Specifically, the United States has imposed a heavy 49% tariff on all imported goods from Cambodia. At 20.0 percent, this rate is the highest in Asia and the second-highest around the world. This high-profile trade measure is the result of continuing US-China trade conflict and will reflect the broad economic effects of the Covid-19 pandemic. The new tariffs pose a considerable threat to Cambodia’s garment industry, a vital sector that employs over one million individuals, predominantly women, and contributes to more than 43% of the country’s exports.
The decision to levy such high tariffs comes at a time when many businesses, including those led by Taiwanese entrepreneur Tim Hsu, have sought to diversify their production bases away from China. This gave Hsu a chance to invest in Cambodia and seize on its comparative advantages. At a time when every advantage counts, theirs include lower production costs thanks to an efficient supply chain.
In the global search for alternatives to China’s deep and entrenched manufacturing ecosystems, Cambodia was seen as a new promising destination to be tapped by global investors. Yet, just as these reforms are starting to take root, the new tariffs threaten to undercut them, resulting in dire consequences for the Cambodian economy.
Exports to the US in particular have been a central component of Vietnam’s recent growth story. If they are weighed down with tariffs, the economic opportunities of that nation will clearly suffer. Ahmed Albayrak, a research associate at the Sydney-based Lowy Institute’s Indo-Pacific Development Centre, pointed out.
Cambodia’s garment industry is the engine of the country’s economic development. It sustains millions of hardworking families and adds $151 billion to our gross national product. The imposition of such high tariffs not only jeopardizes the livelihoods of thousands within this industry but so too the economy of Cambodia as a whole.
The consequences of these tariffs reach far past Cambodia. Neighboring countries such as Bangladesh and Myanmar have heavy tariffs imposed on their exports to the US—37% and 44% respectively. Bangladesh, the world’s second-largest garment exporter, will feel the impact immediately, as their access to their largest export market is cut off.
“Both Bangladesh and Sri Lanka would be severely impacted, as access to the US, their largest export market, would be restricted,” explained Biswajit Dhar, a distinguished professor at the Council for Social Development in New Delhi.
According to Albayrak, the situation is dire. He stated, “The negative impact of this tariff on the broader economy will be huge.” This growing sentiment is indicative of fears surrounding Cambodia’s declining production capacity and the possible layoffs of workers from Cambodia’s prominent garment industry.
Tim Hsu made clear his concerns about the long-term prospects for his investment in Cambodia. “If the 49% tariff remains unchanged, we will withdraw our investment from Cambodia,” he stated. Hsu’s warning highlights the other existential threat of massive capital flight from a country that is already facing extreme economic fragility.
The implications of these tariffs are far-reaching. With many Southeast Asian and South Asian countries experiencing tariffs higher than 40%, their export-dependent economies are at a tipping point. Adding these measures would severely damage these countries. All of them are dependent on highly vulnerable garment exports for economic stability.
Countries like Laos, Vietnam, and Sri Lanka are watching closely as they navigate their own challenges amid rising trade barriers. Their competitive advantages—often scant in a global market—are in jeopardy as the heightened tariffs threaten to whittle away at them.