China+1 under strain: why "the next Vietnam" is the wrong question

Context

When the US-China trade conflict began in 2018, many Chinese manufacturers responded by moving final assembly to Southeast Asia. The model was straightforward: import components from China, assemble them in Vietnam, Thailand or Malaysia, and export the finished goods to the US under a different country of origin. Vietnam in particular became the emblem of what came to be called China+1.

For several years it worked. Vietnam's exports to the US grew rapidly, and Chinese investment followed. Industrial parks around Haiphong, Bac Ninh and Binh Duong filled with suppliers from the Pearl River Delta and the Yangtze River Delta.

What changed

The second Trump administration has shifted the focus from China alone to the routes Chinese goods travel through. An executive order on 31 July 2025 set a 20% tariff on Vietnamese goods and a 40% levy on goods deemed to be transshipped to avoid duties. CNA reported in October 2025 that the change was already affecting Chinese firms in the region: one plastics manufacturer had cut about a third of its staff, while Chinese manufacturing investment continued to arrive in Penang, Malaysia, at RM 1.85 billion in the first half of 2025.

By June 2026, the pressure had intensified. According to a South China Morning Post report summarised by The Herald Business on 27 June, the US has opened a Section 301 investigation into Vietnam covering intellectual property, production capacity and labour practices, and is pursuing additional duties on goods with a high share of Chinese content routed through Vietnam.

The report described several Chinese companies changing course. Textile maker Jasan scrapped plans for a Vietnamese factory that would have produced 60 million pairs of socks a year for the US market, citing land delays and export uncertainty. Jinko Solar scaled back and then cancelled a Vietnam project after US anti-dumping duties began to apply to Vietnamese-made products. Zhou Libin, who has run a machinery plant in Haiphong since 2018, told the newspaper: "It might be better to just stay in China."

Dan Martin of Dezan Shira & Associates warned that Vietnam, Thailand, Malaysia, Indonesia, India and Mexico could all face scrutiny if they were seen as platforms for simple assembly. "Companies need to move away from the mindset of finding the next loophole," he said.

What the new model looks like

The emerging answer is not to abandon diversification but to make it real. That means sourcing more raw materials and components locally, developing local management, and in some cases redirecting exports towards Southeast Asia, the Middle East and other markets rather than relying on the US. Vietnam itself is tightening rules of origin and transshipment enforcement to reassure Washington while still seeking Chinese investment.

This is more expensive and slower than the old model. It also changes the kind of support companies need: regional treasury and financing, legal structuring across several jurisdictions, tax and transfer pricing, trade compliance and rules-of-origin documentation, and risk management.

For many manufacturers, the most practical first step is not a new factory but better information: a bill of materials showing where each component comes from, supplier declarations that would survive an audit, and a realistic estimate of the local value added in each product. Without that, it is hard to judge whether any relocation will deliver the tariff treatment the business expects.

Implications for investors, families and businesses

For manufacturers, the question is no longer which country offers the lowest tariff today, but which operations can withstand closer scrutiny. Origin documentation, supplier mapping and value-added calculations are becoming core business records, not paperwork.

For investors, companies that described Southeast Asian expansion as a tariff solution deserve a second look. The relevant questions are how much local value is added, how dependent the plant is on Chinese inputs, and how exposed it is to rules that are still changing.

For family-owned businesses in the Pearl River Delta, many of which supply larger exporters, the shift may be an opportunity to follow customers abroad with a more substantial footprint, or a reason to diversify customers away from US-bound supply chains.

For Hong Kong, the change plays to its strengths as a base for regional headquarters, financing and professional services. The government launched the GoGlobal Task Force in October 2025, coordinating InvestHK, the Trade Development Council and Hong Kong's overseas offices to help mainland enterprises expand abroad through Hong Kong.

Questions to consider

• How much of our product's value is genuinely created in the country of export?
• Can we document origin, supplier chains and transfer pricing to the standard customs authorities now expect?
• Are we too dependent on a single export market or a single relocation destination?
• Where should our regional headquarters, treasury and contracting entities sit?
• Which investments in our portfolio rely on tariff arbitrage rather than durable advantages?

Closing

China+1 is not over, but its easy version is. The firms that do well in the next phase will be those that treat diversification as building real businesses in new places, with the people, suppliers and governance that implies. That is harder to copy and easier to defend.