Chinese factories that relocated to Southeast Asia to avoid high U.S. tariffs are now returning to China. Global fast-fashion company SHEIN has established a logistics center in Vietnam covering 15 hectares and encouraged Chinese clothing manufacturers to move their operations there. However, the logistics center's size has been reduced to 6 hectares, and local staffing has been significantly cut. Many clothing companies that had moved to Vietnam are now returning to China. In contrast, SHEIN announced plans to invest over 10 billion yuan in Guangdong Province to build a smart supply chain.
Data from global supply chain inspection firm QIMA confirms this trend. In 2025, the demand for factory inspections and supplier audits in China from U.S. clients decreased by 18% compared to the previous year. During the same period, inspection demand in Vietnam rose by 61%, while Cambodia saw a 26% increase. However, QIMA's share of inspections in China, which was 30% last year, climbed to 35% in the second quarter of 2026, marking the highest level in six quarters. Conversely, the share from Southeast Asia has declined.
The shift of Chinese manufacturing bases to Southeast Asia began in 2018 when the U.S. imposed high tariffs on China and banned imports of certain items, including solar panels and batteries. However, last year, U.S. President Donald Trump extended high tariffs to Southeast Asian countries, diminishing the tariff advantages of that region. As the tariff gap narrowed, companies recalculated productivity, logistics costs, and component sourcing, leading them to conclude that China was more competitive.
Alliance Consumer Group, a U.S. consumer goods company, has shifted a significant portion of its orders back to China this year after sourcing products from Southeast Asia. For instance, the cost of producing flashlights in China was 15% lower than in Thailand. The tariffs for imports from China are about 20%, while those from Thailand, Vietnam, and Cambodia are around 19%, resulting in only a 1 percentage point difference.
China boasts a nearly perfect supply chain for components and materials. Companies can quickly respond to small orders, urgent requests, design changes, and additional production based on this robust supply chain. With the elimination of tariff disparities, China's manufacturing competitiveness is once again shining through.
At the heart of the disappearing tariff differences lies China's rare earth strategy. In April of last year, China introduced export controls on rare earths in response to the U.S. tariffs, disrupting the U.S. supply chain. Ultimately, both countries agreed to significantly lower tariffs through trade negotiations. Without the rare earth leverage, it would have been challenging for China to negotiate trade terms on equal footing with the U.S.
The overseas relocation of Chinese factories, which began in 2018, has led to reduced employment in China, increased youth unemployment, and a decline in corporate investment. The return of factories could alleviate pressure on the job market and inject new vitality into the economy. The repatriation of factories was influenced by tariff negotiations, with rare earths playing a pivotal role in those discussions.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.