08 Dec 2025 Tariff Expansion and Nearshoring Trends
Written by Jeffrey Cartwright, Managing Partner – 5 min read
There are three major reasons companies nearshore
Over the last 7+ years, Shoreview has been assisting US Importers in finding strategic sourcing alternatives in Mexico from China. There are 3 major reasons for companies to want to exit China:
- Achieving a lower-landed cost than their China based supply chain.
- Reducing the risks associated in doing business with China.
- Shortening the supply chain by manufacturing closer to the customer increases flexibility in ordering and reduces inventory, both of which improve cash flow and may reduce costs by reducing the amount of off-quality product in the supply chain and the amount of obsolescence when the product is updated.
Let’s explore each of these options in detail.
Achieving a lower-landed cost than importing from china or other asian countries
The likelihood of achieving a lower-landed cost given tariff increases on China in 2025 is far more likely for many products than it was a year ago.
Also, the previous strategy of moving from China to another low-cost country in Southeast Asia has been challenged by the imposition of tariffs on countries like Vietnam and Thailand. There are two reasons the old way isn’t working anymore. First, many factories in those countries are Chinese-owned and the parent company remains in China. These factories typically import a large number of raw materials and components from China. As such, the cost of a product at the factory gate can be 15 to 20% higher than China due to the cost of transporting those materials to the new factory. Prior to the August imposition of tariffs (and subsequent changes to tariff rates), this made sense.
The second reason is that now, with the addition of 20% tariffs on these countries, the economics have shifted. This is also challenged by the announcement of 40% tariffs on transshipped products. These are products that are principally made in China and then lightly touched in other countries, such as assembly and packaging only, and then claimed to be made in that country. While this has not yet been defined and implemented, USMCA content provisions provide the likely model going forward. Under USMCA, products are assessed a 25% tariff if they are not majority value-added content and thus determined not to be made in Mexico. Also, products like automobiles have an even higher content requirement to avoid tariffs.
It is generally thought that these tariff levels have mostly settled out, and although there may be further adjustments, those are along the lines of things not grown in the United States, like coffee or other farm products. The second set of adjustments are 232 sectoral tariffs, which are global and apply to a product category that the US wants manufactured in the United States. These adjustments are upwards and will not shift comparative country economics.
Also, as a cost factor, there are duties on most products from Asia; there are no duties on products from Mexico.
So, what does this all mean for Nearshoring? First, many US companies now want to nearshore as Southeast Asia is no longer the lowest-cost alternative. Second, other countries that own factories in China or Southeast Asia would like to relocate manufacturing to Mexico. This includes Chinese companies realizing that tariffs are here to stay and now need a lower-cost alternative to manufacturing for US companies elsewhere. It also includes Taiwanese and other countries that operate factories in Southeast Asia which no longer benefit from their previous tariff-free status.
Off-Setting the Risk of China
Beyond the geopolitical risk of a disruption of international trade in the event of a war between China and Taiwan, which will stop every shipment from East Asia (China, Taiwan, Vietnam, South Korea, Japan, etc. ), there is the risk of China exploiting its near monopoly on certain products, such as rare earths, to achieve political objectives elsewhere. In the last two weeks, General Motors and Tesla have announced their intention to stop importing any components from China. The export limitations that China has announced on rare earths and rare earth magnets twice this year (and later relaxed) threaten automobile and defense manufacturing worldwide. Given the threat to the global economy, many companies are going to exit China solely to continue manufacturing operations. Countries and companies do not want to be held hostage to Beijing.
China has also retaliated against Japan over a recent statement by the Japanese prime minister concerning defense of Taiwan. Previously, China has retaliated against Japan over visits by the Japanese prime minister to a shrine in Tokyo that includes graves of some war criminals. China’s sensitivities and retaliation against other countries are both historical and seem somewhat likely in the future.
Companies that have moved their supply chains to Southeast Asia are still exposed to the risk of Chinese political disruptions.
Moving to Mexico also virtually eliminates the risk of intellectual property theft or forced technology transfer.
Proximity to the US Market which is 26% of Global GDP
The third major reason is that US companies want to Nearshore in proximity to the US market.
