US tariffs on Chinese goods peaked at 145% in April 2025 and have since dropped to a trade-weighted average of roughly 33%. It has been a rollercoster getting to that 33% but it seems like, for the time being, that tariff rates are stable. Meanwhile, tariffs on Vietnam, Thailand, and other alternatives have risen to similar levels. The result: the entire reshoring calculus has changed. Companies that moved production to avoid China tariffs are rethinking. Some are going back. Most are stuck in the middle. This article covers what is actually happening on factory floors in 2026 and the three strategies that are working.
Written by David Collins III, CEO of Manufacturing Transformation Group. Based on current client work across China, Vietnam, Mexico, and the US.
The Tariff Landscape Has Flipped
If you made supply chain decisions in 2025 based on a 145% tariff on Chinese goods, those decisions may no longer make sense.
Here is what happened: after "Liberation Day" tariffs spiked to 145% on Chinese imports, many manufacturers scrambled. They moved production to Vietnam, Thailand, Cambodia, and India. They signed new supplier contracts. They invested in tooling and qualification at alternative factories. We had new and old clients come to us asking how quickly they could move out of China. Most wanted to move to Vietnam or Mexico.
Liberation Day tariffs turned out not only be illegal but also unsustainable. They rapidly went down (though not away), but to roughly 33% on a trade-weighted basis. And at the same time, tariffs on Southeast Asian alternatives went up. China and Vietnam now face a similar Section 301 rate of about 12.5%. Cambodia, Indonesia, and Malaysia sit at 10%.
The tariff differential that justified moving production out of China has largely evaporated.
Three Types of Manufacturers in 2026
We work with manufacturers across four continents. Right now, every one of them falls into one of three categories.
1. The Ones Going Back to China
I expected that this change might happen but I did not expect to have it happen as quickly as it has. Companies that spent 2025 moving production to Southeast Asia are quietly reconsidering.
A Texas-based consumer products company encouraged its Chinese manufacturer to build a factory in Thailand when tariffs spiked. Now that levies on Chinese goods have fallen to similar levels as Thailand and Vietnam, they are rethinking the entire move.
The math is straightforward. A mid-size activewear brand sourcing fabric from Guangdong found their $2.80/yard quote landed at $3.90/yard after tariffs and fees. The Vietnamese alternative quoted at $3.40/yard with a lower tariff burden. At the time, Vietnam was the obvious choice. Today, with tariff rates converging, China is competitive again — and it still has better infrastructure, deeper supplier networks, and faster turnaround.
This does not mean everyone should go back to China. But it does mean the "get out of China at all costs" panic of 2025 was premature for many companies. We often advised clients to take some time and think through the implications of such a move. Were prices high enough to lose the other advantages from manufacturing in China? Maybe yes and maybe no. We advise our clients to look more holistically at the issue.
2. The Ones Reshoring to the US
The headlines are impressive. GlobalFoundries committed $16 billion to reshore chip manufacturing. Stellantis announced $13 billion in US production. Johnson and Johnson is spending $55 billion on domestic facilities. Across all sectors, more than $200 billion in multi-year US investment has been announced.
But the reality on the ground is more complicated.
According to ISM data, 64% of manufacturers do not intend to bring production to the US to avoid tariff costs. The reasons are practical: domestic manufacturing is expensive, skilled labor is scarce, and building or retrofitting a factory takes 12 to 24 months. For most mid-market manufacturers, reshoring is not a tariff play — it is a multi-year strategic investment that only makes sense for specific products and markets. See our previous blogs about how a company succeeded in bringing back manufacturing and another failed.
The companies that are successfully reshoring share a few traits. They are in defense or regulated industries where domestic production is required. They are making heavy or bulky products where shipping costs dominate landed cost. Or they have very short lead time requirements that overseas production cannot meet.
Everyone else is looking at the numbers and staying offshore.
3. The Ones Stuck in the Middle
This is the largest group, and the one we worry about most.
These are mid-market manufacturers — $20M to $500M in revenue — who know they need to diversify but cannot afford to get it wrong. They are simultaneously evaluating reshoring, nearshoring to Mexico, qualifying new suppliers in Vietnam or India, and trying to maintain existing Chinese production. They are making expensive, hard-to-reverse decisions under conditions of extreme uncertainty.
