A textile manufacturing facility located in Phnom Penh, Cambodia.
Bloomberg | Bloomberg | Getty Images
A primary aim for President Trump and his administration in enforcing hefty tariffs on trading partners is to restore manufacturing infrastructure within the United States, even if this leads to temporary market and economic difficulties. However, in Cambodia—the Asian nation facing the steepest tariff rate under the new trade strategy—achieving this objective seems highly improbable.
The 49% tariff imposed by the Trump administration on Cambodian exports will create a severe crisis for factories and workers in Cambodia, who already rank low on the global income scale. A trade group representing U.S. interests within the retail manufacturing sector asserts that reshoring manufacturing back to the U.S. is not a feasible outcome.
“They are definitely not going to revert to the United States,” stated Casey Barnett, president of the American Chamber of Commerce in Cambodia, the trade association that advocates for U.S. firms manufacturing in Cambodia. “I can’t envision Americans wanting to sit and sew a pair of sweatpants for extended hours each day,” Barnett remarked.
Barnett noted that manufacturers in Cambodia are exploring alternative countries to counterbalance the tariffs, but the U.S. is not on their radar. Some businesses are considering relocating their supply chains to Egypt, sub-Saharan Africa, India, and Indonesia, while others are taking a wait-and-see approach, hopeful for a tariff reversal.
The current situation is far from favorable for Cambodian factories, according to Barnett, who mentioned they are seeking solutions to endure the upcoming months.
“The labor-intensive garment factories in Cambodia simply cannot sustain operations under a 49% additional tariff. They are looking for alternatives to survive,” he stated.
At this point, new orders are at a standstill. “Orders are being held up. Everyone is confronting uncertainty and would prefer to wait until the situation stabilizes,” Barnett added.
The Cambodian government is taking a series of actions to alleviate the pressure, including the implementation of fiscal policies and tax credits.
Retail giants such as Under Armour, Rawlings Sporting Goods, Lululemon, Black & Decker, Hugo Boss, Hearth & Home, Eddie Bauer, Dollar General, Diageo, Asics, Adidas, and Bass Pro Shops rely on imports from Cambodia to North America. A growing range of products is sourced from Cambodia, spanning garments, footwear, travel goods, bicycles, agricultural items, furniture, solar panels, tires, and kitchen cabinets.
Anticipate a slowdown in executive decision-making
Andrei Quinn-Barabanov, the supply chain industry practice lead at Moody’s, asserts that even when companies strive to manufacture at the lowest possible cost, relocating supply chains requires substantial investment.
“Supply chain investments are typically long-term, and with significant uncertainty, these decisions are unlikely to be made. Companies will likely await reactions from other countries regarding tariffs, as well as any non-tariff restrictions imposed on U.S. companies. Expect minimal executive decision-making,” he stated.
The White House has asserted that tariffs imposed by Cambodia on U.S. goods can reach as high as 97%, a claim challenged by the Cambodian government and several tariff data sources, including the World Trade Organization. The Observatory of Economic Complexity, which tracks trade data, indicates that certain consumer products such as snacks, cosmetics, and automobiles face much steeper tariffs than average, peaking at 35% in Cambodia. In contrast, the average U.S. tariff on Cambodian goods stands at 2.6%.
The administration continues to argue that repatriating manufacturing will ultimately enhance revenue for the U.S. “If we establish a tariff wall, the ultimate goal would be to bring jobs back to the U.S. In the meantime, however, we will collect significant tariffs,” Treasury Secretary Scott Bessent stated on CNBC recenty. “Ultimately, if successful, tariffs will diminish over time, as the revenues are collected during the establishment of manufacturing facilities in the U.S., and there should be symmetry between the taxes collected from new industries and the decreasing tariffs.”
Andre C. Winters, founder and principal of supply chain consulting firm HudsonWinters, recently expressed skepticism regarding a rapid return of manufacturing to the U.S. “This trade war does not incentivize repatriation to the United States,” noted Winters. “Companies are more likely to seek opportunities in other regions with lower tariffs. Paying a 40% tariff in Vietnam versus a 20% tariff in another country will still be more cost-effective than coming back to America.”
Barnett mentioned that U.S. consumers will likely bear part of the repercussions, as numerous companies have already indicated.
“Regrettably, this will lead to higher prices for American consumers,” he remarked. “Cambodia has been instrumental in providing affordable back-to-school clothing for American families. These tariffs will only increase prices for U.S. families without reversing the manufacturing flow back to the U.S.”
Restoring manufacturing to the U.S. is not the sole reasoning behind Trump’s tariff strategy, according to President Trump and his trade advisors. Goals like diminishing the national trade deficit and debt, along with facilitating tax reductions, also weigh heavily in their approach, particularly as countries start to propose tariff concessions.
Recently, Cambodia’s prime minister reached out to the Trump administration with a proposal for notable tariff reductions on U.S. goods. Vietnam has also suggested reducing tariffs on U.S. imports to 0%, a proposal that Trump acknowledged, but which the Trump administration later deemed insufficient to lift its new tariffs.
Trade deficits and “nontariff cheating” hold equal significance, as emphasized by White House trade advisor Peter Navarro in a Monday CNBC interview, leading to the rejection of the Vietnamese offer.
When evaluating trade deficits, Cambodia ranks low compared to various international manufacturing nations. In 2024, U.S. goods trade with Cambodia totaled approximately $13 billion, as reported by the USTR. U.S. exports to Cambodia in 2024 amounted to $321.6 million, reflecting a 4.9% increase ($14.9 million) from 2023. Conversely, imports from Cambodia reached $12.7 billion in 2024, marking a 9.3% increase ($1.1 billion) from 2023. The resulting U.S. goods trade deficit with Cambodia was $12.3 billion in 2024, which does not place it among the top ten trade deficits.
Top trade deficits with the U.S., 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)
- Korea, South (-66)
- Canada (-63.3)
- India (-45.7)
Source: U.S. Census Bureau
Trump’s advisors have characterized their aggressive tariff strategy as involving “burden sharing,” suggesting that other nations will absorb the cost of these tariffs. Many economists caution against the potential risks associated with imposing high tariffs on some of the world’s poorest countries. Cambodia is one of the 11 nations that represents a minimal share of the U.S. trade deficit while shipping over 10% of their GDP to the U.S., per the Center for Global Development’s findings. “While working in the apparel industry can entail difficult conditions, the wages provided by these jobs present a genuine opportunity, especially for women,” they noted.
Barnett reinforced those concerns, stating that the tariff rates will only exacerbate poverty in Cambodia, result in job losses, and further expand the trade deficit.
“There is a sense of panic, which is tragic because approximately one million of the world’s most impoverished individuals currently work in this industry in Cambodia, many of whom are women striving to support their families. Their monthly earnings hover around $300,” Barnett remarked. “Cambodia truly finds itself between a rock and a hard place.”
