it is difficult to link imports from countries such as Vietnam to the original procurement in China.

According to Exiger, China’s tariff avoidance under Section 301 alone will exceed $30 billion this year, which means the loss of more than 1 million trade and manufacturing jobs.

China’s GDP and “rule by coercion”

According to Exiger’s new supply chain and labor risk database, forced labor.aiThe expansion of China’s supply chains and the multi-layering of suppliers also reveal unique patterns or surges in illegal labor activity. Exiger said analysis of supply chains for products once made exclusively in China shows companies are now subsidizing tariff costs by using forced labor to speed products at some stage of manufacturing to secondary markets in Southeast Asian countries, where they can complete production and ship more cheaply.

“The fact is, China’s GDP has grown through coercive advantage,” Daniels said, adding that there are signs of forced labor in both China and secondary markets, and that China is moving some manufacturing to secondary markets to avoid tariffs.

this international labor organization It is estimated that nearly 28 million people worldwide are subjected to forced labor, 63% of which occurs in the private economy, generating US$236 billion in illegal profits every year. China has long been accused by human rights watchdog groups of using forced labor. These concerns will continue to be raised in 2026. In 2025, the United States Joint Trade Representative Forced Labor Enforcement Working Group 78 new entities were added to the list of forced labor entities, bringing the total number of entities in China to 144.

Daniels explained that supply chain risks related to labor practices can exist at multiple levels away from the primary manufacturing source a company contracts to source from. Daniels said many companies are now monitoring and mitigating product manufacturing through the use of contracts if a supplier is the only supplier of a company’s specific product and forced labor is discovered in these lower supply chain levels.

“Companies will contact their suppliers directly and use their purchasing power to sign contracts with them that make it clear that they can only use specific factories to make their products,” Daniels said. “Major defense companies have started doing this because of all the restrictions put in place on critical minerals coming from China and permanent magnets coming out of China. But that just has an impact on how forced labor is monitored,” he said.

Specifically, Chinese companies “are exploiting forced labor in China to ship extremely cheap products to these second countries at preferential tariff rates and then re-ship those goods to the United States or other markets. This is financial abuse,” Daniels said.

In addition to furniture, Exiger has seen steady growth in other industries such as kitchen cabinets, auto parts (gears, drivetrains, carburetors) and electronics, which have invested billions of dollars in Vietnam and other Southeast Asian countries to circumvent tariffs.

“Shadow factories in middle countries also employ fewer workers because products are largely produced in Chinese factories using forced labor. This also affects their job growth,” Daniels said.

Trump’s tariffs have hit China export and generate significant new revenue for the government. U.S. Customs and Border Protection report In the first year of Trump’s second term, the government collected more than $305 billion in tariffs, taxes and fees, including $250.9 billion in tariff revenue. Enforcement actions targeting tariff circumvention generated an additional $1.2 billion in revenue. After closing minor loopholes, Customs recovered more than $1 billion.

But Daniels said that while the trade war has forced China to change its strategy, it has not weakened China’s manufacturing capabilities. “China’s economic dominance is maintained through the deceptive practice of investing billions of dollars in these shadow facilities,” he said. “This complicates forced labor enforcement and gives China an economic advantage.”