U.S. Tariffs on Cambodia: Negotiations, Consequences, and Opportunities

U.S. Tariffs Imposed on Cambodia

In May 2025, Cambodia held its first trade talks with the United States in Washington, D.C. to negotiate a 49% tariff rate, one of the Trump administration's steepest tariffs and the highest applied to a Southeast Asian country. A second round of talks mentioned tariffs in early June between Cambodian Deputy Prime Minister Sun Chanthol, Commerce Minister Cham Nimul, and Assistant U.S. Trade Representative for Southeast Asia and the Pacific Sarah Ellerman.

On July 7th, after three rounds of trade talks in May, June, and July, Deputy Prime Minister and First Vice-Chairman of the Council for the Development of Cambodia Sun Chanthol reported that Cambodia had reached an agreement with the United States and that the trade talks successfully protected 86% of exports within Cambodia’s seven priority export sectors. U.S. President Donald Trump issued an official letter to Cambodian Prime Minister Hun Sen stating that the United States would impose a 36% tariff rate on Cambodian goods exported to the U.S. President Trump stated that the 36% tariff rate addressed the U.S. trade deficit with Cambodia, threatening U.S. national security. Trump also warned that countries transhipping goods through third countries to avoid tariffs would face even higher tariffs.

As part of the United States’ tariff rate reduction agreement, Cambodia reduced tariffs on American imports from 35% to 0%. The countries agreed that Air Cambodia would purchase ten Boeing 737 Max 8 planes, making it the first time Boeing aircraft had been purchased by a Cambodian carrier, according to Chanthol. Additionally, Cambodia agreed to get tough on online scam operations that target Americans and illegal transshipment of Chinese goods into Cambodia. Through this practice, Chinese manufacturers aim to evade higher tariffs from the United States.

However, after the August 1st negotiation deadline, Cambodia experienced even more relief as the applied tariff dropped to 19%. The neighbouring countries of Thailand, Indonesia, and Vietnam all received a 19% to 20% tariff rate – a positive sign for Cambodia, as similar rates signal that Cambodia will maintain its foreign direct investment flow and attract companies to create more factories and thus more jobs in Cambodia.

Consequences of the U.S. Tariffs for Cambodia

Cambodia’s largest export market is the United States, with its exports comprising 37.9% of its shipments, reaching almost 10 billion USD. A significant portion of these shipments is garment exports, a prominent sector for Cambodia’s 49.8 billion USD  economy in 2024 and a major employment hub for clothing brands such as H&M and Lacoste.

James Roberts, head of Advisory at KPMG in Cambodia, said tariffs would raise U.S. consumption prices as 'A T-shirt that costs 1 USD to make in Cambodia cannot be replaced by a 20 USD American-made equivalent overnight'. The U.S. tariffs will not immediately affect Cambodia’s garment factories as brands place orders six to 12 months in advance. In 2024, Cambodia exported 9.9 billion USD worth of goods to the United States, with Cambodia’s garment, footwear, and travel goods industries capturing over half of U.S. imports from Cambodia and employing over 900,000 workers. With nearly one million workers in these industries, each supporting on average five family members, potential tariffs would impose significant economic and social costs. These impacts may include factory closures, lowered wages, and greater production pressure.

Potential Responses to U.S. Tariffs

In response to these tariffs, factory owners may reuse strategies from the COVID-19 period. President of the Cambodian Alliance of Trade Unions, Yang Sophorn, mentioned cutting benefits and converting full-time workers into temporary-status workers to compensate for the losses that U.S. tariffs caused to the labour market.

Additionally, Cambodia can look to other countries that have succeeded in their trade talks with the U.S. For instance, Vietnam quickly engaged with U.S. policymakers to adjust domestic policies, decrease tariffs on American goods, and commit to major purchases of certain U.S. exports. 

Opportunities for China

Although a less drastic tariff rate of 19% compared to its original rate from the United States, the unpredictability with the United States’ new administration may prompt Cambodia to seek alternative opportunities in preparation for future predicaments. In May 2025, Cambodia exported 241 million USD and imported 1.92 billion USD from China. Compared to May 2024, exports from Cambodia to China increased by 50 million USD (26.2%) and imports increased by 479 million USD  (33.3%). The top exports from Cambodia to China include tanned furskins (39.6 million USD ), trunks and cases (28.6 million USD), and other animals (28.3 million USD ). Top imports from China to Cambodia include other knitted or crocheted fabrics (123 million USD), pile fabric (98.5 million USD), and unspecified commodities (92.9 million USD).

