Navigating Tariffs and Economic Challenges in U.S.-Cambodia Relations

On August 1, the United States and Cambodia reached a crucial tariff agreement of 19%, down from an initially proposed 49%, reduced to 36%, that had been threatening to devastate Cambodia’s economy. These efforts are part of the Trump administration’s broader "reciprocal tariffs" strategy, especially aimed at addressing trade imbalances, political concerns, and Cambodia’s close ties with China. The initial tariff especially posed an existential threat to Cambodia’s vital manufacturing sector, especially concerning the garment and footwear industries, which form the backbone of the country’s export-driven economy. The tariff deal is a significant victory for Cambodia, which avoided the economic devastation that a higher tariff would have caused. In exchange for this tariff relief, Cambodia agreed to eliminate its own import tariffs on U.S. goods, ensuring that American products would enter Cambodia duty-free.  
 

The economic consequences for Cambodia are profound, as the country is heavily dependent on exports, especially to the U.S. market, for economic stability. The threat of such high tariffs, even before they were imposed, had already begun to disrupt Cambodia's economy. In 2024, Cambodia’s exports to the U.S. accounted for roughly 37-38% of its total exports, with the garment and footwear sector being the largest contributor. This sector employs around 1 million workers, the majority of whom are women, and contributes significantly to Cambodia’s GDP. Factory owners and managers, fearing a dramatic reduction in orders from U.S. buyers, had already begun scaling back production, postponing new orders, and dismissing workers. This immediate reaction highlights the uncertainty faced by the sector, with worker unions and non-governmental organizations fearing that the tariffs could lead to up to 150,000 job losses, massive wage cuts, and factory closures, creating widespread social and economic hardship. The reduction to 19%, therefore, while still challenging, is welcomed as a manageable solution, especially by Cambodia’s Deputy Prime Minister Sun Chanthol. While still above the pre-2025 tariff rate of 10-15%, the 19% duty is consistent with those imposed on other ASEAN countries, allowing Cambodia to remain competitive and providing relief to the 1,500 factories that rely on U.S. demand. Though some cost adjustments are expected, the 19% tariff is expected to raise U.S. retail prices for Cambodian-made apparel by only around 5%, with much of the cost increase absorbed along the supply chain rather than passed fully to consumers. U.S. companies may continue importing goods with a predictable cost structure while maintaining the flexibility of sourcing from Cambodia.