36 percent tariffs to hit hard exports, industry insiders say

36 percent tariffs to hit hard exports, industry insiders say

With a trade deficit of nearly $12.3 billion, Cambodia’s US imports will have to grow by 4,000 percent if it has to balance goods trade with America.

The north-bound graph of the country’s exports will now take a southward trajectory with the Trump administration imposing 36 percent tariffs on goods exported from Cambodia to the US beginning August 1, industry insiders observe.

Although they underscore the success of the negotiation team tasked by the Royal Government, which led to a reduction in tariffs from the previously-imposed 49 percent to 36 percent, industry insiders hold the view that the road ahead remains tough for all sectors.

They assert that solving the equation stressed by the US doesn’t seem an easy task, as it is almost impossible to balance the bilateral trade. With a trade deficit of nearly $12.3 billion, Cambodia’s US imports will have to grow by 4,000 percent if it has to balance goods trade with America – undoubtedly an unrealistic aspiration.

Speaking to Khmer Times, Robert Hwang, Deputy Chairman of Textile, Apparel, Footwear and Travel Goods Association of Cambodia (TAFTAC) and Chairman of Cambodian Garment Training Institute, said: “This measure will undoubtedly have an impact. However, from a company’s perspective, there aren’t many options available. We estimate that exports could decline by anywhere from 15 percent to as much as 30 percent.

“That said, we cannot simply endure the situation indefinitely. We hope the government will swiftly negotiate with the US to bring the tariff level down to something comparable to Vietnam’s.

“Furthermore, under the new regulation, circumvention through third countries is now clearly prohibited. Attempting to do so would constitute a violation of the law.

“We are not in a position to import goods from the US, yet many least-developed countries, which have little to no imports from the US, are facing high tariffs. If this is the case, then the human rights that the US has long advocated seem to have been abandoned.

“In countries like Cambodia, approximately 80 percent of the labour force in our industry consists of women. Taking away their jobs is not the right path forward.”

A long-time American investor in the Kingdom told Khmer Times that the Royal Government should take the negotiations forward until “more acceptable tariff levels are attained”.

“The number 36 is quite high, though it is lower than 49. The government will have to devise new strategies to keep the investors here, especially in the manufacturing sector. Large-scale investors also run facilities in Vietnam and there is a possibility that they may shift focus to Vietnam, considering the comparatively less 20 percent tariffs there.”

Further explaining the situation to Khmer Times, Vichet Lor, Vice-President of Cambodia Chinese Commerce Association, said: “On April 2 ‘Liberation Day’, US President Trump announced that Cambodia will face the steepest tariff among its Asean counterparts of 49 percent due to the huge trade deficits between America and Cambodia. On July 7, Cambodia got a revised tariff rate of 36 percent.

“Cambodia is only behind Vietnam and Indonesia with 20 percent and 32 percent respectively, tie with Thailand’s 36 percent, with Laos and Myanmar facing a steep tariff of 40 percent. If the aforementioned tariffs for individual countries remain the same until August 1, only Vietnam has an obvious advantage over Cambodia.

Vichet went on to add that the tariff rate should be conducted in comparison with our neighbouring exporters who export similar products, rather than as a stand-alone figure to determine the competitiveness of Cambodian goods in America. “Likewise, tariff is one piece of the puzzle in the sense that other factors are intrinsically involved and put into consideration, notably political stability, regional connectivity, physical and digital infrastructure.

“Due to the nature of different countries varying geographical conditions, varying sourcing of raw materials, varying distance from production plant to seaports, varying factories operation efficiency rate and the varying cost and time taken to deliver from goods production to market destination in America is also determined by the varying cost price which can be fluctuated depending on the price and sourcing of raw materials.

“In this context, the competitiveness of a country’s export capacity is not solely decided by tariffs alone. Cambodia exporters will have to figure out various ways to improve production efficiency and cost competitiveness, while the government dedicate more effort to negotiate for ever better tariff rates before August 1.

“As the new Techo International Airport will be in operation on September 9, one feasible way to address the trade deficit is the purchase of more Boeing planes to accommodate the burgeoning aviation tourism industry.

“Likewise, as Cambodia agriculture and construction industry rebounds, the demand for America John Deer and Caterpillar machinery will narrow the trade deficit substantially. These high ticket items can easily offset the current trade deficit to balance bilateral trade.

“In summary, Cambodia-US trade relations have enormous room for growth and expansion as both governments have expressed sincere goodwill to solve longstanding trade and investment issues amicably, pragmatically and diplomatically, resulting in a win-win deal whereby common prosperity and common interest are guaranteed and protected.”

Uon Silot, President of the Cashew Nut Association of Cambodia, said, “The cashew industry is not experiencing any significant changes, as Cambodia continues to export raw cashew nuts (RCN) to Vietnam and cashew kernels to China. It’s important to note that we do not export cashew products to the US.”

Though Khmer Times reached out to the Cambodia Rice Federation, comments could not be obtained until press time.

Vikas Reddy, a researcher in economics and international relations at Ohio University, said the US would continue to pursue unrealistic demands during future negotiations. “In his letter to Cambodian Prime Minister Hun Manet, Trump is suggesting the relocation of some manufacturing units from Cambodia to the US.

“How on earth is this possible? All American brands relocated their manufacturing units initially to China and subsequently to other Asian countries beginning nineties after the US completely lost its low-cost manufacturing base.

“Scott Bessent, the US Treasury Secretary, and the mastermind of tariff plans, can afford to remain optimistic about bringing back some manufacturing jobs in automobile, fabs or renewable energy sectors to the US. The world expects him to show a little more wisdom in advising the US president that America no longer can have garments, leather manufacturing units or basic electronic industries.”

Khmer Times also spoke to garment factory workers in Phnom Penh, who expressed their panic over the tariffs. “I really don’t know who Trump is, but I will be in big trouble if the factory gets closed or a lay-off happens,” Moa Sreypich, a 25-year-old single mother, said.

“I am not sure as to what I will do, though we haven’t received any message from the company management.” She said, as of now, regular work shifts are on at the company. “I wish this continues and we all have work so that there is no worry about the future.”

Ong Phanith from Kandal province, another garment factory worker, said he is getting ready to return to farming, fearing a possible job loss. “There is no other go. These are the things not decided by us, and I’m ready to hit the farm again. But, I must tell you this is a very sad situation, and I am hopeful that the government will resolve this crisis.”

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