Chinese Relocation to Cambodia Amid Escalating U.S.-China Trade War

A Shift in Global Manufacturing: The Rise of Cambodia as a Manufacturing Hub

Phnom Penh, Cambodia — The landscape south of Cambodia’s capital, Phnom Penh, is transforming rapidly. A CBS News team observed a convoy of semi-trucks driving past, just before encountering an enormous arch signaling the entrance to a "Special Economic Zone." The arch, bearing signs in both Khmer and Chinese, leaves no doubt about the influence of China in this emerging industrial area. The team visited a furniture factory where a Chinese manager explained that the facility had relocated from China to Cambodia just a month earlier. This move is part of a larger trend, as many Chinese companies are shifting their operations to Cambodia to avoid U.S. tariffs on Chinese goods. The manager noted that most of the companies moving into the economic zone are Chinese, driven by the incentive to circumvent burgeoning trade tensions between the U.S. and China. The scale of this industrial expansion is immense, with construction stretching for miles, underscoring Cambodia’s growing role as a hub for Chinese manufacturers.

The U.S.-China Trade War: Catalyst for Chinese Investment in Cambodia

The surge in Chinese investment in Cambodia is directly linked to the escalating U.S.-China trade war. Prior to President Trump’s first term in 2016, Cambodian exports to the U.S. were valued at approximately $3 billion annually. By last year, this figure had soared to over $13 billion, accounting for nearly 30% of Cambodia’s GDP. The Cambodian government reports that more than half of the country’s factories are now Chinese-owned, with total investments worth about $9 billion. Casey Barnett, president of the American Chamber of Commerce in Cambodia, explained to CBS News that this influx of Chinese investment is primarily a strategy to avoid U.S. tariffs. "It is a means of avoiding U.S. tariffs," Barnett stated, highlighting the economic incentives driving this shift. As the trade war intensifies, Cambodia has become an attractive destination for Chinese manufacturers seeking to maintain access to the U.S. market without being hit by tariffs.

Playing by the Rules: Chinese Companies in Cambodia

While Chinese companies operating in Cambodia are effectively sidestepping U.S. tariffs, they are still adhering to international trade regulations. However, there are growing concerns that Cambodia’s economy could suffer collateral damage as the Trump administration increases pressure on China. For garment factory owner Mr. Huang, who has operated in Cambodia for 20 years, the stakes are high. He expressed concern that President Trump might impose new tariffs on goods produced in Cambodia, even though they are Chinese-owned. Mr. Huang’s business, which supplies major U.S. retailers like Walmart and Costco, relies heavily on the U.S. market, with 60% of his production destined for American consumers. Since the trade war began in 2018, Mr. Huang has moved all his operations to Cambodia, taking advantage of the country’s lower wages and tax incentives. Despite the challenges, he has seen his incoming orders multiply since President Trump announced new tariffs on Chinese goods.

An Escalating Trade War: Implications for Cambodia

The U.S.-China trade war continues to escalate, with President Trump recently imposing a 10% blanket tariff on Chinese imports. This move prompted China to retaliate with its own tariffs on U.S. goods, including coal, liquified natural gas, crude oil, agricultural machinery, and some cars. President Trump has further threatened an additional 10% duty on all Chinese imports, which could take effect soon, raising the total tariff on Chinese goods to 20%. These actions have been justified by President Trump as a response to China’s failure to curb the flow of deadly fentanyl into the U.S. Beijing has vowed to retaliate, with the Global Times newspaper reporting that China is preparing countermeasures, including tariffs and non-tariff measures, likely targeting U.S. agricultural and food products. The ongoing trade war has created uncertainty for businesses like Mr. Huang’s, which rely heavily on exports to the U.S. While Chinese companies in Cambodia are currently avoiding U.S. tariffs, there is a growing fear that Cambodia could become a target in the escalating conflict.

Vulnerabilities and Risks for Cambodia

Cambodia’s heavy reliance on exports to the U.S. makes its economy particularly vulnerable to the fallout from the trade war. Casey Barnett warned that Cambodia could become a "vulnerable target" as the U.S. turns its economic focus to China. For Mr. Huang, whose business is deeply integrated into the U.S. market, the potential imposition of new tariffs on Cambodian goods would be devastating. He has already seen the impact of the trade war firsthand, with orders increasing as more Chinese companies seek to relocate to Cambodia. However, the long-term risks remain significant, as Cambodia’s economy becomes increasingly entangled in the U.S.-China trade dispute. The country’s dependence on U.S. exports and its growing ties to Chinese manufacturing make it a potential casualty in the broader trade conflict.

The Broader Implications: Cambodia’s Role in the Global Economy

The relocation of Chinese factories to Cambodia highlights the broader shifts in global manufacturing patterns driven by the U.S.-China trade war. As Chinese companies seek to avoid U.S. tariffs, countries like Cambodia are emerging as key players in the global supply chain. However, this shift also raises concerns about the long-term stability of Cambodia’s economy and its ability to navigate the complexities of the trade war. Mr. Huang believes that the trade war is likely to escalate further, with Cambodia and other Southeast Asian countries becoming the new frontier for Chinese manufacturers. As the conflict continues to unfold, the impact on Cambodia’s economy and its role in the global market will be closely watched. The country’s ability to balance its relationships with both the U.S. and China will be crucial in determining its future prosperity.