Workers at a factory workshop in Huaying, Sichuan Province, China.
Getty Images
China’s recent record $1.1 trillion trade surplus shows that geopolitical and economic rival China has not only found a global workaround, but is also thriving, despite President Donald Trump’s efforts to use tariff policy to slow China’s manufacturing export power. Trade and supply chain data shared with CNBC shows that two factors loom large behind China’s success in mitigating the impact of U.S. tariffs: the use of secondary manufacturing markets to complete products, particularly in Asia, and forced labor.
In recent years, Chinese companies have rerouted manufacturing to Southeast Asian countries, including Vietnam, to offset tariffs initiated by the Trump administration’s first trade war in 2018, a shift that continues to benefit China today. Trade between China and Southeast Asia (including Malaysia, Singapore, Thailand, Vietnam, Indonesia, the Philippines, Cambodia, Laos, Myanmar, Brunei and Timor-Leste) tracked by cargo data tracking firm Vizion shows an increase in volumes of Chinese goods ahead of April’s so-called “Liberation Day” as many manufacturers and importers push forward efforts to 2025 to avoid the first round of President Trump’s second round of tariffs.
Given these strong trade flows, efforts to reverse the U.S. trade balance remain in flux. Based on the latest data for November, the U.S. deficit with global trading partners nearly doubled to $56.8 billion, with European Union trade accounting for a third, and the goods deficit with China fell by about $1 billion to $13.9 billion. Compared to the same period last year, the US trade deficit increased by 4%.
“Southeast Asia volumes are increasing as shippers diversify their imports away from China and towards countries with lower tariffs,” said Paul Brasher, vice president of global supply chain at ITS Logistics. “Imports from major Southeast Asian countries (Vietnam, Thailand, and Indonesia) each increased by about 20% compared to the previous year.”
“The $1.1 trillion surplus is the result of the country effectively rerouting its manufacturing globally through the transshipment of products to other Asian countries,” said Brandon Daniels, CEO of Exiger, which 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 is creating special economic zones in these countries. The reality is that the majority of products are manufactured in China and rerouted to these countries for assembly,” he said.
Freight redirection and tariff evasion in the era of trade wars
Based on Exigar’s full-year 2024 data on the top 10 countries for shipments from wholly-owned Chinese companies to the United States, Vietnam accounted for 80% of those shipments. Italy came in second place, followed by Thailand and Malaysia. Daniels said he expects full-year numbers for 2025 to be in line with 2024 because President Trump’s additional trade policy moves move faster than existing structural changes. The effects of reshoring and the creation of additional tariff avoidance facilities are likely to be felt in 2026-2027.
“Weekly export flows highlight how the shift in trade from China to South Asian countries continues beyond late 2025,” said Kyle Henderson, co-founder and CEO of Vizion. “China’s export volumes have established a higher baseline across Vietnam, Indonesia, Malaysia and Thailand, and will remain there until 2026. This pattern indicates more permanent sourcing relationships are being formed with new buyers across Southeast Asia, rather than temporary rerouting tied to headlines and tariffs.”
One example Daniels pointed to is HHC Changzhou Co., Ltd., based in Changzhou, China and doing business as MotoMotion China. In 2002, the company established Jiangxin Home Furnishings, which manufactures metal mechanical parts. Currently, 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 were subject to a 10% tariff from September 2018 and a 25% tariff from May 2019. To avoid these tariffs, the company established a wholly owned subsidiary, Craftsmanship Vietnam (also known as Motomotion Vietnam), in Vietnam’s Binh Duong Province in June 2019.
In HHC Changzhou Corporation’s 2021 Annual Report, the company mentions the creation of a Vietnam-based facility in response to tariffs imposed under Section 301 of the Trade Act of 1974.
Exiger said these transshipment practices could undermine U.S. industry at every part of the supply chain, as jobs that would be created in the U.S. are being done in shadow factories in China. Exiger says this practice is not limited to Asian markets. “We’ve seen one example in the tools space where companies are rerouting goods through Taiwan, Vietnam, Malaysia, Mexico and South America,” Daniels said. “This is a successful strategy, but it puts at risk millions of jobs that would otherwise be created in the United States and other countries,” he said.
The U.S.-Vietnam trade agreement from last summer included a 40% transshipment duty on top of standard tariff rates, but it is difficult to tie imports from countries like Vietnam back to their original sourcing in China.
According to Exigar, China’s Section 301 tariff evasion alone will amount to more than $30 billion this year and result in the loss of more than 1 million trade and manufacturing jobs.
China’s GDP and “rule by coercion”
According to forcedlab.ai, Exiger’s new supply chain and labor risk database, China’s expanding supply chain and multiple tiers of vendors are also revealing clear patterns and spikes in illegal labor activity. Exigar said its analysis of supply chains for products once made only in China shows that companies are now subsidizing tariff costs by using forced labor at some stage in the manufacturing process to speed up the transportation of products to secondary markets in Southeast Asian countries, where they can be finished and shipped more cheaply.
“The fact is that China’s GDP is growing through the power of coercion,” Daniels said, adding that there are signs of forced labor both in China and in secondary markets where some manufacturing is being relocated to avoid tariffs.
The International Labor Organization estimates that around 28 million people worldwide are exposed to forced labor, 63% of which occurs in the private economy, generating $236 billion in illicit profits each year. China has long been accused by human rights watchdogs of using forced labor, and these concerns will continue to be raised in 2026. In 2025, the Office of the Trade Representative’s Forced Labor Enforcement Working Group added 78 new companies to its list of forced labor entities, bringing the total number of Chinese companies to 144.
Daniels explained that supply chain risks related to labor practices can exist at multiple levels beyond the primary manufacturer with which a company has purchasing agreements. If a supplier is a company’s sole provider of a particular product and forced labor is identified at lower levels of the supply chain, Daniels says many companies are now using contracts to monitor and mitigate the production of the product.
“Companies are going directly to their suppliers and using their purchasing power to create contracts that state that they can only use certain factories to make their products,” Daniels said. “Major defense companies have started doing things like this because of all the restrictions that have been put in place regarding critical minerals from China and permanent magnets from China. But this is only hurting the service on how to monitor forced labor,” he said.
Chinese companies in particular “use forced labor in China to send extremely cheap products to these second countries at favorable tariff rates, and then reroute those products to the United States and other markets. This is financial abuse,” Daniels said.
In addition to furniture, Excigar has identified steady growth in other industries such as kitchen cabinets, auto parts (gears, drivetrains, carburetors), and electronics, which are investing billions of dollars in countries such as Vietnam and other Southeast Asian countries to avoid tariffs.
“Shadow factories in intermediary countries are also reducing the employment of workers there, primarily for products that are manufactured using forced labor in Chinese factories, which is also impacting their employment growth,” Daniels said.
President Trump’s tariffs hurt China’s exports to the United States and provided the government with huge new revenues. In the first year of President Trump’s second term, the government collected more than $305 billion in duties, taxes and fees, including $250.9 billion in customs revenue, according to a report by U.S. Customs and Border Protection. Enforcement actions against tariff evasion generated an additional $1.2 billion. With minimal loopholes closed, Customs was able to recover more than $1 billion.
But Daniels says that even though the trade war has forced China to shift its strategy, it hasn’t weakened China’s manufacturing giant. “China’s economic advantage is maintained by the deceptive practice of investing billions of dollars in these shadow facilities,” he said. “This complicates enforcement against forced labor and gives China an economic advantage.”
