A new US-China agreement to pause sky-high tariffs on each other is pressuring manufacturing hubs such as Vietnam and Mexico to make their own, better deals with the US to continue benefiting from a “China-plus-one” strategy by global producers.
In the new world order dictated by US President Donald Trump’s shifting announcements of tariffs, countries measure their success not by the terms of their trade deals with the US, but by how they compare with those of other countries.
For the past five weeks, many nations facing significant duties under Trump’s now-paused “reciprocal” global tariff regime announced on April 2 took solace from having better rates than China, which saw US tariffs on Chinese imports ratchet up from 20 percent to an embargo-like 145 percent from March to this month.
Vietnam was better off than China with a 46 percent rate, while Thailand was at 36 percent and Malaysia at 24 percent.
Given their comparative advantage, manufacturing hubs anticipated further moves by multinational corporations to set up shop in their countries and decrease their dependency on China, potentially adding to a years-long trend known as “China-plus-one.”
Now, everything is up in the air again following a breakthrough in US-China trade talks that resulted in a 90-day reprieve from the astoundingly high tariffs on China, leaving a base 30 percent import tax rate for made-in-China products.
Tariffs on China still remain higher than competing industrial hubs paying 10 percent under Trump’s 90-day pause on the duties, but some experts said the deal could halt some of the momentum pushing multinationals to further shift supply chains outside of China.
“The rules of the game are still uncertain,” said Diego Marroquin Bitar, an expert on North American trade who also works as a consultant.
“I think companies are just going to delay their investments as much as they can,” Bitar said.
Starting in his first term, Trump sought to leverage tariffs on China to force companies to relocate manufacturing to the US.
The “reshoring” to the US largely did not materialize, but over the past decade companies such as Apple did start looking for alternatives to China, with a focus on countries that offered relatively low labour costs and smaller tariffs.
Southeast Asian nations were among the biggest beneficiaries, along with Mexico, but if the US-China tariff pause is extended, those countries could see their comparative advantage dissipate.
Vietnam, Thailand and Malaysia are negotiating their own tariff deals with the US. Mexico, which avoided tariffs, is also seeking to reduce separate import duties on specific products such as cars.
The US-China trade thaw means companies that had considered speeding up efforts to offshore production from China might now tap the brakes, said Wu Xinbo (吳心伯), director of the Center for American Studies at Shanghai’s Fudan University.
“They will maintain their current situation, keep China as their main operations hub and make appropriate partial arrangements in neighboring countries, but the bulk of their business will remain in China,” he said.
Sun Chenghao (孫成昊), a fellow at Tsinghua University’s Center for International Security and Strategy, said the uncertainty of Trump’s policymaking was “very painful for companies” trying to decide whether or how much to decouple from China.
“The current cooldown in tensions does not mean that US firms dare to boldly engage in business activities in China,” he said. “Everyone is still waiting for the possibility that tariffs might be imposed again.”
For countries such as Vietnam, which had also attracted Chinese manufacturers since Trump imposed tariffs in his first administration, the unexpected US rapprochement with Beijing ratchets up pressure to reach their own sweeter deals.
“If Vietnam manages to strike a better deal than China — which is more than likely after today — it would present itself as an attractive alternative to China in regional investment strategies,” said Leif Schneider, head of international law firm Luther in Vietnam.
“This was already the outcome of the first trade war introduced by the first Trump administration,” he added.
Trade tensions and uncertainty have already reduced pledges for new foreign investments in Vietnam, which last month fell to US$2.84 billion, a 30 percent drop from March and a decline of about 8 percent year-on-year.
In Mexico, President Claudia Sheinbaum has repeatedly emphasized the nation’s comparative advantage on US tariffs. Most exports to the US under the US-Mexico-Canada trade deal are tariff free, although Trump has imposed sizeable levies on steel, aluminum, vehicles and auto parts.
Jorge Guajardo, a former Mexican ambassador to China and a consultant on international trade, said even if Monday’s trade deal with China sticks, multinational companies would still be wary of depending solely on Chinese manufacturing — and Mexico stands to benefit.
“If you are Walmart, Target, Home Depot or any other important importer who just went through five weeks of hell, you appreciate the reprieve, but you are looking for a different supply source,” he said.
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