China chose swift retaliation for trade measures in the first Trump administration, but that led to an upward spiral of trade measures and much broader tariffs. Photo: AFP/Getty Images
US President Trump's renewed tariff offensive against China is rewiring investment flows, with Chinese manufacturers accelerating diversification strategies. The 10% tariff imposed earlier this month—coupled with Trump's campaign rhetoric of potential 60% levies—has transformed what was once a cautious “China plus one” strategy into an urgent rush to reshape supply chains and maintain access to the crucial US market.
Chinese outward investment into emerging markets has accelerated, with nearly $9.1 billion flowing into ASEAN manufacturing in 2023 alone—double the $4.5 billion recorded in 2018. These aren't merely portfolio adjustments but strategic relocations of production capacity, with greenfield investments dominating Chinese capital deployment since 2022.
Across Southeast Asia, Indonesia, Thailand and the Philippines have all seen dramatic increases in China-funded manufacturing facilities, particularly in electronics, textiles and automotive components. The influx extends beyond traditional manufacturing, with Chinese firms establishing regional headquarters, research facilities and distribution networks that create more deeply embedded presences.
Vietnam stands to benefit most. Chinese companies now accounting for nearly 30% of all new investment projects in the country—up from 22% in 2023– as they seek to circumvent the 10% tariff recently imposed on Chinese goods and prepare for potential escalation to the 60% levy Trump floated during his election campaign. Such investment has underpinned Vietnam's economic resilience, helping it maintain its position among the world's fastest-growing economies with projected growth of 6.5% this year.
"Chinese capital is forced to come to Vietnam, even though it is not cheap any more." Meir Tlebalde, CEO of Sunwah Kirin Consulting Vietnam.
Deeper investments differentiates current investment patterns from previous offshoring waves, which focused primarily on labor arbitrage. Today's Chinese investors are building integrated ecosystems with greater staying power, developing local supply chains and training specialized workforces to replicate advantages previously exclusive to mainland China.
Shifting investment patterns are part of a broader reversal in emerging market performance. Two-thirds of developing and emerging stock markets tracked by index provider MSCI have changed direction this year compared to their post-election trajectory.
The phenomenon extends beyond traditional value-growth rotations, with Canadian, Colombian, Mexican, European and Chinese technology stocks all outpacing the S&P 500, while the US dollar is weakening against EM currencies—suggesting a fundamental reordering of global investment flows as markets adjust to the new trade reality.
The investment boom carries inherent vulnerabilities, however. While manufacturers are rushing to establish alternative production bases, they face significant challenges in replicating China's advanced infrastructure and robust supply networks. Many relocated operations still depend heavily on Chinese supply chains, with experts estimating that at least half of components for Vietnamese exports originate from China—raising concerns about tariff circumvention that could attract US scrutiny.
Vietnam's $123.5 billion trade surplus with the US last year—America's third-largest after China and Mexico—makes it particularly vulnerable to potential reciprocal tariffs. Vietnamese Prime Minister Pham Minh Chinh has acknowledged these risks, and proposed significant Boeing purchases and increased agricultural imports to address trade imbalances. Other Southeast Asian nations are steeling themselves for similar challenges.
As policy-driven investment reallocation continues, opportunities lies in identifying the EMs positioned to capture diversification while maintaining favorable trade relationships with the US—a delicate balancing act with a mercurial president in the White House.
Countries that can balance Chinese capital, US trade scrutiny, and domestic economic development stand to gain, according to Tej Parikh, writing in the FT opinion section. Vietnam, he argues, could find that this round of offshoring could is its ticket out of the dreaded middle-income trap.
