A common client question: We moved production from China to Vietnam—does this protect us in the medium term, or is Vietnam a likely persistent target of US trade policy?

Our response: Tariffs on Vietnam and similar countries may prove to be persistent.  

During the last Trump administration, many companies adopted a “China Plus” (one, two, or three markets) strategy to derisk production in China. But there’s no true replacement for China’s productivity and low costs, and alternatives were limited. Many companies chose Vietnam, which benefited Vietnam’s growth—annual GDP growth from 2018 to 2024 was 7%, the highest in Asean. However, this boon resulted in a trade imbalance with the US and put Vietnam in Washington’s crosshairs in 2020 due to allegations of currency manipulation.

Companies that expanded capacity in “China Plus” beneficiaries (most notably Mexico, Taiwan, India, and Thailand, in addition to Vietnam) face similar risks as the US continues to apply pressure on major contributors to its trade deficit. Recent announcements from the White House include all five of these trade partners. Policies will not necessarily be stable—some may be paused, negotiated down, or increased as negotiations and retaliatory moves play out. Details of any such deals—products that might be excluded, restrictions on Chinese intermediate goods, ultimate tariff levels—are not predictable at this time, and companies should not assume any specifics will be lasting. As we’ve seen in other recent announcements, any details announced may last only days or weeks, though some may persist. Our views here reflect the medium-term outlook, and the likelihood of an ultimate low-tariff deal for US market access.

News headlines create the perception of chaos, but we think the Trump administration has three overarching and interlocking trade policy goals. We look to those goals, rather than rhetoric, to gauge what’s likely to happen next. All these goals put Vietnam and, to varying degrees, other “China Plus” beneficiaries at risk. It is not yet clear if US policies will succeed in these goals—but it is clear that there's a willingness to push hard and attempt to "break the system" in pursuit of these goals. Should current policies not achieve them, the US may turn to further tariff and nontariff policies.

• Balanced and “fair” trade: The US is targeting the biggest contributors to its substantial trade deficit, with a particular focus on trade partners it perceives to be engaging in unfair practices—such as running high trade surpluses, establishing nontariff barriers to US goods, enacting higher tariff levels on the US than vice versa, manipulating their currencies, or providing large domestic subsidies. Vietnam, Mexico, Taiwan, India, and Thailand are all significant drivers of the US trade deficit and have collectively grown to represent 38% of America’s overall trade deficit in goods in 2024, up from 20% in 2018.
  
  
• Restored diversity of the US industrial base: The administration is seeking to ensure the US has a diverse industrial base across the entire supply chain. The same five “China Plus” beneficiaries now account for roughly half of the US trade deficit in key machinery and electronics categories, which are essential to broader industry.
  
  
• Domestic security: The US is now working to maintain primacy in the most critical technologies and build a supply chain that’s resilient to pressure from potential adversaries around the world, especially China. Vietnam, Taiwan, Thailand, and India are all relatively close, geographically and economically, to China, which may give Beijing more leverage over them. Taiwan’s critical role in semiconductors may attract increased focus from US trade policy. India’s size and its talent for non-alignment may insulate it relative to other Asian economies, and Mexico is also an exception, given its proximity and deep economic ties to the US.

Where can companies go?

Uncertainty around the specifics of US trade policy will likely persist, and no single policy announcement is final, as the US employs various tools—including tariffs—to pursue its strategic goals while shifting focus across geographies. Given the multiple dimensions the government is simultaneously addressing—timing, duration of tariffs, nature of nontariff barriers, and bilateral negotiations—trade policy details remain unpredictable. But based on the administration’s strategic aims, we can offer some thoughts on diversification options.

• United States (lowest risk): This is the safest, if costly, choice for US market access from a geopolitical risk perspective. Companies must assess remaining exposure to imported intermediate goods, the potential of next-generation automation to offset labor costs, and cost competitiveness. There is also a potential price premium—Bain/Dynata Consumer Health Indexes (CHI) survey data has indicated that across most categories, roughly half of US consumers are willing to pay more for “Made in the USA” vs. “Made in China” goods (at a 10% to 15% median premium).
  
