US Tariffs Present Opportunities and Risks for Cambodia; Investment in Textiles Crucial

The Office of the US Trade Representative (USTR) has imposed a 10% tariff on Cambodian goods, a rate lower than the 12.5% applied to countries like Thailand and Vietnam, according to former American Chamber of Commerce in Cambodia (AmCham) president Casey Barnett. Barnett revealed that Cambodia has secured several important exemptions, including duty-free treatment for products not producible in the US, such as cashew nuts. Notably, a special tariff exemption for Cambodian garment exports has been introduced, based on the volume of US-produced cotton or cotton fabric used. This measure aims to boost American cotton production and reduce reliance on Chinese textile inputs. Barnett described the situation as "both an opportunity and a risk" for Cambodia. While Cambodian garment exports to the US are projected to reach $4 billion in 2025, the country imported $2.8 billion worth of cotton and fabric from China in the same year, compared to a negligible $137,000 from the US. In the short term, Cambodia risks losing garment orders to competitors like Indonesia and Bangladesh, which also face a 10% US tariff but possess substantial domestic textile manufacturing capacity. "Cambodia must move quickly to attract investment in textile manufacturing. Otherwise, it risks gradually losing export orders," Barnett warned, citing high electricity prices and lengthy environmental impact assessment procedures as key investment obstacles. The USTR is expected to announce a second round of tariffs within the next two months in response to its investigation into excess industrial capacity. Cambodia may receive favorable treatment or be required to reduce its dependence on Chinese raw materials. Following this, discussions are expected to resume on a proposed Agreement on Reciprocal Trade, aiming for final revisions before ratification by Cambodia’s National Assembly. The garment sector also faces challenges from the lack of progress toward a Free Trade Agreement (FTA) with the European Union (EU). Cambodia is anticipated to lose its remaining Everything But Arms (EBA) trade preferences with the EU. Global brands are unlikely to expand sourcing from Cambodia without tangible progress towards an FTA or another preferential trade arrangement after the EBA scheme expires, Barnett added.