Fstoppers, a U.S.-based photography gear company, faced a stark reality: producing a simple component domestically would cost over $80 per unit, compared to $7.50 in China, a more than tenfold increase. Their choice was not to reshuffle their supply chain but to continue selling the product. This example highlights the intense pressures tariffs can impose on manufacturers, pressures that ultimately reshape decisions about production locations, facility requirements, and logistics networks. As these decisions evolve, influenced by geopolitical tensions and the growing need for supply chain resilience, they significantly impact the industrial real estate sector, affecting demand for warehouse space, manufacturing plants, and distribution hubs globally.

This article examines the real-world implications of tariff policy, focusing on small and medium-sized enterprises (SMEs), manufacturing competitiveness, supply chain realignment, and foreign investment. It revisits the lessons from the first U.S.–China trade war and explores how China sidestepped tariffs through mechanisms like foreign direct investment (FDI) into third-party markets and supply chain restructuring. The analysis centres on recent U.S. tariffs arising from trade tensions with China but draws broader conclusions relevant to policymakers, manufacturers, and investors navigating today’s multipolar trade landscape. In doing so, it seeks to move the conversation beyond rhetoric towards a more strategic, evidence-based understanding of building lasting industrial competitiveness.

 1. The SME Perspective – Undervalued but Essential

Small and medium-sized enterprises (SMEs), often hailed as engines of innovation, face structural disadvantages in trade policy. SMEs play a crucial role in U.S. imports from China, particularly in sectors such as consumer electronics, tools, and specialised inputs, and they lack the scale of larger corporations to absorb tariffs, which increases costs and threatens viability. Many rely on China's manufacturing infrastructure for affordable tooling and prototyping.

Real Estate Implications:

• Increased costs and uncertainty may reduce demand for smaller industrial units, especially in SME-heavy areas, potentially lowering lease rates.

• Policies supporting SME reshoring and localised supply chains could drive demand for flexible spaces like incubator units or maker spaces.

• These spaces may become more valuable, particularly near manufacturing clusters and logistics hubs.

• SMEs need policies supporting access to suitable, affordable industrial space for a resilient property sector.

Effective support mechanisms (unlike fragmented U.S. programs) are crucial. SMEs need access to capital, global networks, and trade architecture, acknowledging their limitations.

2. Bigger Firms, Bigger Challenges

Large manufacturers, while better equipped to manage tariffs, face reshoring and restructuring constraints. Multinationals can often restructure networks or shift capital, and some seek policy exemptions (less accessible to SMEs). However, reshoring is complex due to high domestic costs, scarce industrial land, and hollowed-out supply chains. Geopolitical concerns and disruptions also prompt manufacturers to prioritise supply chain resilience and regionalisation.

Where production returns, automation increases. A 2017 McKinsey Global Institute report estimated that 60% of manufacturing tasks are automatable, with re-shoring often relying on capital investment in robotics and AI, reducing direct job creation [cite: McKinsey Global Institute, “A Future That Works: Automation, Employment, and Productivity,” 2017].

Real Estate Implications:

• Re-shoring and resilience efforts may increase demand for large, highly automated facilities.
• Key facility features include high ceilings, large floorplates, and advanced power and IT infrastructure.
• Scarce industrial land, especially in the U.S. and Europe, is a major challenge.
• Automation can reconfigure existing facilities, potentially reducing space needs but increasing infrastructure demands.

3. The Automation Mirage

Where production does return, it does so under radically different terms. Contrary to popular expectations, reshoring manufacturing rarely recreates previous employment levels. Automation and robotics significantly reduce the labour intensity of production processes, transforming manufacturing into a capital- and technology-intensive pursuit. A McKinsey report estimates up to 60% of manufacturing tasks are already automatable with existing technologies, meaning fewer, higher-skilled jobs will accompany reshored facilities.

This shift profoundly affects industrial real estate. While automation reduces the need for traditional assembly space, it substantially increases manufacturing facilities' technological and infrastructure requirements. Modern factories must incorporate reinforced flooring, greater ceiling heights, robust power capacity, advanced climate control systems, and high-speed digital connectivity to accommodate robotics and data-driven production.

These specialised facilities also require significantly higher capital expenditure—often substantially more expensive to develop or retrofit compared to traditional industrial spaces. This higher upfront investment places further pressure on manufacturers and developers, forcing them to carefully evaluate long-term viability, scalability, and returns on investment when committing to automation-driven reshoring strategies.

4. Where Capital Goes When Certainty Doesn’t

While tariffs are intended to redirect manufacturing back home, their immediate impact has frequently been geographical diversification away from China. The “China-plus-one” strategy has become standard for multinationals seeking cost efficiency and geopolitical insulation. Countries like Vietnam, Thailand, Malaysia, Canada, and Mexico have emerged as beneficiaries, supported by regional trade agreements, competitive labour costs, and proximity to key markets.

