US tariffs are pushing Chinese manufacturers to consider repatriating offshore production

Trump promised to bring back manufacturing to the US, but it seems like China may be the one leading the push to onshore production. With the Trump administration’s decision to impose new tariffs on more than 90 countries starting 7 August, Chinese manufacturers are finding that the logic of offshoring production to avoid long-standing China tariffs — including from previous US administrations — may no longer make financial sense, the Financial Times reports.

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Chinese factories abroad now face incoming US tariffs — some of which are higher than those imposed on China. The “China plus one” strategy had seen Chinese companies — often with state support — invest bns in opening up shop abroad in nearby countries to circumvent US trade restrictions and tariffs, which came to a crescendo under Trump’s first term. But with China now facing a much less severe 30% tariff — down from 145% — it makes little sense to stay in countries with higher tariff rates like Laos and Myanmar.

The impact may be felt further afield, possibly here in the MENA region. In addition to countries like Iraq facing significantly higher tariffs from China, all countries face a 40% tariff on goods understood to be transhipped from China to the US via a third country. The problem is that what qualifies as transhipped goods is not completely clear, with Chinese factories abroad that use inputs from China for production potentially falling prey to the rule. While many Chinese companies with existing operations here may stay put to wait and see, the move by the US will certainly weigh on Chinese investor sentiment for investments abroad.

But some think the move could also push Chinese companies to seek low-tariff markets outside of Southeast Asia, which is good news for countries in the region assigned the US’ baseline 10% tariff like the UAE, KSA, and Egypt. While some companies may move production back to China, others “will seek new manufacturing bases further afield,” according to Oxford Economics Asia economist Louise Loo.

MARKETS THIS MORNING-

It’s another morning with Asian markets in the green — South Korea’s Kospi is looking at gains of 1.5%, Japan’s Nikkei is up 0.6%, and the Shanghai Composite is up 0.4%. Meanwhile, the Hang Seng is in the red, down 0.2%.

THE CLOSING BELL-

The EGX30 rose 1.3% at yesterday’s close on turnover of EGP 4.2 bn (18.6% below the 90-day average). International investors were the sole net sellers. The index is up 16.7% YTD.

In the green: Qalaa Holdings (+4.9%), E-finance (+4.0%), and Eastern Company (+2.7%).

In the red: Emaar Misr (-1.7%), Fawry (-1.4%), and Orascom Construction (-1.3%).