China Plus One Hits Roadblocks as Tariff Pressures Mount

The China Plus One strategy gained traction as companies sought to reduce reliance on China,
but tariffs imposed by former U.S. President Donald Trump significantly reshaped their
approach.

Many manufacturers initially moved production to Vietnam, India, and Malaysia to escape tariffs
on Chinese goods, according to FreightWaves. However, trade compliance expert Karen
Kenney warned that these “tariff-friendly” destinations are now vulnerable to reciprocal tariffs,
making long-term benefits uncertain.

Trump’s policies also cracked down on transshipment, preventing companies from rerouting
Chinese-made components through third countries to avoid tariffs. “The president specifically
said that folks would no longer be able to transship goods,” Kenney told FreightWaves, adding
that U.S. Customs and Border Protection (CBP) now uses AI to track product origins, making it
harder to evade duties.

This aggressive enforcement forced companies to rethink supply chain strategies. Kathy Liu,
Dimerco’s global sales and marketing director, noted that labor-intensive industries like textiles
moved first, followed by high-value sectors such as electronics. Yet, with CBP tightening
oversight, even those shifting to new markets faced rising costs and compliance hurdles.
Some companies that relocated production found new challenges. Manufacturers in Mexico
encountered labor shortages and cultural differences, forcing some to reconsider and return
operations to China. Kenney cited a client who moved 60% of production to Mexico but
reversed course due to workforce difficulties.

Beyond direct costs, Trump’s tariffs exposed weaknesses in alternative manufacturing hubs,
particularly infrastructure limitations. In Southeast Asia, inadequate deep-water ports led to
higher transportation costs and delays, highlighting the advantages of China’s well-developed
logistics network.

To navigate these challenges, businesses turned to logistics providers for tailored solutions.
Some firms in Thailand and Vietnam leveraged Singapore’s airport infrastructure to bypass
congestion, while others continued using China’s cargo network despite higher tariffs. Factory
relocations also became more complex, as companies underestimated regulatory and customs
hurdles.

While China Plus One remains a viable diversification strategy, many companies are proceeding
cautiously. Instead of fully exiting China, they are maintaining partial operations while gradually
expanding elsewhere, wary of the unpredictability of future U.S. trade policies.