More than half of small and mid-size businesses report a greater tariff impact than 12 months ago. And 97% are deploying at least one mitigation strategy. The most common responses: changing sourcing patterns (65%), renegotiating supplier contracts (57%), and nearshoring (51%). But 82% are also passing tariff costs directly to customers, which is not a strategy — it is a stopgap.
The risk for this group is analysis paralysis. They study the options, run the scenarios, and wait for tariff policy to stabilize before committing. But tariff policy is not going to stabilize. I am often asked when I think the tariff situation will improve and I have to give an honest answer: I don't know. Tariffs are as stable now as they have been during this administration but that could change tomorrow. The best chance to change tariff policy will be in 2029 under a new administration.
The companies that win will be the ones that build flexibility into their supply chains rather than waiting for certainty that will never come.
What Actually Works: The Diversified Strategy
The manufacturers performing best right now are not betting on a single geography. They are running what we call a diversified sourcing strategy — and it looks like this:
Keep China for what China does best. High-complexity components, high-volume production, anything requiring deep supplier ecosystems or specialized tooling. China's manufacturing infrastructure is still unmatched for many product categories. The tariff is a cost, not a reason to abandon a decades-deep supply chain.
Nearshore simpler assemblies to Mexico. Mexico has surpassed China as the US's top trading partner. More than 80% of large manufacturers plan to shift supply chains closer to market. USMCA compliance gives tariff-free access to the US market for qualifying goods. But Mexico is not a drop-in replacement for China — it works best for final assembly, packaging, and products with high logistics costs.
Qualify backup suppliers in two to three countries. Not to move all production, but to have options. If tariffs spike again — on any country — you can shift volume within weeks instead of months. The qualification cost is real, but it is insurance against the next policy shock.
Reshore only where the economics genuinely work. Defense and ITAR-controlled products. Heavy goods where shipping costs dominate. Products with very short lead time requirements. If your product does not fit these criteria, reshoring is probably not your best move today.
The Real Cost Nobody Talks About
When companies move production to avoid tariffs, the tariff savings are easy to calculate. What is harder to quantify is the transition cost.
YETI Holdings accelerated the diversification of its drinkware manufacturing out of China in 2025. They succeeded — a majority of capacity is now outside China. But the process caused short-term supply chain disruptions that affected their business.
We see this pattern repeatedly. A manufacturer moves production to a new country to save on tariffs, then spends 6 to 12 months dealing with quality issues, longer lead times, supplier reliability problems, and logistics coordination challenges. The tariff savings are real, but so are the transition costs — and most companies underestimate them by 30 to 50%. It is our general observation that companies always underestimate time and costs. A good general rule is always assume that it will be 25% more expensive than you thought.
The question is not "where is the lowest tariff?" The question is "what is the total landed cost including transition risk, quality risk, and time to stable production?"
What to Do This Quarter
If you are a manufacturer trying to figure out your supply chain strategy right now, here is what we recommend:
- Recalculate your landed costs. The tariff landscape has changed significantly since mid-2025. If you made sourcing decisions based on 145% tariffs on China, those numbers are wrong. Update your models with current rates before making any further moves.
- Stop chasing the lowest tariff. Tariff rates change. Infrastructure, supplier relationships, and production quality do not. Build your strategy around manufacturing capability, not trade policy.
- Qualify, do not commit. Spend the money to qualify backup suppliers in two to three geographies. Do not move all your volume. Qualification gives you options. Premature commitment gives you risk.
- Audit your current suppliers. Whether you stay in China, move to Mexico, or diversify across multiple countries, the quality of your supplier relationships determines your outcome. Track the right KPIs — delivery performance, quality rates, lead time reliability — and hold suppliers accountable.
- Get help on the ground. The biggest mistakes we see happen when companies make sourcing decisions from a conference room. Visit the factories. Audit the suppliers. Understand the local operating environment before you commit capital.
Need help navigating the tariff landscape?
Manufacturing Transformation Group has teams on the ground in China, Vietnam, Mexico, and across North America. We help manufacturers audit suppliers, qualify alternatives, and build diversified supply chains that hold up regardless of what tariff policy does next. Get in touch to discuss your situation.
