Will U.S. Tariffs Drive China’s Manufacturing Mouse Out of the Asean Maze?

The Uncertain Future of Chinese Exports Amid Rising Tariffs

The global trade landscape is shifting rapidly, and for Chinese exporters, the uncertainty surrounding U.S. tariff policies has created a challenging environment. Industry insiders are warning that every investment is essentially a gamble, especially for those operating in Southeast Asian countries facing potential tariffs under former President Donald Trump’s “reciprocal” trade measures.

Chinese exporters like Huang Yongxing are navigating this complex situation, seeking clarity on whether to continue production in China or expand into Southeast Asia. The lack of clear guidance from Washington has forced many business owners to make tough decisions, often with limited information. Huang shares his insights through weekly updates on social media, offering valuable perspectives for small and medium-sized enterprises struggling with the volatility of international trade policies.

The recent announcement of potential tariffs up to 40% on 14 countries has placed Southeast Asia, China’s largest export market, at the center of trade tensions. This move threatens to disrupt the transshipment strategies that many Chinese companies rely on to avoid higher tariffs on direct exports to the U.S. The ambiguity around these policies creates significant uncertainties for outbound Chinese investors, who must now weigh the risks of investing in new markets against the costs of maintaining operations in China.

Many companies, both those already expanded overseas and those planning to do so, are opting for caution. Huang, a lighting product exporter based in Zhejiang province, has had to revise plans to open a factory in Cambodia due to the shifting trade stance. He highlights the financial burden of maintaining two production facilities while trying to establish a new one, noting that it could take years to build a client base in a new market.

Six out of the ten Association of Southeast Asian Nations (ASEAN) members are affected by the proposed tariffs, with Cambodia, Thailand, Indonesia, Laos, and Myanmar facing rates ranging from 25 to 40%. Laos and Myanmar would be subject to the highest tariffs of 40%, making re-exporting to the U.S. through these countries nearly unfeasible. The increased costs could render current supply chain strategies ineffective, leading to significant losses for Chinese factories investing in these regions.

According to Morgan Stanley, the weighted average tariff on Chinese imports is estimated to be 42%, while UBS puts the rate at 43.5%. These figures underscore the growing financial pressure on Chinese manufacturers. Industry experts warn that the trend of “going global” continues, but rising uncertainty is shrinking strategic flexibility.

Supply-chain expert Liu Kaiming explains that while Southeast Asia remains a key player in shifting China’s supply chain, the process is proving more difficult than initially anticipated. He points out that Cambodia only has a relatively complete industrial chain in the garment industry, while Laos and Myanmar have scattered factories. Once included on the high-tariff list, re-exports from these countries would become nearly impossible, leading to significant losses for Chinese factories.

Hardware exporter Kevin Huang in Guangdong echoes these concerns, noting how constant changes in U.S. tariff policy are intensifying short-term risks. Some peers have already faced cash-flow collapse after setting up their factories. Huang also mentions that his U.S. customers are suffering losses and delaying payments, forcing him to reconsider shipping schedules and prepare for potential bad debt.

Despite the challenges, some domestic manufacturers see an unexpected opportunity. Wang Shui, a pet products exporter in Guangdong, believes that if Southeast Asia faces tariffs, Chinese manufacturers might gain a relative advantage. He argues that as long as quality is maintained, clients will still place orders, as many products cannot be produced in Southeast Asia.

However, Wang acknowledges that the broader trade environment is becoming increasingly precarious. Whether staying in China or expanding abroad, manufacturers are facing unprecedented uncertainty. With U.S. policy shifting daily, no one can predict what lies ahead.

In conclusion, the evolving trade dynamics between China and the U.S. present a complex challenge for exporters. While some see opportunities in the current climate, others face significant risks. As the situation continues to unfold, businesses must remain adaptable and prepared for further changes in the global trade landscape.