PHOTO: AFP

REUTERS

A new US-China agreement to pause sky-high tariffs on each other is pressuring manufacturing hubs such as Vietnam and Mexico to make their own, better deals with the US to continue benefiting from a “China-plus-one” strategy by global producers.

In the new world order dictated by President Donald Trump’s shifting announcements of tariffs, countries measure their success not by the terms of their trade deals with the US but by how they compare to other countries.

For the last five weeks, many nations facing significant duties under Trump’s now-paused “reciprocal” global tariff regime announced on April 2 took solace from having better rates than China, which saw US tariffs on Chinese imports ratchet up from 20 percent to an embargo-like 145 percent from March to May.

Vietnam, for example, was better off than China with a 46 percent rate, while Thailand was at 36 percent and Malaysia at 24 percent.

Given their comparative advantage, manufacturing hubs anticipated further moves by multinational corporations to set up shop in their countries and decrease their dependency on China, potentially adding to a years-long trend known as “China-plus-one”.

Now, everything is up in the air again following a breakthrough in US-China trade talks that resulted in a 90-day reprieve from the astoundingly high tariffs on China, leaving a base 30 percent import tax rate for made-in-China products.

Tariffs on China still remain higher than competing industrial hubs paying 10 percent under Trump’s 90-day pause on the reciprocal duties, but some experts said the deal could halt some of the momentum pushing multinationals to further shift supply chains outside of China.

“The rules of the game are still uncertain,” said Diego Marroquin Bitar, an expert on North American trade who also works as a consultant. “I think companies are just going to delay their investments as much as they can.”

Starting in his first term, Trump sought to leverage tariffs on China to force companies to relocate manufacturing to the US.

The “reshoring” to the US largely did not materialise, but over the past decade companies such as Apple did start looking for alternatives to China, with a focus on countries that offered relatively low labour costs and smaller tariffs.

Southeast Asian nations were among the biggest beneficiaries, along with Mexico, but if the US-China tariff pause is extended, those countries could see their comparative advantage dissipate.

Vietnam, Thailand and Malaysia are currently negotiating their own tariff deals with the United States. Mexico, which avoided reciprocal tariffs, is also seeking to reduce separate import duties on specific products such as automobiles.