After a year of companies and manufacturers rushing to move production and sources of supply outside China to escape US customs duties, some of these companies began to turn back, after discovering that replicating the integrated Chinese manufacturing system in other countries is more difficult and more expensive than expected.
The experiences of companies in various sectors indicate a gradual return of some orders to Chinese suppliers, with the emergence of problems related to the availability of skilled labor, equipment, components, and the stability of electricity, in alternative manufacturing centers. The shrinking difference between the US tariffs imposed on China and those imposed on Southeast Asian countries has also weakened one of the most important drivers of production transfer.
Dawang Metals, a metal casting company based in the city of Dandong in northeastern China, was one of the companies that lost business last year after a large American client transferred part of its orders to India, according to a report from Reuters.
But Heather Kuang, vice president of the family business, said the customer, an unnamed agricultural machinery company, later returned with new orders after experiencing problems in India. Dowang itself had considered transferring part of its production abroad, before withdrawing from the plan. Quang said that China's supply chain advantage is still very large, and imitating domestic production in other countries is not easy.
Thus, the “China Plus One” strategy, which depends on maintaining production in China while establishing an additional base in another country, faces a practical test. Despite continued investments in India, Indonesia and Vietnam, companies say that factories outside China cannot always keep up with Chinese supplier networks, the availability of skilled labor, or stable energy supplies.
Comprehensive data is not yet available that determines the volume of orders returned to China, but indicators appear in the decisions of some major companies. The American retailer Target returned some orders to Chinese suppliers due to supply chain disruptions and production restrictions, according to informed sources. The famous fast fashion company Shein is also reducing some of its operations in Vietnam.
Jin Zhaofeng, a garden furniture exporter in Hangzhou, provides an example of the difficulties faced in relocation. This year, he closed a workshop that he had opened in Ho Chi Minh City, Vietnam, in 2024, and returned production to China. He said he had difficulty finding the required equipment, and had to import basic supplies from China, including screws and molds for cup holders. After accounting for transportation, equipment, components, and other expenses, it was found that the total cost of production in Vietnam was not much different from China; Which weakened the economic feasibility of the transition.
The difference in US customs duties was one of the most prominent reasons for companies moving towards Southeast Asia. According to estimates by the Economist Intelligence Unit last July, China faced an actual US tariff rate of about 20 percent, compared to 6.1 percent for Vietnam, 13.4 percent for Indonesia, and 4.5 percent for Thailand.
But Washington's expansion of tariffs on other countries has narrowed this gap, and prompted some Chinese manufacturers to reevaluate their investment plans abroad.
Fees and wages alone no longer determine the location of the factory. The reliability of energy supplies has become an increasingly important factor, especially after the Middle East crisis and rising oil prices tested the ability of various manufacturing centers to withstand energy shocks.
Stanislaw Krykon, CEO of the Polish packaging company DST Pack, said that his Chinese industrial partner helped the company overcome a period during which plastic costs rose 15 percent last April as a result of the rise in oil. The company obtains 80 percent of its production from a factory in Shenzhen, southern China, while the remaining percentage comes equally from reserve factories in the United States and Europe. But the unit cost of these alternative sources is between 2 and 3 times the usual production cost.
Krykon said that he ruled out moving to Southeast Asia after seeing a trading partner facing problems in Vietnam that extended from manufacturing to export, noting that the industrial system there does not work as smoothly as that in China. Guan Baocui, a lawyer in the Chinese city of Qingdao who advises manufacturers, also said that the instability of electricity supplies in Vietnam and Indonesia represents an additional challenge, especially with rising energy prices.
However, the return of some orders does not mean the end of the diversification strategy. Vietnam remains a major beneficiary of the restructuring of supply chains, attracting billions of dollars in foreign investment. Yu Yangxian, whose company sells electronic safes and vending machines, said it keeps about an eighth of its production capacity in Vietnam as a reserve base, and may expand its operations there again if US tariffs on China rise sharply.
The return is not comprehensive; Summer Hu, a sales agent in Ningbo who works in gift products and outdoor sports equipment, said that her company has not seen a return in American orders, noting that competition is still intense.
These transformations come before an upcoming meeting between US President Donald Trump and his Chinese counterpart Xi Jinping, which companies are awaiting to obtain greater clarity about the future of trade barriers. However, exporters do not rely much on the summit to solve their problems.
Recent experience shows that reshaping global supply chains has become more complex than simply comparing tariffs. After years of China building dense networks of factories, suppliers, labor, and infrastructure, some companies have discovered that exiting may be possible, but replacing its entire industrial system is more difficult.
