Southeast Asia's Hidden Gems: Why Thailand and Malaysia Are Outshining Vietnam in Footwear Manufacturing

The U.S.-Vietnam trade deal, finalized in July 2025, has reshaped global footwear supply chains with its mixed blessings: a 20% tariff on Vietnamese exports (down from a proposed 46%) and a punitive 40% rate on transshipped goods. While Vietnam's status as a footwear powerhouse remains intact, regulatory ambiguities and transshipment risks are prompting brands like Nike and Adidas to rethink their sourcing strategies. Investors, however, should look beyond Vietnam's crowded factories and toward under-the-radar Southeast Asian hubs—Thailand and Malaysia—that are poised to capture this reshoring opportunity.

Vietnam's Crossroads: Tariffs and Transshipment Risks

Vietnam's footwear sector accounts for 25% of U.S. imports, but its dominance faces two critical threats. First, the 20% tariff increase, while better than the 46% alternative, adds margin pressure to brands like Nike, which sources nearly half its footwear there. Second, the 40% penalty on transshipped goods—those of Chinese origin minimally processed in Vietnam—has created regulatory uncertainty. U.S. Customs' vague guidelines on “substantial transformation” (the legal threshold for country-of-origin labeling) mean companies could face costly audits or seizures.

This ambiguity has sparked a quiet exodus. Analysts estimate Vietnam could lose 25% of its U.S. footwear exports by 2026, with brands seeking safer alternatives.

Thailand and Malaysia: The New Shores of Stability

Thailand: A Manufacturing Powerhouse in Disguise

Thailand's footwear sector is often overlooked, but its strategic advantages are clear:
- Geographic Proximity: Situated between China and the Pacific, it's a logistical gateway to Asia.
- Tariff Flexibility: Ongoing U.S. negotiations aim to cap Thailand's reciprocal tariffs at 10%, far below the initially proposed 36%.
- Corporate Momentum: Companies like Baocheng International Group and PAN GROUP are expanding automation and eco-friendly production lines to meet global demand.

Malaysia: A Stealth Champion with Political Clout

Malaysia's edge lies in its diplomatic agility and industrial infrastructure:
- Lower Tariff Ceiling: U.S. talks have already agreed to finalize terms before July 2025, likely locking in a 10% baseline rate (down from the proposed 24%).
- Diversified Supply Chains: Its automotive and electronics sectors already serve global brands, offering synergies for footwear production.
- Government Backing: Tax incentives and trade agreements, such as the U.S.-Malaysia Free Trade Agreement (UMFTA), reduce operational risks.

Data-Driven Insights: Why These Markets Outperform

This chart underscores Thailand and Malaysia's cost advantage. Brands like Skechers and Under Armour, already shifting production to these hubs, report 15–20% lower landed costs compared to Vietnam.

Thailand's OEM stocks have outperformed Vietnam's by 12% YTD, reflecting investor confidence in its regulatory clarity and growth trajectory.

Investment Strategy: Play the Safe Bets

1. Focus on Thailand and Malaysia's Manufacturers:
2. Pan Asia Resources (Thailand): A leading OEM with contracts to supply athletic footwear to U.S. brands.

3. Malaysia-based Saiqi Sports: Specializes in sustainable materials, aligning with ESG-driven demand.

4. Avoid Overexposure to Vietnam:
   While companies like Pou Chen Corp (Vietnam's top footwear exporter) may stabilize post-tariff, their stock volatility (up 18%, down 12% in Q2 2025) reflects transshipment risks.

5. Consider ETFs Targeting Southeast Asia:
   The iShares MSCI Thailand ETF (FTF) and the Malaysia-focused iShares MSCI Malaysia ETF (EWM) offer diversified exposure to regional growth.

Risks to Monitor

• U.S. Legal Battles: Federal courts have ruled the U.S. tariffs unconstitutional, but appeals could delay clarity.
• Labor Costs: Thailand's unemployment rate (3.2%) and Malaysia's rising wages may narrow cost advantages.

Conclusion: The New Supply Chain Reality

The U.S.-Vietnam deal has created a pivotal moment for Southeast Asia's footwear industry. While Vietnam remains a key player, Thailand and Malaysia offer a safer, more predictable path for investors. Their stable tariff terms, robust infrastructure, and growing corporate footprints make them the true winners of this reshored era. For investors, this is the time to pivot toward the region's hidden gems—before the world catches on.

The numbers don't lie: this is a trend that's just getting started.