Key facts
- Some companies are returning manufacturing operations to China after previously relocating to avoid U.S. tariffs.
- Difficulties replicating China's skilled labor, supplier networks, and reliable power have prompted companies to reconsider overseas production.
- U.S. retailer Target and Chinese fast-fashion retailer Shein are among the companies adjusting their supply chain strategies.
- Challenges in Vietnam included finding equipment and supplies, leading some businesses to move production back to China.
- Reliable access to power has become a critical factor, with Chinese plants seen as more stable during crises.
- Alternative manufacturing locations like India, Indonesia, and Vietnam continue to attract investment despite these challenges.
Some companies are reversing their decisions to shift production and sourcing out of China to avoid U.S. tariffs, finding that replicating the country's extensive manufacturing ecosystem abroad is proving difficult. Businesses are encountering challenges with skilled labor, supplier networks, and reliable power in alternative locations, leading them to bring operations back to China.
Last year, the imposition of U.S. tariffs prompted a global effort to diversify supply chains. However, the "China plus one" strategy, which involved hedging exposure by establishing operations in lower-tariff countries, has been harder to execute than anticipated. While companies continue to invest in manufacturing hubs in Southeast Asia, persistent concerns about infrastructure and operational efficiency are leading some to reconsider.
Heather Kuang, vice president of Dawang Metals, a China-based metal casting company, noted that a major U.S. customer returned with new orders after experiencing problems with production in India. She stated that "China's supply-chain advantage is still too great, and it is difficult to replicate domestic production elsewhere."
U.S. retailer Target has reportedly moved some orders back to Chinese suppliers due to supply-chain disruptions and production constraints, according to sources familiar with the matter. Similarly, Chinese fast-fashion retailer Shein is scaling back some operations in Vietnam. Jin Chaofeng, an exporter of outdoor furniture, shut down a workshop in Ho Chi Minh City opened in 2024 and moved production back to China this year, citing difficulties in finding equipment and basic supplies like screws and molds.
Beyond cost considerations, access to power has become a significant factor. Stanislaw Krykun, CEO of Poland-based packaging firm DST Pack, which sources 80% of its production from Shenzhen, highlighted the stability of Chinese production plants during crises. He noted that alternatives in the U.S. and Europe cost two to three times more per unit and that a business partner faced numerous issues when starting production and exporting from Vietnam.
Lawyer Guan Baokui, who advises manufacturers, pointed to unstable electricity supply in Vietnam and Indonesia as a problem, which has been exacerbated by surging global oil prices. While Vietnam remains a significant beneficiary of supply-chain diversification, attracting billions in foreign investment, some companies are maintaining a portion of their capacity there as a hedge against potential future tariff spikes.