President-elect Donald Trump appears keen on launching a simultaneous trade war with America’s three biggest trade partners: Mexico, China and Canada.
The price US consumers stand to pay for it could potentially be eased if companies move away from these countries. But where exactly will they go?
Those three nations alone accounted for more than 40% of the total value of all goods the US imported last year, according to federal trade data.
Trump recently pledged to impose an additional 10% tariff on Chinese imports on top of existing ones. On the campaign trail, he also floated a 60% across-the-board tariff on Chinese goods. For Mexico and Canada, he said he plans to slap a new 25% tariff on all imports the very day he’s inaugurated.
In Trump’s ideal world, these higher tariffs would directly boost domestic manufacturing, since US businesses would be able to avoid tariffs entirely. To further incentivize companies to move production to the US, Trump has also dangled tax breaks.
But none of that is likely to cause a meaningful change in domestic production, said Daniel Anthony, managing director at Trade Partnership Worldwide, an economic research group. When Trump imposed steeper tariffs on Chinese goods in his first term, “very little production came back to the United States,” he said.
That was partly due to a lack of readily available infrastructure to make certain goods in the US. But even if that infrastructure had existed, moving manufacturing to the US mostly translates to much higher production costs that directly feed to higher prices consumers pay.
So, if tariffs on Chinese, Canadian and Mexican imports go up across the board, more businesses will likely look to shift their production to other nations to avoid what could be some of the steepest import taxes the US has seen in decades.
These are the countries most likely to be considered by companies looking to relocate their manufacturing.
The No. 1 contender
Trade experts CNN spoke to were in agreement that Vietnam would likely be a top contender, since it’s relatively cheap to manufacture goods there. Already, the country is the seventh top exporter of goods to the US and a beneficiary of the trade war with China.
From 2017, when Trump was first in office, to 2023, Vietnam more than doubled the amount of goods it exports to the US, surging from $47 billion to $114 billion last year.
However, if a lot of companies have the same idea of moving to Vietnam at around the same time, it could get ugly. “You do hit some bandwidth constraints pretty quickly,” said Anthony. Not only that, but it could become more expensive to produce there as suppliers respond to the influx in demand by raising prices, he added.
Cars
With Mexico the top source of US motor vehicle imports, European nations like Germany could tap into their own production capabilities, said Brad Setser, a senior fellow at the Council on Foreign Relations.
Similarly, Japan and South Korea, also heavyweights in car manufacturing, could ramp up production, he said.
Apparel and footwear
In addition to Vietnam, Americans are likely to see more of their clothes and shoes coming from Indonesia, Bangladesh and Cambodia if there’s a new three-way trade war, said Anthony. Federal trade data shows that the US has increasingly been importing more apparel and shoes from these four nations in recent years.
On the luxury footwear and apparel side, though, Italy may experience higher production demand, Anthony added.
Electronics
Taiwan, the third-highest exporter of electronics to the US last year, could further amp up production as more companies seek to move away from China, which was the top electronics exporter to the US last year, Setser told CNN.
Other Southeast Asian countries that have been exporting more electronic goods to the US in recent years — like Malaysia, Thailand, Vietnam, South Korea and Japan — are likely to increase their manufacturing, he said.
South Korea and Japan also have currency advantages; both the won and the yen have weakened significantly over the past year relative to the US dollar, making it cheaper for Americans to buy goods from there.
Companies could also take a page from Apple’s book. The iPhone maker recently moved some of its production to India.
That option looks less likely, Setser said, because most Indian manufacturing is set up to meet the demand of the world’s most populous country: India. However, electronic manufacturing in other Southeast Asian countries is set up to meet global demand.
Many companies could simply end up staying put
Many businesses may have existing contracts to manufacture goods in a particular location for a set period of time.
But even if they don’t, “companies aren’t trying to avoid tariffs. They’re trying to get the lowest all-in cost for the best possible product,” Anthony told CNN. That means that some companies will be willing to absorb higher tariffs rather than moving elsewhere, if that ends up being the cheaper option.
Case in point: Even after Trump began imposing higher tariffs on Chinese imports in 2018, many of which President Joe Biden left in place, the US didn’t stop importing goods from China entirely; it just stopped importing as much as it had been.
For instance, in 2017, before the tariffs went into effect, 60% of all computer equipment the US imported came from China, according to federal trade data. Last year, China accounted for just 39% of all computer equipment the US imported.
In total, the US imported $500 billion worth of Chinese goods in 2017, amounting to 22% of all US imports. Last year, however, the US imported $427 billion of goods from China, accounting for just 14% of total US imports.
Over that timeframe, Mexican and Canadian imports each grew by more than $100 billion, with tariffs set at near zero because of the United States-Mexico-Canada Agreement, combined with the simultaneous amplified tariffs levied on Chinese goods. That largely helps explain why Mexico overtook China as the top exporter to the US.
Still, even with higher tariffs, Setser doesn’t think any auto producer is “going to want to abandon their expensive investments in Mexico,” especially because Mexico may escape higher tariffs as Trump appears more willing to negotiate a deal with them compared to China.
“There’s bigger questions about moving out of China. And the hard thing about China is that there’s so much production capacity, and it’s so cheap.”
