New US tariff plans risk reversing efforts to reduce reliance on China, with supply chain realignments depending on tariff gaps and comparative costs, according to the Peterson Institute for International Economics.
New US tariff plans could have an unintended effect: rather than accelerating the shift away from China, they may persuade some companies to move part of their sourcing back. The Peterson Institute for International Economics argues that the decisive factor is not the absolute level of duties on Chinese goods, but the gap between those duties and the tariffs applied to alternative manufacturing hubs. Where that gap is wide, companies have an incentive to keep diversifying. Where it narrows, China’s scale and manufacturing depth can become hard to ignore.
That logic was visible in the smartphone trade in 2025, according to PIIE’s analysis. Washington imposed an additional 20% levy on Chinese goods under the International Emergency Economic Powers Act, bringing smartphones into scope for the first time, while imports from India remained exempt from those particular measures even after broader US tariffs on Indian goods were lifted to 50% in August 2025. The result was a rapid reordering of supply chains: Apple’s devices assembled in China became more heavily taxed than those assembled in India, and US import data showed China’s share of smartphone shipments to the US falling sharply as India’s share rose.
By contrast, apparel showed how tariff policy can fail to produce the same shift. PIIE says the Trump administration imposed high duties on both China and India without carving out an exemption for Indian clothing, and by October 2025 the average tariff on garments from India was even higher than the rate on Chinese clothing. Bangladesh also did not gain a meaningful relative advantage over China by the end of 2025. In that setting, there was little additional pressure on firms to move clothing sourcing out of China, because the tariff structure did not make the alternatives materially cheaper.
PIIE says the next major test will be the outcome of the Section 301 investigation covering excess capacity across 16 economies, including China and India. If Washington sets Chinese tariffs well above those applied to rival production centres, firms are likely to keep shifting supply chains away from China. But if the gap is too small, some importers may decide that China’s lower costs, deep supplier networks and industrial capacity outweigh the political risks. In that case, the policy designed to reduce dependence on China could end up pulling some business back.
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