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A garment factory in Phnom Penh, Cambodia.
As President Trump and his administration implement significant tariffs on various trading partners, one of the driving objectives is to repatriate manufacturing jobs back to the United States. However, in Cambodia, which is experiencing the highest tariff rate under the new trade plan, this goal seems increasingly unattainable.
The 49% tariffs imposed on Cambodian goods pose a severe threat to the country’s garment factories and workers, who are already among the lowest earners globally. According to Casey Barnett, president of the American Chamber of Commerce in Cambodia, the likelihood of these manufacturing operations relocating back to the U.S. is virtually nonexistent. “They’re absolutely not going to go back to the United States,” Barnett emphasized, pointing out that the nature of the work involved does not appeal to American workers. “I can’t imagine that Americans want to sit down and sew a pair of sweatpants for long hours of the day,” he remarked.
In light of these tariffs, manufacturers based in Cambodia are exploring alternative locations to base their operations, but the U.S. is not a part of this consideration. Countries like Egypt, India, Indonesia, and regions of sub-Saharan Africa are emerging as viable options for the relocation of supply chains. Some businesses are adopting a more cautious approach, hopeful for a possible reversal of the tariffs.
The situation remains precarious for Cambodian factories, which are facing significant operational challenges. “The labor-intensive garment factories here in Cambodia simply cannot continue to operate with a 49% additional tariff. They can’t survive and are looking for alternatives,” Barnett stated.
At present, many companies are withholding new orders due to this uncertainty. “There are orders being paused. Everyone’s facing uncertainty and they want to wait a bit to see how the dust settles,” he added.
In an attempt to alleviate the economic strain, the Cambodian government is exploring various measures, including tax credits and other fiscal policies.
Numerous retail giants, including Under Armour, Lululemon, and Adidas, rely on imports from Cambodia across a diverse range of products, not limited to garments but extending to footwear, bicycles, and kitchen goods.
Operational Decisions Delayed
Andrei Quinn-Barabanov, who leads supply chain industry practice at Moody’s, notes that the complexities and long-term nature of supply chain investments deter companies from making swift relocations. “Relocating supply chains is a major investment, and when faced with uncertainty, companies are unlikely to make these decisions. They will wait to see how other countries respond to the tariffs and any non-tariff restrictions imposed on U.S. businesses,” he explained.
The White House has asserted that tariff rates on U.S. goods in Cambodia reach as high as 97%, a statement disputed by Cambodian officials and international trade data sources, including the World Trade Organization. The Observatory of Economic Complexity (OEC) indicates that certain consumer goods in Cambodia bear tariffs as high as 35%, although the average tariff on Cambodian goods entering the U.S. is just 2.6%.
Despite ongoing discussions about tariffs, U.S. officials continue to assert that re-establishing domestic manufacturing will generate a more substantial revenue stream in the long run. Treasury Secretary Scott Bessent articulated this viewpoint during a recent CNBC interview, suggesting that as manufacturing in the U.S. expands, the tariff burden would gradually lessen.
However, skepticism remains. Andre C. Winters, a supply chain consultant, expressed doubt over the likelihood of rapid shifts back to U.S. manufacturing, stating, “This trade war is not an incentive to come back to the United States.” He emphasized that many businesses will seek locations with lower tariffs, despite the rising costs associated with tariffs on imports.
Barnett highlighted that U.S. consumers will ultimately bear some of the financial consequences of these tariffs. “These tariffs are simply going to raise prices for American families and not bring manufacturing back to the U.S.,” he warned, pointing out that Cambodia has played a crucial role in providing affordable clothing options for American families.
While the repatriation of manufacturing jobs is a key objective behind the Trump administration’s tariffs, it is not the sole one. Reducing the national trade deficit and national debt remains integral to their strategy, which has led some trade partners, like Cambodia, to propose negotiating lower tariff rates on U.S. goods.
In recent communications, Cambodia’s Prime Minister outlined potential reductions, while Vietnam offered to drop tariffs on U.S. imports to zero—a proposal that was acknowledged by Trump, yet ultimately deemed insufficient by the administration when considering adjustments to existing tariffs.
Trade deficits, along with concerns over “non-tariff cheating,” continue to influence U.S. trade policies. In terms of trade deficits, Cambodia’s situation is relatively modest compared to larger manufacturing nations. In 2024, U.S. goods trade with Cambodia is projected to reach $13 billion, with imports from Cambodia escalating by over 9% compared to the previous year.
Trade Deficits by Nation
(in $billions, as of Dec. 2024)
China (-295.4)
Mexico (-171.8)
Vietnam (-123.5)
Ireland (-86.7)
Germany (-84.8)
Taiwan (-73.9)
Japan (-68.5)
South Korea (-66)
Canada (-63.3)
India (-45.7)
Source: U.S. Census Bureau
Economists have highlighted potential dangers in imposing high tariffs on some of the world’s poorest nations. Cambodia, in particular, is part of a group of countries that, despite contributing minimally to the U.S. trade deficit, see exports to the U.S. representing a significant portion of their GDP. The Center for Global Development emphasizes the harsh working conditions present in many of these garment factories while acknowledging that they provide valuable economic opportunities, especially for women.
Barnett shares these concerns, stating that the tariffs threaten to exacerbate poverty in Cambodia, disconnecting residents from jobs and widening the trade gap. “There’s a bit of a panic and that’s tragic because there are one million of the world’s poorest people currently employed in this industry here in Cambodia, and many of them are women trying to make ends meet. Their monthly salary is around $300,” he concluded. “Cambodia is between a rock and a hard place.”
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