[The report was written by The Bay Area Council Economic Institute of the United States] 

One of the key developments impacting the world economy in recent years is the reconfiguration of global supply chains. This shift began as an outgrowth of geopolitical tensions grew between the United States and China but has expanded as the second Trump administration has increased tariffs on a broad range of U.S. trading partners. Pandemic restrictions, particularly in China, also induced many companies to diversify their sourcing. 

Changing calculations of risk and competitiveness are influencing corporate decisions, as businesses are placing growing importance not only on cost but on rising trade barriers, security, and supply chain diversification. A key question as U.S. and other businesses make long‑term trade and investment decisions is what these new patterns will look like. 

Executive Summary 

What Is Driving Change in Global Supply Chains? 

The reconfiguration of global supply chains is accelerating, driven by competitive dynamics and global risk. Cost, rising trade barriers, security, and environmental pressures are all contributing to a growing focus on diversification. 

Corporate responses include reshoring, nearshoring, and friendshoring, with parallel or redundant supply chains being developed to ensure continuity and resilience. Reflecting trade agreements but also a preference for proximity, supply chains are becoming more regional. 

Tariffs and U.S. Trade Policy 

The tariffs imposed in 2025 by the U.S on all its trading partners including China are intended to reduce the U.S. trade deficit, generate federal revenue, and incentivize U.S. and other companies to return or move their production from overseas to the United States. All countries have a baseline rate of 10%. Tariffs of 50% on imported steel and aluminum, and industry‑specific tariffs of 25% on autos and auto parts are also in place for most countries. Additional reciprocal tariffs on trading partners worldwide have led to differential rates among trading partners. For example as of October 2025, Vietnamese exports are subject to a 20% rate but for goods deemed to have been transshipped it’s 40%; Mexican exports that are USMCA‑compliant have no tariff but for other goods the rate is 25% (except for potash at 10%). The rate for India is 25% plus a secondary tariff of 25% due to India’s imports of Russian oil (so 50% but likely to change). EU goods face a 15% tariff, the UK 10%, Malaysia 19%, Indonesia 19%, Thailand 19%, Cambodia 19%, and South Korea 15%, all with some exceptions. 

These universal and differential tariffs have important implications for investment decisions and global supply chains. Global businesses are also considering separate strategies for U.S. and non‑U.S. trade. 

China and Changing U.S. Supply Chains 

Many companies are considering their future investment in the Chinese Mainland, in the wider Asian region, and around the world. While U.S. companies producing in China for the China market are likely to remain, a significant number have already shifted or are considering shifting some production to other countries—principally Vietnam and other sites in Southeast Asia, India, and Mexico. Parallel or auxiliary supply chains (China +1) are being developed to reduce over‑reliance on any single source. 

Many U.S. companies, however, remain deeply engaged in China and are committed to a presence there. How these companies engage is often tied to regional supply chains. One factor is China’s dense concentration of component and other suppliers—particularly in Guangdong Province and China’s Greater Bay Area (GBA)—which is not easily replicable. 

China’s Greater Bay Area 

Understanding supply chains in Asia requires an understanding of China’s Greater Bay Area, a region in Southern China that links Hong Kong, Macao, and nine cities in Guangdong Province. Each of the three jurisdictions is targeted for specific roles: Guangdong Province as a pilot zone for reform and a primary base for advanced manufacturing and modern service industries, building on targeted technology and innovation clusters; Macao as a pilot zone for sustainable development and intercultural activity, building on leisure industries and tourism; and Hong Kong as an international financial, services, trade and transportation center, focused principally on finance, professional services and technology innovation. 

Within the GBA, Hong Kong is uniquely positioned as a regional platform for global businesses. Assets that differentiate Hong Kong within the region include its common law system and transparent adjudicatory processes for resolving commercial disputes, strong intellectual property protection, a zero‑tariff rate, open markets, the widespread use of English, and a cosmopolitan environment attractive for overseas business executives. These factors and its status as a global financial and business center, proximity to the Chinese Mainland, and positioning in the GBA offer significant avenues for global companies to tap regional supply chains and address the Chinese Mainland market. 

Chinese Mainland companies, including those in the GBA, are also looking to “go global,” with Southeast Asia as a preferred destination. As a regional business platform, Hong Kong is playing a key role. This includes channeling the Chinese Mainland’s outbound investment to Southeast Asian markets. Its super‑connector role also positions Hong Kong as an enabler of global companies looking to access regional supply chains and service the Chinese Mainland market. 

Markets and Regional Supply Chains 

Hong Kong offers U.S. and other exporters a potential entry point to the Chinese Mainland market by capitalizing the supply chain advantages, including those stemming from trade agreements such as RCEP (the Regional Comprehensive Economic Partnership), and particularly CEPA (the Mainland and Hong Kong Closer Economic Partnership Arrangement) which enables tariff‑free entry for products that meet the agreement’s domestic content standards. Service providers can also access CEPA benefits. 

Hong Kong’s distinctive position in regional supply chains stems from its external manufacturing investment; sophisticated financial services; manufacturing, professional, and headquarters services such as design, quality control, IP management, and compliance; technology research and innovation; and common law legal system. Initiatives such as the Northern Metropolis now under development, and its Hetao Shenzhen Hong Kong Science and Technology Innovation Cooperation Zone, aim to strengthen Hong Kong’s position as a connector for global technology and advanced manufacturing companies looking to leverage the region’s supply chains and deepening economic integration.