Chinese exporters are beginning to reassess years of offshore investment in Southeast Asia as the latest wave of US tariffs and restrictions on “transshipment” force a major rethink of regional supply chain strategies, according to a detailed report from the Financial Times.
For years, Chinese manufacturers had poured billions into countries like Vietnam, Cambodia, and Indonesia under a “China plus one” approach, aimed at reducing dependence on mainland production amid the US-China trade war that began under Donald Trump’s previous presidency. However, a new volley of tariffs — including a sweeping 40% duty on transshipped goods — is eroding the appeal of these alternative production hubs.
The Financial Times reports that while tariffs on Southeast Asian goods generally remain lower than those on Chinese exports, Washington’s expanded trade measures have narrowed that gap significantly. The most recent penalties have introduced new uncertainty for businesses that sought to shift operations out of China to avoid earlier rounds of duties.
“The China plus one strategy is going to come under tremendous stress,” said Louise Loo, Asia economist at Oxford Economics. “Some companies will seek new manufacturing bases further afield, but many would return to China… the upfront cost to move to new markets is going to be exorbitantly high.”
Several Chinese exporters who invested heavily in offshore expansion during the first trade war say they’ve been blindsided by the latest policy shifts. Lin Sijie, a representative for Minyuan Footwear in Fujian province, said her company had just opened a new plant in Cambodia, but US clients are now hesitating to place orders due to the new tariff risks.
That uncertainty is spreading across the supply chain. Richard Laub, CEO of Belgium-based sourcing firm Dragon Sourcing, described an initial “week of panic” among US clients that has now cooled as many buyers opt to wait out the political turmoil.
“If it turns out that China is at 30 per cent and Mexico is at 20 per cent, they’re not going to move an inch,” Laub said, referring to how tariff differentials are now shaping sourcing decisions more than ever.
The Trump administration, which imposed tariffs between 10% and 40% on Southeast Asian nations last week, has also extended a 25% tariff on Mexico for another 90 days. These measures are part of what Washington calls a “reciprocal tariff” strategy. Negotiations between the US and China in Stockholm last week were described as “constructive” by both sides, but failed to produce clear outcomes.
Tariffs were levied at 19% on Cambodia, Indonesia, Malaysia, Thailand, and the Philippines, while Vietnam, a key winner of the China-plus-one shift, now faces a 20% duty. For some manufacturers, like Vera Li of Quanzhou Viition Gifts, these changes mean previously attractive production bases like Cambodia now face direct competition from Vietnam.
“Now we have to focus on Vietnam,” she said. “[They] are our rivals.”
Hong Kong-based Wynnewood Corp, a toy and electronics maker, said the added costs are proving painful. President Bryant Chan explained that to avoid transshipment penalties, the company must relocate more production steps from China to Indonesia — a costly move that buyers are unwilling to fully absorb.
“It’s kind of a double whammy,” he said. “We’re losing on both sides.”
In some sectors, however, China remains irreplaceable. High-end textiles and specialty manufacturing continue to rely on China’s infrastructure and technological edge. Naveen Jha, a sourcing expert in Zhejiang, said, “There’s no rival. Nobody is coming up with the same stuff China has.”
Meanwhile, some Chinese producers who never moved production abroad now feel vindicated. Zhao Fen, who owns multiple toy factories in Dongguan, noted that many peers who relocated to Vietnam are now facing higher costs and operational inefficiencies.
“They all regret it,” she said. “The US seems to be quite friendly to China.”
US companies are also rethinking their offshore strategies. Adam Fazackerley, operations head at US-based Lay N’ Go, said his company had briefly shifted production to Cambodia but at the cost of efficiency and logistics. Looking ahead, he’s focused on tariffs — not geopolitics:
“If the numbers are close, we’re manufacturing in China.”
As the tariff landscape continues to shift, the once-favored China-plus-one playbook is being rewritten in real time. Chinese exporters, regional governments, and global buyers alike are being forced to reconsider the future of manufacturing in Asia — all under the watchful eye of Washington’s trade policy.
