The Response to Tariffs: China Plus One or China Everywhere?

Over the past year, many Chinese exporters have sought to relocate part of their production outside of mainland China. This is largely due to the China Plus One strategy, where American buyers seek to diversify supply chains beyond China. Initially driven by rising labour costs, the strategy gained urgency after COVID-19 disrupted global supply chains, highlighting the need for resilience. Geopolitical concerns, particularly fears of conflict in the South China Sea or Taiwan Strait, have further accelerated this trend.

Governments in the US and EU have promoted "de-risking" from China, reinforcing business-led supply chain shifts. Trump’s tariffs, along with anti-dumping measures from three consecutive administrations, signal to American importers that sourcing from China is increasingly untenable.

Hong illustrates these shifts with a case study of a Shanghai-based SME manufacturer supplying American customers. The company was pressured by its US distributor to establish a factory in Mexico by 2027. The American buyer had no manufacturing expertise and needed the Chinese supplier’s help. When Hong’s firm reviewed the joint venture agreement, it became clear that the Chinese manufacturer was only given a minority stake in the Mexico facility.

While this arrangement may appear collaborative, the real concern is that the Mexico plant will eventually replace the Chinese factory. The Chinese exporter faces the risk of losing a key customer while having little control over the new factory’s operations. As a minority shareholder in a single-client cost centre, their equity stake may have nominal value but offers no real leverage or liquidity.

Chinese exporters facing this dilemma have three main options:

While American businesses view China Plus One as a means of reducing dependence on Chinese supply chains, Chinese manufacturers are responding with their own strategy: 出海 (Chu Hai), meaning to expand abroad. Rather than being passively displaced, Chinese entrepreneurs are aggressively investing in global production facilities, setting up operations from Mexico to Southeast Asia, and even within the United States.

Official trade data reinforces this trend. In 2024, China’s trade surplus reached USD1 trillion – far surpassing the historical surpluses achieved by Japan and Germany. China now produces about a third of the world’s manufactured goods, exceeding the combined output of the United States, Japan, Germany, South Korea, and the UK. While China’s reliance on the US market has declined, its exports to third countries like Vietnam and Mexico often still end up in American supply chains.

At the recent Consumer Electronics Show in Las Vegas, a third of the exhibitors were Chinese companies, showcasing their ability to innovate and compete globally. This contradicts the assumption that tariffs and de-risking would weaken China’s manufacturing dominance. Instead, it highlights how Chinese businesses adapt dynamically, ensuring that while supply chains may shift geographically, China’s role in global manufacturing remains robust.

Hong argues that while US policymakers see tariffs as a tool to weaken China’s role in supply chains, the reality is more complex. American boardrooms may embrace China Plus One, but on the ground, Chinese manufacturers are building a China Everywhere model – expanding production capacity across multiple countries. The economic nationalism behind Trump’s tariffs meets an equally nationalist far more adaptive and globally mobile Chinese business sector, ensuring that while supply chains evolve, China remains at the center of global manufacturing.