An idled factory Cambodia now finds itself in the crossfire of the Trump administration’s trade war. It is one of eleven countries contributing to the U.S. trade deficit and is currently subject to high tariffs. Instead, the administration has decided to stick Cambodians with a punishing 49% tariff on Cambodian products. This action is a huge blow to Cambodia’s economy, with U.S. exports representing more than 10% of Cambodia’s GDP. Retailers in the U.S. continue to support Cambodian manufacturing in the face of increasingly difficult challenges. Manufacturing likely to expand without protection Experts have costly consequences if factories and workers are not protected.
Cambodia’s Prime Minister has fanned the flames even further in recent days. In his letter to the Trump administration, he requested that the administration cut tariff rates on U.S. goods. According to the White House, tariffs on imports from Cambodia have a legal ceiling of 97%. Cambodia – which along with other sources, including the World Trade Organization, vigorously rejects this claim – illustrates how flimsy this argument is. With the trade tension worsening, industry professionals are worried about the sustainability of Cambodian manufacturing in the long run.
Economic Impact on Cambodia
Their economic relationship has been under strain since the U.S. first announced tariffs indefinitely at the start of the COVID-19 pandemic. So far in 2024, U.S. goods trade with Cambodia has been nearly $13 billion. U.S. exports were up too, setting a record at $321.6 million, a 4.9% increase over last year. Despite this robust growth, the trade surplus that Cambodia enjoys with the U.S. is quite modest in comparison to other countries.
The Observatory of Economic Complexity highlights that certain consumer products, such as snacks, cosmetics, and automobiles, face tariffs as high as 35%. This adds even more pressure right now on Cambodian manufacturers who are already pressured by increased costs and their tenuous fates.
“Unfortunately, it’s going to push up the prices for the American consumer,” said Casey Barnett, an industry expert who has closely followed the situation in Cambodia. The impact of these tariffs extends beyond borders. American consumers would see increased costs on all imports.
Challenges for Cambodian Factories
Cambodian factories face a fragile predicament as they try to stay afloat in an increasingly cutthroat environment. According to Barnett, manufacturing in Cambodia is “absolutely not going to go back to the United States.” In fact, several companies have already begun to move their supply chains elsewhere. They are looking at Egypt, India and Indonesia as top candidates.
The economic reality for Cambodian factories is bleak, with many workers living on less than $300 per month. Barnett pointed out that these factories are “in a fight for financial survival.” He pointed to the unprecedented challenges requiring immediate solutions that will better protect workers and help sustain America’s manufacturing base through this stormy economic time.
“Supply chain investments are meant to be longer term and when you have tremendous uncertainty like this you are unlikely to make these decisions.” – Andrei Quinn-Barabanov
This uncertainty is causing many businesses to push back major supply chain-related decisions. While companies continue to track tariff retaliation from other countries, they now need to contend with non-tariff barriers to trade that can make business even more difficult.
The Future of U.S.-Cambodia Trade Relations
Brought on by a deteriorating global economy and exacerbated by ongoing pandemic-related risks, trade experts agree that today’s trade war will not convince manufacturers to repatriate. Andre C. Winters pointed out that “this trade war is not an incentive to come back to the United States.” Otherwise, companies will turn to cheaper options overseas.
Scott Bessent found valuable guidance on how tariffs should be considered not as revenue generators. He reasoned that if the goal was to get people back to work in the U.S., then slapping large tariffs would not do this. In the long run, they are pointless even dangerous.
“If we put up a tariff wall, the ultimate goal would be to bring jobs back to the U.S. But in the meantime, we will be collecting substantial tariffs.” – Scott Bessent
From manufacturing’s perspective, they’re counting their ducks before they shoot them. They’re focused not only on tariff rates, but on overall economic conditions that might affect their long-range plans. The message is clear: if companies can find reduced tariffs elsewhere—like 20% in other countries compared to 40% in Vietnam—they may choose to relocate rather than bring jobs back home.
“If I’m paying 40% in Vietnam and I can get 20% tariff in another country, I’ll go there, because in the end, it is still cheaper than coming back to America.” – Andre C. Winters