Tariff-triggered protectionism likely to bring down FDI inflows

Tariff-triggered protectionism likely to bring down FDI inflows

Within Asean, Malaysia, Vietnam, Singapore and Thailand are major sources of FDI for Cambodia, and this equation could change, says an expert.

The protectionist tendencies triggered by trump tariffs could adversely affect the inflow of Foreign Direct Investments (FDI) into Cambodia, as governments across Asia could put in their best efforts to contain the outward flow to garner more local investments, according to experts.

Taiwan, one of the top ten sources for FDI inflows into the Kingdom, has already asked its manufacturers with facilities outside the country to return home.

The National Development Council (NDC) of Taiwan, the leading planning agency in the country said it would provide assistance to Taiwanese manufacturers in Southeast Asia who wish to return to the country.

NDC head Liu Chin-ching told Taiwanese media that the government will optimise Taiwan’s investment environment to help Taiwanese firms improve their global competitive edge.

Many Taiwanese majors, including Makalot Industrial Co Ltd have substantial investments in Cambodia’s textile and garments sector.

Makalot earlier said that it will hold international meetings next week and engage in discussions with its clients to find ways to share the expected financial burden caused by Trump’s latest tariffs.

Prominent Taiwanese companies including Pou Chen, which is a contract supplier to major international brands such as Nike and Adidas, Shane Global Holding and Nien Made Enterprise have substantial investments in the Kingdom.

The cumulative FDI from Taiwan stood at $1.47 billion until the end of last year.

Speaking to Khmer Times, Vikas Reddy, an economist at Ohio University, said Trump tariff is going to create a lot of trickle-down effects and changes in FDI flow patterns would be one of them.

“Almost all countries, except India, China, Mexico and Canada, and a few smaller economies, have inked trade deals with the US. The manufacturing sectors in these countries, which made deals with the Trump administration, are breathing a sigh of relief.

“However, one needs to understand that it is the beginning of a long journey, whose conclusion is unknown. And one of the most easily predictable outcome will be a drastic change in the flow of FDI patterns and supply chain disruptions.

“If you take the case of Cambodia, with 19 percent tariffs the country has a level-playing field with other Asean nations. It means the development will not affect FDI flows from the US, the European Union, South Korea and Japan. Regarding China, we are unsure as to how Cambodia would perform the balancing act.”

He said the real shift is going to happen within the Asean investment landscape. “Within Asean, Malaysia, Vietnam, Singapore and Thailand are major sources of FDI for Cambodia, and this equation could change.

“For instance, if there are no substantial benefits, a Vietnamese investor will go for a local expansion rather than seeking an entry into Cambodia’s manufacturing sector. In a year’s time, we will have a clear picture on the emerging FDI patterns within the Asean.”

Echoing a similar view, Munawar Sinan, a researcher in international trade at the University of Bonn, said trump tariffs will bring a paradigm shift in supply chains and investment flows. “No modelling or predictions are possible now, but one thing is sure that the World Trade Report 2026, which tracks FDIs across the globe will come with a lot of surprises.”

khmertimeskh