With President-elect Donald Trump seemingly intent on initiating a trade conflict with the United States' three largest trade partners—Mexico, China, and Canada—the potential financial burden on American consumers could be mitigated if businesses opt to shift their operations away from these nations.

However, the question arises: where might they relocate? These three countries accounted for over 40% of the total value of all goods imported by the US in the previous year, as per federal trade statistics. Trump has recently promised to levy an additional 10% tariff on Chinese imports, supplementing the existing ones. During his campaign, he also proposed a 60% blanket tariff on all Chinese goods.

For Mexico and Canada, he indicated his intention to impose a new 25% tariff on all their imports starting from his inauguration day. In Trump's envisioned scenario, these elevated tariffs would stimulate domestic manufacturing, as US companies could bypass tariffs entirely. To further encourage businesses to move their production to the US, Trump has also offered tax incentives.

Yet, Daniel Anthony, Managing Director at Trade Partnership Worldwide, an economic research firm, asserts that these measures are unlikely to result in a significant change in domestic production. When Trump increased tariffs on Chinese goods during his first term, "very little production returned to the United States," he noted. This was partly due to the absence of readily available infrastructure to manufacture certain goods within the US. However, even if such infrastructure existed, relocating manufacturing to the US would predominantly lead to higher production costs, which would directly translate into higher prices for consumers.

Should tariffs on imports from China, Canada, and Mexico rise across the board, more businesses are likely to consider moving their production to other countries to evade what could be some of the steepest import taxes the US has witnessed in decades. The following are the nations most likely to be considered by companies looking to relocate their manufacturing operations.

Trade experts consulted unanimously agreed that Vietnam would likely emerge as a top contender, given its relatively low manufacturing costs. The country is already the seventh-largest exporter of goods to the US and has benefited from the trade war with China. From 2017, when Trump first took office, to 2023, Vietnam more than doubled its exports to the US, increasing from $47 billion to $114 billion last year.

However, if numerous companies decide to move to Vietnam simultaneously, it could lead to challenges. "You quickly encounter bandwidth constraints," Anthony warned. Moreover, production costs could escalate as suppliers respond to the surge in demand by raising their prices, he added.

With Mexico being the leading source of US motor vehicle imports, European nations such as Germany could capitalize on their own production capabilities, suggested Brad Setser, a Senior Fellow at the Council on Foreign Relations. Similarly, Japan and South Korea, both major players in the automotive manufacturing sector, could increase their production. In addition to Vietnam, Americans are likely to see an increase in clothing and footwear imports from Indonesia, Bangladesh, and Cambodia in the event of a new three-way trade war, Anthony stated. Federal trade data indicates that the US has been importing more apparel and footwear from these four countries in recent years. On the luxury footwear and apparel front, Italy may also experience heightened production demand, Anthony added.

Taiwan, the third-largest exporter of electronics to the US last year, could further boost its production as more companies seek to distance themselves from China, which was the top electronics exporter to the US last year, Setser informed. Other Southeast Asian countries that have been exporting more electronic goods to the US in recent years—such as Malaysia, Thailand, Vietnam, South Korea, and Japan—are also likely to expand their manufacturing capabilities, he said. South Korea and Japan also possess currency advantages; both the won and the yen have significantly weakened over the past year relative to the US dollar, making American purchases from these countries more cost-effective. Companies might also emulate Apple's strategy. The iPhone manufacturer recently shifted some of its production to India. However, Setser believes this option is less probable, as most Indian manufacturing is designed to meet the domestic demand of the world's most populous nation: India. Nevertheless, electronic manufacturing in other Southeast Asian countries is geared towards global demand.

Many businesses may have existing contracts to manufacture goods in a specific location for a predetermined period. Yet, even if they do not, "companies are not merely seeking to evade tariffs. They are striving to achieve the lowest comprehensive cost for the best possible product," Anthony explained. This implies that some companies may be willing to absorb higher tariffs rather than relocating, if that turns out to be the more cost-effective option.

A case in point: Even after Trump began imposing higher tariffs on Chinese imports in 2018, many of which President Joe Biden has maintained, the US did not cease importing goods from China entirely; it simply reduced the volume of imports. For instance, in 2017, prior to the tariffs taking effect, 60% of all computer equipment the US imported originated from China, according to federal trade data.

Last year, China accounted for just 39% of all computer equipment the US imported. In total, the US imported $500 billion worth of Chinese goods in 2017, constituting 22% of all US imports. Last year, however, the US imported $427 billion of goods from China, representing only 14% of total US imports. Over that period, Mexican and Canadian imports each grew by more than $100 billion, with tariffs set at near zero due to the United States-Mexico-Canada Agreement, coupled with the concurrent heightened tariffs on Chinese goods. This largely explains why Mexico surpassed China as the top exporter to the US. Nonetheless, even with higher tariffs, Setser does not believe any automotive producer will "wish to forsake their substantial investments in Mexico," particularly since Mexico may avoid higher tariffs as Trump appears more inclined to negotiate a deal with them compared to China. "There are more significant questions regarding moving out of China. And the challenge with China is the sheer volume of production capacity, and the low cost."