Trump’s tariff identifies Cambodia Inc. To rethink her business model. But the change should happen quickly.
Cambodia’s economy is under pressure with the start of the second half of 2025. In April, Southeast Asia faced the highest tariff imposed by the Trump administration on any country as part of the “Liberation Day” declaration on April 2: 49 %. The subsequent negotiation has reduced the number to 19 %, which is a common average with the peers of Southeast Asian countries (ASEAN), including Indonesia, Malaysia, the Philippines and Thailand. However, this deviant number in the shade is still casting a shadow.
About 9.9 billion dollars in Cambodia’s manufactured goods were shipped to the United States last year, according to the Ministry of Public Customs and the government, which represents 37 % of the country’s total exports and an increase of 11 % on an annual basis. The lion’s share was textiles, clothes and shoes, which constitute the backbone of the Cambodia economy, which is moved by export. The increase continued in the first five months of this year, with $ 4.3 billion in the United States for 27 % on an annual basis, making the largest commercial partner in Cambodia in the United States.
But with the new customs tariff system, the risk of Cambodia’s concentration with the United States appears to be not sustainable and as a result, the main rethinking of the Cambodia Inc. business model is taking place. Companies must find alternative engines for growth as the nation seeks to re -calibrate its supply chain, improve access to capital, and unify their banking sector.
“The batch to reduce the risk of focus has preceded the tariff loop,” says Kosalthanan Neth, a research colleague at the Chinese and ASC Center (CASC) in Bennah. “Diversification is the main axis of the government’s five -year strategy, and it extends to foreign direct investment, exports, and comprehensive economic flexibility.”
To date, Cambodia has flourished on low -skilled manufacturing, especially clothing factories “using a lump model”. “Workers collect imported materials in final clothing products. Most imported materials are obtained from China, re -formulated in Cambodia, and have been exported to the United States and the European Union.”
Now, the Cambodia must manufacture it in its manufacture, which means that it means processing high electricity costs, lack of medium to high to high, transportation networks and limited logistical services, the humble local market, and the transfer of limited technology. “The clothing sector is the sunset industry, and unless there is a shift in manufacturing from mid to advanced, Cambodia will compete with the likes of Bangladesh, Laos, Myanmar, Nepal and Africa.”
Does the customs tariff stimulate reform?
Some observers suggest that the new customs tariff system in the United States will help facilitate the required reform.
“We believe that the rate of” modified “mutual tariffs by 19 % provides a competitive advantage.”
Mixed growth forecasts
In May, the ASEAN+3 (Amro+3 (Amro) estimates that the GDP growth in Cambodia in 2025 will decrease to 4.9 % of 6 % last year due to pressure from customs tariffs. The World Bank is more pessimistic, which is estimated to grow to only 4 %.
Still, not everything is depression. Amro saw that the Cambodia economy is still “flexible” and that growth can be maintained through a “coordinated and multi -faceted policy” that involves the target financial support, diversifying the market and industry rooted in structural reforms and is supported by mitigating financial risks through higher policy, providing deposits, and helping emergency liquidity.
It may indicate the future direction of traveling the Cambodia Inc business model, was about 56 % of the total foreign direct investment capital that enters the country in the first quarter of China, with a total of $ 2.5 billion.
| Biomedical statistics |
|---|
| location: Southeast Asia |
| neighbor: Laos, Thailand, Vietnam |
| Capital: Bennah |
| population: 17.64 million (2024) |
| Official language (languages): Alcohol |
| GDP of all capital: $ 2,628 (2024) |
| GDP growth: 6 % (2024) |
| Economic inflation: 1.7 % |
| currency: Reel |
| Credit classification: B2 (Moody’s) |
| Investment Enhancement Agency: Cambodia Development Council (CDC) |
| Available investment incentives: Tax holidays, official exemptions of capital goods, and real estate tax exemptions |
| The rank of corruption perceptions index: (2024) 158 out of 180 countries – where 180 is the most corrupt. |
| Political risks: C2 (2024) |
| Security danger: Level 2 |
| Positives |
|---|
| Demographic youth |
| The ongoing economic restructuring |
| cons |
|---|
| High American tariff |
| NPLS height |
sources: The World Bank, Commercial Economy, Center for Disease Control, International Transparency, Allianz, US State Department
China will remain the dominant source in Cambodia for foreign direct investment, according to Dave Xia, an economist at MOODY’s Analytics in Singapore. “Their long diplomatic relationship, along with the Belt, Road, and Plain economic partnership initiative, which ranges from 15 countries, will support Chinese investment flows.”
