American tariff deal may slow Southeast Asia push

By the Editorial Team · Thursday, October 1, 2026

A proposed US-China agreement would roll back tariffs on about $30 billion worth of primarily consumer Chinese goods, potentially lowering duties to below 10 percent or eliminating them. This change could reduce the incentive for Chinese manufacturers to shift low-end production to Southeast Asia, where tariffs remain higher, though broader economic factors may continue to support investment in the region.

Chinese manufacturers’ strategic shift toward Southeast Asia as a means to mitigate higher US tariffs may face new challenges following recent developments in US-China trade relations. Under a proposed agreement between Washington and Beijing, tariffs on more than 90 percent of Chinese goods listed in a bilateral trade arrangement, valued at around US$30 billion, would return to most-favoured-nation treatment, with additional duties waived. These predominantly include consumer products such as toys and household items, according to China’s Ministry of Commerce.

The reciprocal arrangement covers a US$30 billion list of American exports to China. While exact tariff reduction levels were not detailed in a White House statement, data from US officials suggest that duties on the affected Chinese products could drop to below 10 percent and in some cases be eliminated entirely.

This potential easing of US tariffs contrasts with the situation facing several Southeast Asian manufacturing hubs. Countries such as Vietnam, Malaysia, and Thailand, which have drawn considerable Chinese investment in low-end consumer goods production over the past decade, remain subject to additional US tariffs ranging from 10 to 12.5 percent. These tariffs were imposed by Washington in July following a Section 301 investigation into alleged forced labour practices and apply to 60 trading partners, including many in the Association of Southeast Asian Nations (ASEAN).

The disparity in tariff treatment has sparked debate over whether the reduced cost advantage of relocating production to Southeast Asia will dampen Chinese companies’ investment in the region. Some industry observers note signs of hesitation among Chinese firms but expect Southeast Asia’s appeal to persist, driven by broader economic factors such as rising production costs within China, an industrial upgrade toward higher-value manufacturing, and ongoing uncertainty surrounding US trade policies.

“We have already seen some hesitancy among Chinese enterprises investing in Southeast Asia over the last few months,” said Chim Lee, a senior analyst at the Economist Intelligence Unit. Lee further pointed to the geopolitical climate, including the Iran conflict, which has resulted in more stable energy supplies in China compared with certain Southeast Asian countries. Consequently, larger Chinese companies with facilities both in China and Southeast Asia may temporarily prioritize exports from China.

Since the onset of the US-China trade war during former President Donald Trump’s administration, many Chinese manufacturers expanded overseas production to hedge against tariff risks, with Southeast Asia emerging as a preferred destination due to its geographic proximity and lower labor costs. Chinese investment in ASEAN nations rose sharply to approximately US$19 billion in 2024 from US$8 billion in 2015, making China the second-largest source of foreign direct investment in the region outside the bloc’s members, according to ASEAN data. Manufacturing accounts for the largest share of this investment.

Lynn Song, chief economist for Greater China at ING, articulated that China’s shift toward higher-end manufacturing supports the ongoing transition of low-end production to Southeast Asia, given the region’s cost advantages. “China is upgrading its industries and moving up the value-added ladder, while Southeast Asia continues to offer lower labor costs, making the region a natural destination for lower-end manufacturing,” Song said.

Nonetheless, some analysts contend that the new US-China tariff cuts will have limited impact on supply chain relocation decisions. Jayant Menon, a visiting senior fellow at Singapore’s ISEAS – Yusof Ishak Institute, described the tariff reductions as “narrowly targeted.” He noted that although reduced duties could incentivize direct shipments from China for certain products, the scope of affected goods is relatively small compared to the broader range of sectors driving Chinese manufacturing investment in Southeast Asia.

As the negotiations proceed, the evolving tariff landscape may reshape the calculus for Chinese manufacturers weighing the benefits of production diversification versus the advantages of proximity and established infrastructure in Southeast Asia.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.