Currently, China is Cambodia’s largest trading partner. In 2022, the Regional Comprehensive Economic Partnership (RCEP) and the China-Cambodia Free Trade Agreement took effect and helped export Cambodia's agricultural products to China under preferential tariffs. Between January and November 2024, bilateral trade reached nearly 14 billion USD, which increased by 24% compared to the same period in 2023.

Considering U.S.-China trade tensions, several Chinese companies have offshored their operations and investments from China to countries such as Cambodia to benefit from Cambodia’s preferential tariffs for U.S. exports. In 2023, China’s total investment in Cambodia reached 1.378 billion USD, compared to 632.18 million USD in 2022. From 2003 to 2023, average annual Chinese investment in Cambodia was 466.75 million USD. In 2024, Chinese investments comprised 49.82 percent of the total foreign investment in Cambodia. Over half of the factories in Cambodia are Chinese-owned, representing a total investment of about 9 billion USD.

Given current U.S.-Cambodia relations, this may open opportunities for Cambodia to strengthen economic ties with other countries, such as China. Emily Kilcrease from the Center for a New American Security reported that, considering most countries now face a higher tariff rate from America than China, more countries could be reoriented towards China. Kristina Fong, of Singapore’s ISEAS-Yusof Ishak Institute, stated that in a study of attitudes of over 2,000 Southeast Asians gathered from her institute in early 2025, 56.4% of respondents expressed that China was Southeast Asia’s 'most influential economic power' and that 'China was the choice for all ASEAN countries'.

Opportunities for the European Union

In 2024, Cambodia was the EU’s 62nd most significant trading partner, Cambodia’s textile industry comprising 70% of the EU’s total imports. The EU is ranked as Cambodia’s 4th largest trading partner, comprising 9.6% of Cambodia’s total trade in goods. Raw hides and skins (35%) and machinery and appliances (11%) accounted for Cambodia’s imports from the EU. Between the EU and Cambodia, total trade amounted to €6.4 billion in 2024, while services trade accounted for €800 million in 2023.

The EU’s Generalised Scheme of Preferences (GSP) permits selected developing countries to access the EU’s market with reduced or zero duties. Cambodia has been a member of the World Trade Organization since 2004 and is categorised as a least developed country. As a least developed country, Cambodia benefits from the Everything But Arms (EBA) scheme, as part of the GSP, which grants unilateral duty-free and quota-free access to the EU market for all goods besides arms and ammunition. However, in August 2020, Cambodia’s EBA access was restricted due to accusations of severe human rights violations that infringed principles of the International Covenant on Civil and Political Rights.

Conclusion

After months of negotiations, Cambodia reduced its tariff rate from 49% to 19%, thereby safeguarding its nearly one million workers in the garment factory and overall economy in exchange for cutting American imports to 0% and purchasing Boeing aircraft. While Cambodia will not experience the dramatic impacts of the original tariff rate, it may seek other trade opportunities to depend on, given the country’s uncertain start with the new administration. As a result, Cambodia may strengthen trade relations with China, as the country is Cambodia’s largest trading partner, and Chinese investment already dominates inflows, or with the EU, given Cambodia’s beneficiary status from several trade agreements.

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ABOUT THE AUTHOR

Anita Tun is a student at Georgetown University majoring in Business and Global Affairs, a joint-degree program between the Walsh School of Foreign Service and the McDonough School of Business. Anita is originally from California and came to Washington D.C. to learn more about the interactions between community development, geopolitics, and the private sector. Previously, Anita has interned at the Embassy of Cambodia, served as a Research Assistant at ASEAN Young Professionals, and is now interning at the U.S. House of Representatives. 

This article was edited by Robin Millet and Stefano Bertoli.

Featured Image: Cambodia Sihanoukville Autonomous port / Free for Use / Creative Commons Attribution-Share Alike 4.0 International license