What a 36% tariff means for Cambodia

And Thailand seeks to arrest an alleged Cambodian scam boss.

Cambodia faces a 36% tariff for goods imported into the U.S. that could batter the garment industry, with seemingly no national plan to mitigate its effects — and any potential deal with the U.S. mired in the politics of “transshipment” of goods from China.

First, some background:

On Tuesday, the U.S. announced a new tranche of reciprocal tariffs on 14 countries just before the 90-day deadline to negotiate trade deals expired. Despite President Donald Trump’s confidence in April that he could negotiate trade deals with the entire planet, he has mellowed expectations and has learned that trade deals are “complex.”

So far, he has signed a loose trade framework with the U.K. and Vietnam — though with scant details and amid concerns from various industries — and has agreed to delay three-digit tariffs with China till August. The White House is also teasing an impending deal with India, a traditionally protectionist country, and the EU.

Trump has meanwhile lowered Cambodia’s expected August 1 tariff from 49% to 36%. Trump’s letter to Prime Minister Hun Manet — which mirrors the other 13 he sent to world leaders — claims he had no choice to place the tariffs because of “Cambodia’s Tariff, and Non Tariff, Policies, and Trade Barriers.” The Kouprey herd is not convinced he knows what non-tariff barriers are, but no matter! (This includes quotas, licensing agreements, rules of origin and sanitary standards, all of which were theoretically governed by the World Trade Organization pre-Trump — but the system’s erosion started long before he took office and is obviously now in crisis).

Hours after the announcement, Cambodian Deputy Prime Minister Sun Chanthol and the Commerce Minister held a press conference about Trump’s letter. If you were eager to hear about last Friday’s teaser on the “joint statement on framework for United States-Cambodia agreement on reciprocal trade,” well, this was a big dud: Apart from touting the seeming “success” of bringing down tariffs from 49 to 36%, Chanthol provided no details about the trade framework or a roadmap going forward.

Vietnam had previously announced it negotiated tariffs down from 46% to 20%, a number both Vietnamese and American businesspeople say is still too high. Importantly for the China conflict of it all, a 40% tariff will be placed on “transshipments,” which has not been clearly defined but generally refers to goods that originate elsewhere (China) before being sent to a final destination (the U.S.) White House adviser Peter Navrarro has used this process to call Vietnam, population 100 million, a “colony of China” and allege Vietnam labels China-made products as their own. American imports will meanwhile enter Vietnam tariff-free.

Vietnam is a competitor to Cambodia’s garment manufacturing sector, so it’s safe to assume a potential Cambodia deal would be at best the same as what Vietnam negotiated — though if “colony of China” is a metric for deciding tariffs, then the country might be in trouble from an optics perspective: The relationship between Cambodia and China has only deepened in recent years, even as Hun Manet has also actively pursued relationships with the West (efforts that the Biden administration almost tripped over with excitement).

Now here’s the nitty-gritty of the U.S.-Cambodia trade relationship and the 36% tariff:

The U.S. is a major export destination for Cambodia, buying clothing, travel goods, soft furnishings and some electrical components. In 2015, the U.S. accounted for 25% of exports, according to Cambodian customs data, jumping to 37% last year. So far this year, $4.3 billion of Cambodia’s total exports ($12 billion) have headed to the U.S.

An increase in tariffs makes Cambodian products a more expensive prospect for American buyers. Even if Cambodia were to negotiate tariffs down to Vietnam’s flat 20%, it could still spell trouble.

But how Cambodia’s tariffs compare to competitors is also important. Let us explain.

Manufacturing, especially garment production, is low value added and less sophisticated than other economic activities — and hence very vulnerable to regional and global competitiveness. (Development economists refer to this problem as the Smile Curve). Buyers and investors will always seek the cheapest deal, and because garment manufacturing has few barriers to entry and relies on cheap labor, this drives down prices.

A 36% tariff could shift Cambodia’s competitive position, potentially moving business to cheaper or higher value-added markets. As a garment insider told Kouprey, it’s all about relativity — if Cambodia’s tariffs are much higher than Vietnam’s or other markets, that would be “disastrous.”

There’s also no way a Cambodia-U.S. deal would exclude a transshipment clause like Vietnam’s. Cambodia is already facing 3,521% tariffs on solar equipment as part of an anti-dumping investigation by the U.S., and irked the EU in 2015 for transshipment of bicycles that originated in China, leading to additional import duties.

Close to half of Cambodia’s imports came from China in 2024, with Chinese imports accounting for more than 50% of all imports for this year. (Neighbors Vietnam and Thailand account for most of the remainder).

When it comes to China, what’s most concerning is a potentially loose — and deeply political — interpretation of what constitutes the transshipment of products. Some experts believe the Trump administration might consider the use of raw materials sourced from China, not final products such as bicycles, as manufacturing inputs that would trigger higher tariffs. If this is the case, it would be a double whammy for Cambodia, which is already struggling to shake off accusations of being China’s vassal state.

This isn’t a theoretical debate: Last year, Cambodia purchased billions of dollars of raw materials from China to feed its manufacturing and construction sectors, with “knitted or crocheted fabrics,” “man-made staple fibres” and “cotton” accounting for a third of all imports from China, according to trade data. With the garment sector so reliant on inputs from China, a looser transshipment interpretation would send the industry into a tailspin.

How this plays out will affect nearly 1 million Cambodians who work in the garment and footwear industry, who also face significant debt and hunger. And amid the recent border dispute, Hun Sen told Cambodian workers in Thailand to return home to take factory jobs — jobs that could now be at risk of being lost.

Thailand Gets Serious With (Alleged) Scam Boss

Thailand escalated tensions with Cambodia after it issued an arrest warrant for Cambodian People’s Party Senator Kok An, who they allege runs scam operations in the border town of Popiet. The prominent oknha owns the notorious Crown casino complexes across the country, each of which has been plagued with allegations of forced labor and scam ops. Thailand’s Cyber Crime Investigation Bureau said they raided 19 houses in Thailand looking for evidence against the senator, including the use of “mules” to open bank accounts and launder money. Officials also suspect An’s daughter, Juree Khlongkijjakol, is involved in his alleged illegal activities.

Other Thailand stories:

— Thailand said the return of Khmer artifacts was not a high priority, knowing very well this would irk Cambodians. The Ministry of Culture and Fine Arts said it would pay for the transport of the artifacts, with Vireak Buntham gallantly offering its buses free of cost.

— 57% of Thais polled said they didn’t trust Hun Sen and 67% felt he was escalating the border issue for personal benefit.

— Militaries on both sides have near-daily accused the other side of attempting to stoke tensions at contested temple sites.

— Thai media is suddenly rife with scam stories here and here. Seems like it took a border dispute to alert them to transnational crime.

In national news:

— A National Assembly committee approved a Hun Sen directive to amend Article 33 of the Constitution to enable the government to revoke citizenship from any treasonous Cambodians who conspire with foreign countries. More on this next week. He claimed Cambodia had similar provisions during the “socialist” era of the 1960s.

— Cambodia and Singapore signed an MoU to tackle transnational crime. Here is an article from 2023 about how 10 people involved in money laundering and arrested in Singapore had Cambodian passports.

— A group of activists and a youth leader were unable to get any reprieve from Cambodian courts.

— U.S. Embassy reps met with anti-scam czar Chou Bun Eng and her team this last week. We suspect the U.S.’s trafficking in persons report is near release.

— It’s been a year since Mother Nature activists were convicted and imprisoned for their advocacy.

— Around 3,000 workers were killed or injured in road accidents so far this year.

Thanks for your patience today as we jumped on Tuesday’s breaking tariff news. Buh-bye!