The same time zone, flights to Mexico one day and back the next, and 2 to 5 days transportation from Mexico to most anywhere in the US are significant advantages for manufacturing in Mexico. The shortened purchase order to receipt of product timeframe allows adjustments to incoming product flow that is simply impossible with products from Asia. That results in lower inventory, which can positively impact working capital. Also, if the product line is seasonal and due to weather or other factors, demand suddenly increases or decreases; adjustments can be made to better serve customers. This may result in fewer discounts for customers moving end-of-season inventory or a reduction of obsolescence for products that have been discontinued; excess inventory is turned into non-saleable goods at non-negative liquidation margins.
Some Asian companies recognize these as benefits, and there is heightened interest in companies that manufacture in Mexico. Some of them do so of their own volition, and some because US companies are demanding that they move manufacturing or lose the business entirely.
Tariff Uncertainty (Continued Hope that Tariffs Will Eventually Be Lowered Dramatically)
Despite the on-again/off-again tariff announcements, it seems clear that China is viewed as an existential threat and that, after 7 years of a trade war, higher tariff levels are here to stay. 301 and 232 tariffs have been found by the courts to be lawful. Reciprocal or IEEPA tariffs on China of 10% for fentanyl and 10% additional are before the US Supreme Court. Even if those are found to exceed the President’s authority, the Trade Act of 1974 grants the President the authority to impose 15% (150-day duration) tariffs because of trade imbalances. Beyond that, the President is sure to expand the use of 232 and 301 tariffs on China. So, whether the 45% (as of November 2025) level holds, it is a near certainty that levels will be much higher than in the prior Administration. Estimates are hazardous and likely to be wrong, but it seems 40 to 45% should be expected. Note also that the previous Democratic Administration declared China an existential threat and raised tariffs on China. Holding out hope that in 3 years tariffs might be dramatically lowered seems like wishful thinking.
In other countries, such as Vietnam, Cambodia, and Thailand, it seems that tariff agreements have been reached so that the President’s foreign policy powers will prevail over the potential overreach of IEEPA authority. The Iran nuclear deal by the Obama Administration is an example of the wide authority that the courts have given the President in the area of foreign policy. However, hope is not a strategy, and wishing does not make things so.
Unfortunately, Mexico Has Not Exploited the Nearshoring Opportunity
Many companies in Mexico want to take advantage of Nearshoring but fail to change their businesses to take advantage of the opportunity. They simply want to make more of what they already make. In the automotive and aerospace sectors, the US does not import much from China and is determined to keep imports as close to zero as possible. The Nearshoring opportunity is in products that the US buys from Asia but that are not yet made cost-competitively or at all in Mexico. The largest categories that China exports to the world, and thus are the greatest opportunity for Mexico, are small consumer products (like coffee makers, toasters, crock pots, hand-held power tools, vacuum cleaners, etc.), small electronics like laptop computers and cell phones, and toys.
This is disappointing to say the least. Known demand. Desire to exit China. Significant manufacturing expertise, and yet little desire to respond to the challenge.
The Real Price of Waiting
There is a very real price to US companies in waiting to explore Nearshoring. Added costs and lower profits for the entire time that the opportunity to reduce landed costs while hoping that the world will return to the previous normal of globalism and free trade, all eat into long-term profits, while also allowing their competitors to take advantage of earlier moves. By the way, there is no such thing as free trade, as there have always been tariffs or limits on market access.
There is a very real price to Mexican companies not responding. It is lost revenue, profits, and jobs for the next decade or more, as once a US importer addresses its cost issues by moving manufacturing onshore or to another country, that window of opportunity is closed. It is costly to source elsewhere, and companies will not do it again simply because a Mexican factory is now ready.
Shoreview Management Advisors’ Value Proposition
Shoreview focuses on Nearshoring for US importers and has delivered successful results in the majority of projects. The advent of high levels of tariffs on China, Southeast Asia, and elsewhere mandates a strategic review not only of costs but also of the alternatives supply chains offer in terms of reducing risk or increasing profits. Shoreview Management Advisors takes pride in knowing that our efforts have resulted in huge, quantifiable savings for our clients.