The largest part of the foreign direct investment projects in manufacturing, infrastructure building, real estate, and agriculture. Regardless of China, South Korea, Japan, Singapore, Malaysia, Thailand, Canada and the United Kingdom, it also provided foreign direct investment.
“While China remains the largest foreign investor in Cambodia, which represents 65.5 % of the total foreign direct investment flows in 2024, there is room for other players to increase their presence,” says Wong from BMI. “This includes South Korea, whose investments in Cambodia have grown steadily, not the least due to the CCFTA, which recently entered into force. But the establishment of a new consulting consultant center in Seoul Investment in ASEAN will represent the way to increase FDI to Cambodia.”
CKFTA entered into force in December 2022 and reduces the customs tariff for the Korean Korean trade near zero percent.
Cambodia received $ 5.8 billion of investment in fixed assets in the first half of this year, an increase of 77 % on an annual basis, with approval of 373 investment projects expected to create 255,000 jobs, according to data from the Council to develop Cambodia: an amazing increase of 94 % of projects in the same period in 2024.
Tension with Thailand
The potential adhesion point is tension with Thailand, which erupted in late May, pushing the border closing as armies circulated each side charges of aggression. President Trump intervened in late July and easy to cancel the escalation. The prolonged tension has the ability to disrupt trade between the two countries, however, it reduces tourism, and the conversion of transfers abroad from Thailand, which was worth one billion dollars from 1.2 million compounds working in the neighboring country.
Galliano, and the settlement, is an opportunity for Prime Minister Hun Manit to have a relationship with Trump. “The prime minister is often on the road, as he promotes the benefits of investing in Cambodia and is the country’s final champion. Efforts are slowly paying off. However, the new money is in the cloud, data centers, high technical manufacturing, digital infrastructure, and information technology services-where compass and others are used to benefit.”
Financial sector reform
Meanwhile, Cambodia take steps to renew the financial services sector, which is dominated by a handful of banks, and raises capital markets to global standards.
“The financial services sector in Cambodia is entering a transformational stage,” says Torsten Klein Buenning, the chief risk official at Aba Bank in Bennah, with the emergence of digital innovation as a major engine of growth, integration, and competitiveness. The initial opportunity is to expand the scope of financial subscription through simple digital platforms and access to bridges.
But the Cambodia banking and financial services sector is struggling through high levels of performance related to performance (NPLS) and slow credit demand, as noted. Organizational patience has been fed on the loan since August 2024, which allowed banks to restructure loans twice without changing their classification or putting capital rulings against them, which may hide the Hornz nest of distress that can be active at the end of patience in December.
“The credit risk management of NPLS and the improvement of asset quality is required as part of the targeted repair,” says Klein Boeing. “But looking forward, the medium to long -term view remains widely positive, and is supported by the strong demographic appearance in Cambodia, continuous economic development, and increasing demand for financial services.”
If the capital required to cancel the lock of these potentials is optimally published, then the stock and debt markets must be developed in Cambodia.
Galliano says: “The development of capital markets to diversify the sources of financing and reduce dependence on traditional lending is required if the financial sector in Cambodia is developing into a more powerful, comprehensive and innovative column in the national economy.”
The capital markets in Cambodia – especially their debt markets – are deeply backward, and lack the curve of government bonds: decisive inputs of price offers appropriately from companies exporting companies and other bonds. But the change on the road was put in place clearly in the main plan to develop 10 -year securities, which unveiled the country’s securities organizers in mid -July.
“Fortunately, the government is aware of the decisive importance of capital markets for the economy,” says Galliano. “I am very confident in the efficiency of the organization and its capabilities to develop capital markets, and I think this will be an incentive for the country’s financial future.”
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