Two constant goals in the Trump administration’s tariff policies have been to bring the manufacturing industry back to the United States and to reduce U.S. dependence on China. In President Donald Trump’s words, “Jobs and factories will come roaring back into our country.” Vice President JD Vance said U.S. dependence on China is “the very definition of a national emergency.”
But today, there is a risk that the two critical goals of rebuilding domestic manufacturing and reducing dependence on China are being undermined by all the other objectives and tweaks the administration continues to make to its tariff policies.
In April 2025, the administration unveiled its “Liberation Day” tariffs, including tariffs on China as high as 145%. The total effective tariff rate on China was higher, and in many cases double or triple the tariffs on other countries. The higher tariffs on China were justified because China has used billions of dollars of industrial subsidies to achieve global dominance in industries including electric vehicle batteries, electronics, steel, aluminum, toys, plastics, textiles, and more. In some sectors, such as rare earths or solar panels, China has a near-total global monopoly. China’s trade surplus, running at $1.2 trillion last year, is the highest in world history.
American corporations got the message. The hundreds of corporations that manufacture in or source products and parts in China began looking hard for alternatives. Many of those companies shifted production to Southeast Asia. Some moved parts of their supply chain to Mexico.
But late in 2025, the tariff picture suddenly changed. Tariffs on goods from China were cut substantially, making American and multinational companies question whether they should be moving production out of that country. Tariffs on other countries fell too, but by much less. The result has been a convergence of tariffs to the 12%-15% range.
Alliance Consumer Group is a Texas-based maker of consumer electronics caught in this dilemma. It has 300 employees in the U.S. It used to make flashlights in China. Since Trump’s first-term China tariffs, ACG has invested millions of dollars in building up production in Southeast Asia. But as tariffs on U.S. imports from China come down, it suddenly faces new competition from Chinese companies able to ship through the tariffs.
In May 2025, the effective tariff rate paid by importers from China was 45.6%. The effective tariff rate is the most important number: It shows the rates actually being paid, taking account of exclusions and exceptions. The effective tariff rate on imports from Southeast Asian nations such as Cambodia also rose, but by much less. In May 2025, it was 12%. It rose further later in 2025 but remained below 30%. However, at the end of 2025 and early in 2026, the tariff rate on China fell much more quickly than the rate on other countries.
The most recent data, for April, shows that the effective tariff rate on China was 21.6%, almost the same as the 20.6% rate on Cambodia.
The problem is that China has multiple economic advantages that make it a cheap location to produce goods. Government-funded industrial subsidies are the most obvious Chinese advantage. But in addition to that, China has some of the largest, most automated, and most sophisticated ports in the world. The largest container ships call at Shanghai and other Chinese ports, making transportation in and out of China frequent and cost-effective. China has good quality roads and trains, making it easy to move goods to the ports. China also has an undervalued exchange rate for the Chinese yuan, carefully managed by the Chinese government to keep China’s costs globally competitive.
The net result is that for other nations to be competitive with China, the tariff differential has to be more substantial, and certainly in double digits. A 1-percentage-point advantage for Cambodia or another Asian country ends up leaving the economic advantage with China. At today’s tariff levels, American companies such as ACG face the challenge of deciding whether to continue to invest in production facilities in Southeast Asia or move some production back to China. To make matters worse, Chinese-owned companies are taking advantage of the current tariff picture and exporting their Chinese-made products directly to America, taking market share from American companies.
Last year, when tariffs on Chinese goods were well above 30%, ACG was building the business case for moving more production out of China, and some even to North America. But now, with tariffs on flashlights from China down to just 16.3%, those plans are on hold.
Flashlights are, of course, not as mission-critical as military supplies or the computer servers used in AI data centers. But the basic electronics in all those products are similar, involving electrical components and copper circuits on printed circuit boards. To reduce dependence on China in a durable way, the U.S. needs to move entire electronics supply chains out of China.
TRUMP WANTS ANOTHER TARIFF. CONGRESS ALREADY GAVE HIM A STRONGER WEAPON
The administration is right to want to reduce dependence on China, diversify U.S. sources of supply, and increase U.S. manufacturing capacity. But to make that a reality, U.S. Trade Representative Jamieson Greer should ensure that tariff rates maintain a clear and durable differential favoring production outside China, taking into account all the ploys and devices
China used to make its goods excessively competitive. Failing to do so would not only weaken supply chain diversification but could also set the stage for a renewed expansion of the U.S. trade deficit with China.
Jeff Ferry is the chief economist emeritus of Coalition for a Prosperous America.