[Reuters Analysis] US tariff pause on Beijing puts pressure on 'China-plus-one' countries

• Vietnam, Mexico saw supply chain shifts to avoid earlier US tariffs on China
• New US duties of 145% on Chinese goods threatened greater exodus
• Now other nations seeking better US deals to keep advantage over China

By Laurie Chen, Emily Green and Francesco Guarascio

BEIJING/MEXICO CITY/HANOI, May 13 (Reuters) - A new U.S.-China agreement to pause sky-high tariffs on each other is pressuring manufacturing hubs such as Vietnam and Mexico to make their own, better deals with the U.S. to continue benefiting from a "China-plus-one" strategy by global producers.

In the new world order dictated by President Donald Trump's shifting announcements of tariffs, countries measure their success not by the terms of their trade deals with the U.S. but by how they compare to other countries.

For the last five weeks, many nations facing significant duties under Trump's now-paused "reciprocal" global tariff regime announced on April 2 took solace from having better rates than China, which saw U.S. tariffs on Chinese imports ratchet up from 20% to an embargo-like 145% from March to May.

Vietnam, for example, was better off than China with a 46% rate, while Thailand was at 36% and Malaysia at 24%.

Given their comparative advantage, manufacturing hubs anticipated further moves by multinational corporations to set up shop in their countries and decrease their dependency on China, potentially adding to a years-long trend known as "China-plus-one".

Now, everything is up in the air again following a breakthrough in U.S.-China trade talks that resulted in a 90-day reprieve from the astoundingly high tariffs on China, leaving a base 30% import tax rate for made-in-China products.

Tariffs on China still remain higher than competing industrial hubs paying 10% under Trump's 90-day pause on the reciprocal duties, but some experts said the deal could halt some of the momentum pushing multinationals to further shift supply chains outside of China.

"The rules of the game are still uncertain," said Diego Marroquin Bitar, an expert on North American trade who also works as a consultant. "I think companies are just going to delay their investments as much as they can."

Starting in his first term, Trump sought to leverage tariffs on China to force companies to relocate manufacturing to the U.S.

The "reshoring" to the U.S. largely did not materialise, but over the past decade companies such as Apple AAPL.O did start looking for alternatives to China, with a focus on countries that offered relatively low labour costs and smaller tariffs.

Southeast Asian nations were among the biggest beneficiaries, along with Mexico, but if the U.S.-China tariff pause is extended, those countries could see their comparative advantage dissipate.

Vietnam, Thailand and Malaysia are currently negotiating their own tariff deals with the United States. Mexico, which avoided reciprocal tariffs, is also seeking to reduce separate import duties on specific products such as automobiles.

SWEETER DEALS

The U.S.-China trade thaw means companies that had considered speeding up efforts to offshore production from China may now tap the brakes, said Wu Xinbo, director of the Center for American Studies at Shanghai's Fudan University.

"They will maintain their current situation, keep China as their main operations hub and make appropriate partial arrangements in neighbouring countries, but the bulk of their business will remain in China," he said.

Sun Chenghao, a fellow at Tsinghua University's Center for International Security and Strategy, said the uncertainty of Trump's policymaking was "very painful for companies" trying to decide whether or how much to decouple from China.

"The current cooldown in tensions does not mean that U.S. firms dare to boldly engage in business activities in China," he said. "Everyone is still waiting for the possibility that tariffs might be imposed again."

For countries like Vietnam, which had also attracted Chinese manufacturers since Trump imposed tariffs in his first administration, the unexpected U.S. rapprochement with Beijing ratchets up pressure to reach their own sweeter deals.

"If Vietnam manages to strike a better deal than China - which is more than likely after today - it will present itself as an attractive alternative to China in regional investment strategies," said Leif Schneider, head of international law firm Luther in Vietnam.

"This was already the outcome of the 'First Trade War' introduced by the first Trump administration," he added.

Trade tensions and uncertainty have already reduced pledges for new foreign investments in Vietnam, which in April fell to $2.84 billion, a 30% drop from March and a decline of about 8% year-on-year.

In Mexico, President Claudia Sheinbaum has repeatedly emphasised Mexico's comparative advantage on U.S. tariffs. Most exports to the U.S. under the U.S.-Mexico-Canada trade deal are tariff free, although Trump has imposed sizeable levies on steel, aluminium, vehicles and auto parts.

Jorge Guajardo, a former Mexican ambassador to China and a consultant on international trade, said even if Monday's trade deal with China sticks, multinational companies will still be wary of depending solely on Chinese manufacturing - and Mexico stands to benefit.

"If you are Walmart, Target, Home Depot or any other important importer who just went through five weeks of hell, you appreciate the reprieve but you are looking for a different supply source," he said.