  
• Mexico: Despite intimidating headlines, Mexico remains the most attractive, low-cost alternative destination from which to serve the US market if the Trump administration adheres to its strategic aims for products that aren’t considered core to US national security (e.g., cutting-edge tech). While the administration’s current posture toward both Mexico and Canada may seem alarming, recent developments likely reflect US strong-arming with the goal of reasserting leadership in the United States-Mexico-Canada Agreement (USMCA).
  
  Once there is greater alignment within the USMCA around trade policy, particularly with respect to Chinese imports, this region may well evolve into a North American “walled garden” without meaningful trade barriers. The US has strong incentives to include Mexican labor and Canadian resources inside such a “walled garden.” Given that trade with the US represents nearly half of its GDP, Mexico has strong incentives to secure a low-tariff deal. Unlike most Asian economies, Mexico can impose significant tariffs on China, if necessary, to be in alignment with the US. And as an early focus of US trade negotiations, Mexico may also reach a deal sooner than others.

• Developing economies (other than main “China Plus” beneficiaries): Many countries hope to see export-driven growth as companies diversify from China. But racing to get to a new “safe” country for manufacturing is only a good strategy if you believe the current set of tariffs and regulations will remain in place. Being the first to establish a beachhead in a market without tariffs will create an advantage, but we’re skeptical there’s any truly “safe” market for goods access to the US market that isn’t the US itself.
  
  These developing economies risk becoming victims of their own success, and in some cases, are already possible targets of US trade policy. Smaller economies with low or no trade surplus with the US may therefore be safer from US tariffs (though potentially riskier on other dimensions), at least for a period of time, unless the herd follows. Beyond the existing “China Plus” beneficiaries, potential partners that stand out include Malaysia, Indonesia, Kazakhstan, Turkey, Colombia, and Peru— though Malaysia and Indonesia (and possibly others) might be included as targets for tariffs. Smaller trade surpluses with the US may facilitate reaching a low-tariff agreement. There are also numerous other options spanning Europe, the Middle East, Africa, Asia-Pacific, and the Americas, at either a somewhat higher cost, with more difficult business conditions, or with a smaller industrial base.
  
  
• Vietnam, Taiwan, Thailand, and India: These were among the most logical choices in 2018, and many companies pursued operations in these markets due to their low labor costs and proximity to China-centric supply chains. Mirroring the market also offers a degree of competitive safety. However, these four will find it harder to reach a low-tariff agreement with the US that ensures they don’t act as a “backdoor” for Chinese goods. Their high relative economic dependence on China and geographic proximity raise the costs of making a deal. As with developing economies more broadly, smaller trading partners may be safer from US tariffs, but the risks mount if they grow exports rapidly. India stands as a possible exception here, as both its overall size and relatively low dependence on trade with either China or the US may give it more ability to balance pressures from both, though it may well face US tariffs for at least some period of time.
  
  
• Mainland China (highest risk): China remains the primary target of US tariffs, and those tariffs have broad political support. However, the size of China’s industrial sector, its centrality in supply chains, its strong infrastructure, and its robust government support mean that even with US tariffs in place, China remains the largest exporter to the US. Companies must measure those cost advantages against what are likely to be high, longer-term tariffs on goods exported to the US, and the risk of nontariff policies (quotas, fees, and export/import bans) from both the US and Chinese governments.

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For some of the most critical products, companies may encounter much stronger pressures—both tariff and nontariff—to move production to the US over any other location. This holds for both critical industrial inputs (as we’ve seen with the steel and aluminum tariffs) and areas in which the US wants to maintain primacy for security reasons (such as semiconductors and technology with applications in AI, cutting-edge biotech, military, or space).

Upcoming announcements will undoubtedly cause turmoil as companies adjust to new tariff policies. However, companies must think through the medium-term prospects across trade partners as they make decisions, not just announcements that may prove short-term.

Increasing manufacturing options enhances adaptability and resilience in uncertain times, but these options come with real costs. Companies must start by understanding their own cross-border exposures and risks (across both customers and suppliers). For a deeper dive into how companies can respond to high levels of uncertainty, see the recent HBR article “How to Succeed in an Era of Volatility.”