However, recent U.S. tariff actions and threats of further tariffs on Mexican imports, particularly those invoked concerning immigration concerns, signal a significant policy shift [cite: Office of the United States Trade Representative, “President Trump Announces Tariffs on All Imports from Mexico,” May 30, 2019, and Wall Street Journal, “Trump Threatens Tariffs on All Goods From Mexico to Force Action on Border,” May 30, 2019]. The latest wave of high tariffs targeting Mexican imports explicitly seeks to disrupt the momentum of nearshoring, reflecting the administration’s deeper intent to halt production from simply shifting across borders and to force companies into re-shoring fully within U.S. borders. This approach markedly increases uncertainty around Mexico as a stable nearshoring destination, threatening to reverse recent investment flows into its industrial hubs.

China, meanwhile, has actively adapted to tariffs, with Chinese manufacturers increasingly shifting production to third-party countries to maintain cost efficiency. There is also evidence from OECD reports and academic studies that foreign direct investment (FDI) in markets such as Vietnam and Thailand, among other strategies, can be utilised to indirectly maintain global market access and potentially mitigate the impact of U.S. sanctions [cite: Organisation for Economic Co-operation and Development, “Global Value Chains: Preliminary Evidence on Drivers, Scope and Measurement,” 2012, and Journal of International Business Studies, “The impact of tariffs on the location of foreign direct investment: Evidence from the US-China trade war,” 2021]. Such moves contribute to a fragmented and increasingly uncertain global manufacturing landscape, further complicating decisions for firms evaluating supply chain locations.

Real Estate Implications:

• Uncertainty surrounding Mexico due to U.S. tariffs could cool previously strong industrial real estate demand, potentially stalling new investments or expansions along the U.S.-Mexico border and in Mexican manufacturing centres.
• Countries in Southeast Asia may become even more attractive as alternative nearshoring destinations, intensifying demand for warehousing, distribution hubs, and logistics infrastructure in the region.
• Real estate investors and occupiers must closely track policy developments and consider the potential volatility and increased risk in traditionally favoured nearshoring locations.

5. What About Strategic Protection?

Tariff supporters cite “infant industry” arguments or national security concerns. Sectors like semiconductors, pharmaceuticals, critical minerals, and defence may warrant support due to geopolitical risks and supply chain vulnerabilities highlighted by recent events. However, tariffs alone are often insufficient. Shielding industries may provide breathing space but doesn’t guarantee innovation or competitiveness. The U.S. solar industry, despite tariffs, has lagged due to factors like underinvestment. “Industrial rebirth” requires more than tariffs; it needs investment in technology, workforce, and ecosystems.

Real Estate Implications:

• Strategically important industries will likely require specialised manufacturing and R&D facilities.
• Key facility features include secure locations, advanced infrastructure, proximity to research, and robust utilities.
• Tariffs and support policies may drive demand for custom-built industrial real estate.
• This creates development opportunities but requires navigating security, regulation, and long-term demand.

6. Conclusion – Choose the Foundation, Not the Fix

Tariffs may shift trade flows but they don’t consistently benefit industrial real estate. They raise costs, create uncertainty, and often erode the competitiveness that drives demand for modern industrial space. A reliance on tariffs can distort markets, hinder investment, and increase volatility.

A sustainable revival of industrial capacity requires a broader foundation: investment, skills, and strategic coherence. For real estate, this means policies promoting long-term growth, stability, and innovation, rather than short-term fixes. This includes fostering resilient logistics networks, supporting environmentally sustainable and adaptable facilities that accommodate changing production technologies, and leveraging technology to optimise space. Public-private collaboration is crucial to address land scarcity, infrastructure development, and workforce training.

Policymakers must continue tariff-centric approaches that risk fragmenting supply chains and investment or invest in the structural foundations for a healthy industrial property market.

To navigate these complexities, stakeholders in the industrial real estate sector should prioritise:

• Support SMEs with access to finance, relocation, and networks, and ensure access to suitable, affordable, and flexible industrial space.
• Modernise the workforce with vocational training aligned with advanced manufacturing and logistics, attracting investment.
• Restore policy coherence to create a stable real estate development and planning environment.
• Foster resilient logistics networks and incentivise the development of environmentally sustainable and adaptable facilities that can accommodate changing production technologies.

Real competitiveness is built through innovation and collaboration, driving demand for cutting-edge industrial real estate and economic prosperity.

Marcus Burtenshaw Partner is Head of Industrial Strategy & Solutions, Knight Frank Thailand