Chinese manufacturers ramp up overseas production in response to new US tariffs

With the 10% tariff increasing pressure on Chinese manufacturers, many are expanding production to countries such as Vietnam, Thailand, and Indonesia, where they can avoid higher US taxes

In response to the Trump administration's new 10% tariff on Chinese goods, companies like Agilian Technology are accelerating their plans to move production out of China, particularly to Southeast Asia, to avoid further levies. While some manufacturers are reducing prices to absorb the costs, others, including Agilian, are focusing on relocating production to countries like Malaysia, Vietnam, and Cambodia, according to The Wall Street Journal.

Manufacturers adapt to rising tariffs

With the 10% tariff increasing pressure on Chinese manufacturers, many are expanding production to countries such as Vietnam, Thailand, and Indonesia, where they can avoid higher US taxes. Agilian Technology, for example, is pushing forward with setting up a new factory in Malaysia, with plans to ship goods to the US by spring 2025. Renaud Anjoran, the company’s executive vice president, stated that the situation is forcing them to accelerate their production shift. The Wall Street Journal highlights that the tariff threat has driven Chinese manufacturers to explore alternate markets for their products, especially as profit margins shrink under rising production costs.

China plus one strategy grows in popularity

Many manufacturers who adopted the "China plus one" strategy—diversifying their supply chains to minimize dependency on China—are finding new locations in Southeast Asia to produce goods destined for the US As tariffs and trade tensions continue, Chinese companies are setting up factories in places like Vietnam, Indonesia, and Cambodia. According to the Chinese Ministry of Commerce, outward direct investment from China into ASEAN countries reached $9.1 billion in 2023, significantly up from $4.5 billion in 2018. The Wall Street Journal reports that this shift has been spurred by both tariffs and supply chain disruptions caused by the Covid-19 pandemic.

The struggle to maintain US market access

For many manufacturers, relocating production does not come without challenges. While countries like Vietnam offer cheaper labour, they lack the advanced infrastructure and supply chain advantages that China offers. Furthermore, some manufacturers, such as William Liu from Rongli Garments, are unable to reduce prices due to already thin profit margins. Instead, they are shifting more production to countries like Cambodia and Thailand. Meanwhile, others, like Agilian, continue to court US clients despite increasing tariffs, with the company estimating that around half of its products go to US customers. The Wall Street Journal notes that, despite efforts to diversify production, the US market remains crucial, and many companies are reluctant to abandon it.

The uncertain impact of Trump's policies

Despite the rising tariffs, some companies are holding out hope that the US market will remain accessible, with Agilian’s Anjoran noting that the company cannot afford to wait for the dust to settle. The unpredictability of Trump’s tariff policies, which have included threats of tariffs on multiple countries, leaves many manufacturers uncertain about where to invest. However, they

are adapting quickly to meet new challenges, including lowering costs through automation and diversifying supply chains. The Wall Street Journal highlights that while companies are diversifying to mitigate tariff risks, many are still focused on maintaining their presence in the US market.

Chinese manufacturers are being forced to shift production abroad due to rising US tariffs, with many looking to Southeast Asia as an alternative. While some are lowering prices to absorb the tariff impact, others are restructuring their supply chains to meet the growing challenges. As Trump's tariff policies continue to reshape global trade, manufacturers must adapt to remain competitive.