US companies scale back investments in China, eye ASEAN and India as new manufacturing bases

The World Economic Forum (WEF) has revealed the findings of the 2025 annual survey by the US-China Business Council (USCBC), highlighting growing concerns among US companies operating in China regarding the rise in tariffs and increasing trade volatility.

According to the USCBC survey, customs duties have become the second most urgent challenge for US companies, up from eighth place in 2024. Nearly 70% of companies have been directly affected by tariffs, while 88% have been impacted by the deteriorating US-China relations.

"American companies have drastically reduced investments in China to an all-time low, as trade tensions and tariffs continue to impact economic relations between the two largest economies in the world. Only 48% of US companies plan to invest in China this year, a significant drop from 80% in 2024," the report stated.

The survey also revealed that confidence in China's economic growth prospects has been steadily declining, with little hope for improvement in US-China relations.

The USCBC, a non-partisan, non-profit organisation representing over 270 major US companies doing business in China, conducted the survey from March to May 2025, during a period when former US President Donald Trump reignited the trade conflict between the US and China with efforts to reform US trade policies.

"The steep rise in tariffs after 2 April, coupled with prolonged negotiations, has shaken business confidence. Investment plans have been disrupted, and broader relations have deteriorated," the report continued.

The report noted that the escalating tensions are forcing companies to reassess their investment strategies in China due to structural economic challenges and political instability in recent years. As a result, many US companies are shifting their supply chains and reducing new investments in China in the near term.

The financial impact of the tariffs has also been significant. The survey found that more than a third of companies have lost sales due to US tariffs, and half of the respondents reported that Chinese customers have switched to non-US suppliers to avoid uncertainty.

"27% of companies reported a loss in sales due to China's import tariffs, a sharp increase of 21% from 2024. To manage the situation, companies are renegotiating prices with suppliers and shifting supply chains to alternative markets. The top three alternative markets identified in the survey are Southeast Asia, India, and Mexico."

Margery Kraus, Founder and CEO of APCO, discussed at the World Economic Forum's New Champions Annual Meeting in Tianjin, China last month, stating that disruptions in the supply chain have forced some businesses to invest elsewhere, diversify risks, and separate their operations.

However, the USCBC report reveals that most companies surveyed are still profitable, though only slightly less than half are optimistic about the future due to concerns over tariffs and US policy uncertainties.

The USCBC survey also highlighted other factors affecting the business environment for US companies operating 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.

"Economic growth in China and fluctuating domestic demand are also concerns," the report noted. "Over the past two years, China set a GDP growth target of 5%, but in the WEF's May 2025 Economic Outlook, it was stated that achieving a 5% growth in 2025 is becoming more challenging due to recent volatility in global trade."

To cope with these fluctuations, US companies are focusing on serving core markets, cutting costs, improving efficiency, and targeting new customers, particularly in China’s lower-tier cities, where consumer spending is rising. The survey suggests that these markets are "too big to overlook."

Despite the ongoing economic obstacles and uncertainties, the USCBC survey indicates that US companies are unlikely to abandon the Chinese market due to the growing middle class, alongside technological developments and new practices that are crucial to maintaining China's global competitiveness, added Sean Stein, President of USCBC.

The survey found that 28% of respondents believe they cannot compete globally without operations in China, and nearly 40% view China as a key component of their global operations.

Although the Chinese market is too large to ignore, confidence will not rebound unless there is a significant reduction in tariffs and improved market access. As a result, US investors will be seeking new alternatives, and Thailand, as part of the ASEAN region, stands to benefit from this opportunity if it is able to attract investment through its strong potential.