Trump has pledged far-reaching tariffs on Chinese imports, promising upwards of 60 percent on its goods. He has falsely claimed that these tariffs would punish Chinese manufacturing, but in reality, tariffs are often felt by the consumer.
Businesses and individual consumers are already stockpiling and preparing for increased prices, but once these tariffs are underway, where will manufacturing go? Many Chinese businesses are turning to neighboring regions. They now stand to gain major economic advantages if President Trump’s promised tariffs are implemented.
Tariffs are Taxes
While Trump has often said that tariffs are paid by the foreign manufacturer, that is not the case. A tariff is simply a tax on goods manufactured abroad. To simplify, under Trump’s plan, a Chinese product priced at $100 would face a 60 percent tariff upon arrival at the U.S. border. This means the American company receiving the product pays $60 to the U.S. Treasury. Thus, China receives $100 for the product, the U.S. government gets $60 for the tariff, and the business pays $160 total.
Companies then have a choice—they can pay the cost of the tariff and keep prices for consumers the same, increase the price by a percentage of the tariff to make some of the money back, or increase the price enough to cover the entire cost of the tariff. More often than not, they increase the cost to cover part, if not all, of the tariff.
In addition to the unintended consequences Trump’s tariffs will have on domestic consumers, his policies may also impact the economies of countries surrounding China. As American companies weigh their options for domestic or foreign manufacturing, Vietnam, Malaysia, and Kazakhstan stand to gain significantly if further tariffs are imposed on China.
The Impact on China and Surrounding Countries
Beijing’s response to trade shocks has been bolstered in recent years by implementing proportionate tariff increases and building relationships with surrounding nations. While the Chinese government tries to mitigate any potential impacts of the tariffs, many Chinese companies seek to set up shop elsewhere. This could have the intended consequence Trump is ultimately hoping for: to weaken China’s economy. But with Chinese businesses hoping to move away, countries like Vietnam, Malaysia, and Kazakhstan have a lot to gain by welcoming them with open arms.
Vietnam seems the most likely relocation for Chinese business given their positive trade relations with the U.S. The U.S.-Vietnam commercial relationship has flourished since the normalization of ties in the mid-1990s, making the U.S. Vietnam’s largest export market and a key source of foreign investment. Economic reforms (Doi Moi, in Vietnam) and Vietnam’s integration into global markets, marked by its entry into the World Trade Organization (WTO) in 2007, have driven remarkable progress—bilateral trade has surged from $2.9 billion in 2002 to over $139 billion in 2022. Vietnam is a rising star among Asia’s economies as it benefits from shifting global supply chains. It also stands as a growing market for U.S. agricultural exports, solidifying its role in regional trade and investment opportunities. Vietnam’s manufacturing wing and Chinese businesses have a lot to gain from these transitions.
Malaysia has played both sides since Trump’s initial promises for tariffs, courting both Beijing and Washington, D.C., in an effort to get ahead of potential tariffs. Leaders made headlines cautioning Chinese businesses against using Malaysia as a way to “rebadge” their products to avoid U.S. tariffs. In the public sector, Malaysian officials have been working out a deal with Singapore to provide “a special economic zone where companies will be given financial incentives to build factories.” Malaysia stands to gain significant economic ground if Chinese companies move to its shores, but could face repercussions in their relations with the U.S.
A somewhat surprising player is gearing up to take a piece of the pie as well: Kazakhstan. While not known for manufacturing, Kazakhstan could become a transshipment hotspot, essentially acting as a middle man. At the 29th United Nations Climate Change Conference (COP29), they strengthened their economic partnerships as “Kazakhstan, Azerbaijan, and China signed an agreement on the establishment of an intermodal cargo terminal in the Port of Baku in Alat.” China has a good relationship with Kazakhstan: 80 percent of China’s exports to Europe pass through Kazakhstan first, and this year their trade levels reached new records with 28 million tons of cargo transported. Expanding their transshipment operations in the wake of new tariffs could transform Kazakh involvement in manufacturing and open up new doors for infrastructure.
The Takeaways
The imposition of U.S. tariffs on China is tricky: while President Trump claims it could challenge China’s economic position, it creates new opportunities for countries around it. It will not impact the Chinese economy the way he thinks it will. Nations like Vietnam, Malaysia, and Kazakhstan are strategically positioned to capitalize on this shifting landscape, whether by attracting manufacturing, expanding infrastructure, or serving as critical transit hubs.
These developments not only bolster regional economies but also highlight the interconnectedness of global trade. As businesses adapt to the evolving tariff environment, the economic fortunes of China’s neighboring countries could rise, reinforcing the complex interplay between policy decisions and market dynamics. In the initial days of his presidency, President Trump engaged in tariff negotiations with countries like Canada and Mexico, reshaping dynamics with the U.S.’s own neighbors. As tariffs on China develop and change, his decisions will have reverberating impacts across Asia and the world.
To read this blog as it was published on The International Affairs Review website, please click here.