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Cambodia

Can Cambodia Navigating US Tariffs and China’s Rising Influence

by Press Xpress April 17, 2025
written by Press Xpress April 17, 2025
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As global economic pressures intensify, Cambodia’s trade relations with both the United States and China are emerging as key factors shaping its economic future. The recent imposition of a 49% tariff on Cambodian goods by President Donald Trump’s administration threatens to disrupt critical sectors like textiles and garments.

However, the situation is far more intricate than a simple trade war. Cambodia’s trade and investment data for Q1 2025 reveals a dual dependency—on Chinese investment and US market access. With the US tightening tariffs and China’s influence growing, Cambodia faces a pivotal moment in determining how it will navigate this precarious economic balancing act and secure its survival on the global stage.

The Role of China and the United States in Cambodia’s Trade Landscape

China has long been Cambodia’s most significant trading partner, accounting for 49.1% of its imports in Q1 2025, which was a notable 31% increase from the same period the previous year. Imports from China are largely centered around raw materials, such as fabrics for Cambodia’s garment industry, a sector that constitutes around 55% of the country’s exports. Conversely, the US remains Cambodia’s largest export market, accounting for 35% of the country’s total exports, most of which come from garments, footwear, and travel goods. The interdependence between Cambodia’s import reliance on China for raw materials and its export dependency on the US for finished products creates a delicate balance. This dynamic is not only critical to the country’s economy but also influences Cambodia’s economic strategy as it seeks to weather the storm of rising tariffs.

The Trump administration’s decision to impose a 49% tariff on Cambodian goods aims to return manufacturing to the US. However, experts, including Casey Barnett from the American Chamber of Commerce in Cambodia, have emphasized that this move is unlikely to have the intended effect of reshoring US manufacturing. Instead, manufacturers in Cambodia, particularly in the garment sector, are now looking at other regions such as Egypt, Sub-Saharan Africa, India, and Indonesia for alternative supply chain solutions. This shift reflects the growing realization that Cambodia’s garment factories, which employ millions of low-wage workers, cannot sustain operations under such high tariff pressures.

The Dilemma: Cambodia’s Economic Bifurcation

Cambodia’s economy in Q1 2025 exhibited mixed signals. On one hand, the country saw a 14% increase in approved investment, with a large portion of this funding coming from China. Roughly 56% of all investment came from China, while the US accounted for just 0.9%. These figures underscore Cambodia’s growing reliance on Chinese investment to fuel its industrial sector, particularly in the garment and infrastructure fields. However, this dependence also brings its own set of challenges. The majority of Cambodia’s imports from China are raw materials that feed into the garment sector, and a downturn in exports to the US would also diminish demand for these imports. Additionally, a decline in garment exports would likely result in a reduction in Chinese investment, as the two are inextricably linked.

This situation is compounded by Cambodia’s rising electricity demand, largely driven by the energy needs of the garment sector. With significant investment in renewable energy and infrastructure from China, a reduction in manufacturing output could directly impact the demand for Chinese energy and construction investments. Cambodia’s dependence on China in these areas is evident, yet the US market for Cambodian garments remains crucial for sustaining the country’s manufacturing ecosystem.

The Shift: How Cambodia Can Survive Without China’s Influence

Despite the pressures from the US tariffs, Cambodia can still find a path forward by diversifying its trade relationships and investment sources. While China’s influence is undeniable, Cambodia must begin to reposition itself within a broader regional and global trade network. As mentioned, countries like India and Indonesia are emerging as alternatives for Cambodian manufacturers seeking to relocate their supply chains. This shift could reduce Cambodia’s economic vulnerability to both US tariffs and China’s dominance in its trade and investment sectors.

Moreover, Cambodia could focus on strengthening its agricultural exports, which have seen steady growth, particularly in cereals, fruits, and vegetables. By expanding these sectors and improving agricultural productivity, Cambodia could reduce its dependency on the more volatile garment industry. Furthermore, the Cambodian government’s fiscal policies, such as offering tax credits and other incentives, could help cushion the economic blow from reduced garment exports and encourage more diverse foreign direct investment.

The Long-Term Strategy: Diversification and Regional Cooperation

In the long term, Cambodia’s survival strategy lies in its ability to diversify its economic activities and strengthen regional cooperation. For example, engaging more deeply with ASEAN member states and regional powers like Japan and South Korea could offer Cambodia alternative markets and investment opportunities. Strengthening trade relationships with neighboring Vietnam and Thailand, which already account for significant portions of Cambodia’s exports and imports, could also mitigate some of the risks associated with over-reliance on the US and China.

Additionally, Cambodia should invest in upgrading its infrastructure, including energy generation and transport systems, to make its manufacturing sector more competitive. By transitioning towards more value-added products, rather than just raw materials or labor-intensive goods, Cambodia could create more sustainable economic growth. This transition would require substantial investment in education, skills development, and technology, but it would position Cambodia for a future beyond its reliance on garment exports.

Conclusion

The challenges posed by the Trump administration’s tariffs and China’s overwhelming influence on Cambodia’s economy are significant. However, Cambodia is not without options. By diversifying its trade relationships, investing in its agricultural and technological sectors, and leveraging regional cooperation, Cambodia can chart a path that reduces its dependence on any single trading partner. While the short-term outlook may be bleak, the longer-term prospects for Cambodia lie in its ability to adapt to a shifting global trade environment. The coming years will reveal whether Cambodia can navigate this trade storm without falling victim to the economic pressures from both the US and China.

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