American businesses reducing financial commitments in China, shifting focus towards Southeast Asia (ASEAN) and India as potential locations for manufacturing operations
In a significant shift, US investors are seeking new opportunities beyond their traditional markets, and Thailand, as part of the Association of Southeast Asian Nations (ASEAN), stands to benefit if it can attract investment, given its strong potential. This trend is largely due to US firms reducing investments in China, as tariffs and trade tensions have led them to explore alternative markets and manufacturing hubs such as Southeast Asia, India, and Mexico.
The survey, conducted from March to May 2025, was carried out during a period when former US President Donald Trump was making efforts to reform US trade policies. The survey findings revealed that these regions offer low-cost production alternatives and more stable trade environments compared to China amid ongoing disputes.
Domestically, US hubs like Ohio, South Carolina, Texas, and certain Foreign Trade Zones, are also attracting significant investments. Ohio, for instance, is expanding facilities supporting industrial robotics, automotive, renewable energy, and automated truck platooning trials. South Carolina hosts EV battery plants by SK Innovation and LG Energy Solution, while Texas is investing in solar panel production and EV battery recycling, leveraging green manufacturing incentives.
For specific industries, pulp and paper firms are shifting towards Mexico, benefiting from USMCA trade agreements and proximity for tariff-free pulp and packaging inputs. India has increased exports of specialty papers and packaging materials, establishing itself as a reliable low-risk partner, supported by government schemes and rising Western demand. Latin America, particularly Brazil, Chile, and Uruguay, is gaining traction for pulp and cellulose production due to abundant natural resources and political stability.
Meanwhile, investments in high-tech manufacturing are growing in the US, with semiconductor investment by ASML and TSMC, reflecting a strategic move to reduce reliance on China.
The US-China Business Council (USCBC) survey highlighted other factors affecting the business environment for US companies in China, including increased competition with Chinese companies, US export controls, China's industrial policies, and internal restructuring policies, all of which present barriers to market access. Confidence in the Chinese market will not rebound unless there is a significant reduction in tariffs and improved market access.
Despite these challenges, US companies are unlikely to abandon the Chinese market entirely. The survey indicated that US companies are still profitable, though only slightly less than half are optimistic about the future due to concerns over tariffs and US policy uncertainties. Economic growth in China and fluctuating domestic demand are concerns for US companies, with achieving the country's 5% GDP growth target in 2025 becoming increasingly challenging due to recent volatility in global trade.
Many US companies are shifting their supply chains and reducing new investments in China in the near term. Half of the respondents reported that Chinese customers have switched to non-US suppliers to avoid uncertainty. Nearly 70% of companies have been directly affected by tariffs, while 88% have been impacted by the deteriorating US-China relations.
The escalating tensions are forcing companies to reassess their investment strategies in China due to structural economic challenges and political instability in recent years. Companies are managing the situation by renegotiating prices with suppliers and shifting supply chains to alternative markets, such as Southeast Asia, India, and Mexico.
In conclusion, US companies are diversifying geographically to Southeast Asia, India, Mexico, Latin America, and domestic hubs in the US, focusing on supply chain resilience, cost-efficiency, and tariff avoidance amid ongoing US-China tensions. The USCBC survey reveals that only 48% of US companies plan to invest in China this year, a significant drop from 80% in 2024.
- The shift in focus for US investors towards alternative markets, such as Southeast Asia, India, Mexico, and Thailand, is not limited to businesses but also extends to politics, culture, sports, and environmental considerations, as these regions offer favorable trade environments and valuable resources.
- In the realm of environmental sustainability, for example, countries like Thailand, India, Mexico, and those in Latin America present opportunities for renewable energy production, automotive industries adopting automated truck platooning trials, and pulp and paper firms leveraging abundant natural resources and stable trade environments to meet growing Western demand.
%20and%20India%20as%20potential%20locations%20for%20manufacturing%20operations){kind=link}