Khmer Times | 14 October 2025
Cambodia ‘dodged a bullet’ by securing 19% tariff deal with US
Synopsis: ‘It is not the absolute tariffs that really matter. It is the relative tariffs that matter – relative to the competing economies of Cambodia. Five percent lower than the competitors at the medium level (19 percent) is a great advantage for Cambodia.’
Cambodia dodged a bullet by successfully negotiating a tariff deal with the US, which brought down the rates from 36 percent to 19 percent, Dr Milan Thomas, Country Economist at the Cambodia Resident Mission of Asian Development Bank (ADB), said yesterday as he spoke at the webinar organised by ISEAS-Yusof Ishak Institute, Singapore, under the title ‘Impact of the Trump Tariffs on Cambodia, Laos and Vietnam’.
Milan’s presentation was based on a macroeconomic modelling developed by the ADB in close collaboration with the Victoria University Centre for Policy Studies, and with support from the Cambodia Development Resource Institute.
Based on historic data between 2018 and 2022, three different scenarios with US tariffs at 36 percent, 19 percent (current rate) and 10 percent (base rate) respectively crossed with global retaliation scenarios and their impacts were analysed as part of the initiative.
“It is not the absolute tariffs that really matter. It is the relative tariffs that matter – relative to the competing economies of Cambodia. Five percent lower than the competitors at the medium level (19 percent) is a great advantage for Cambodia,” Milan said.
Among the various scenarios, the analysis reveals that Cambodia’s, at 36 percent, would have been the most affected of all Trump tariff-imposed countries.
However, Milan said, the impacts are negligible at 19 percent and “that’s because two effects cancel each other out”.
He further explained: “On the one hand, the global tariffs will reduce the US imports by around one-sixth, leading to a large contraction in US demand for imports. But, on the other hand, there is an offsetting substitution effect that benefits Cambodia because its tariff rate in the medium scenario is about four percentage points lower than the weighted average of its competitors in the garments sector – China, India, Vietnam and Bangladesh.
“In this medium scenario, Cambodia can capture a large share in the shrinking pie and on top of it there is also a positive effect on investments as global investments will be redirected away from countries that are hit hard by tariffs.
“In the 10 percent tariff scenario, the substitution effect is much stronger and in the 36 percent tariff scenario the substitution effect goes in the opposite direction,” the economist pointed out.
Milan said the base tariffs of 10 percent look good on the manufacturing and construction sector (including the garments sector), while “19 percent looks neutral and 36 percent looks pretty bad”.
“If you look outside manufacturing, for instance, agro-processing, tourism and agriculture, output will grow with the US tariffs. And that’s because with a very high US tariff rate, the Cambodian riel exchange rate depreciates, boosting the segments that are not so exposed to the US markets.”
Highlighting how adverse the 36 percent US tariffs would have been for the Cambodian economy, Milan said, based on the modelling: “Close to 100,000 industrial jobs will be lost with 36 percent tariffs, leading to a large increase in unemployment, doubling from the current rate. Poverty will increase by 8 percent based on the national poverty line, which $2 and 70 cents a day.”
He said the original 49 percent tariffs would have been disastrous for Cambodia. “Poverty impact is larger by four times than the consumption impact under the high tariffs scenario. Nineteen percent is manageable and a secondary concern for Cambodia. Industry experts say that 19 percent can be absorbed and it is right at the cusp of what is bearable for the Cambodian economy.
“Securing this 19 percent is not just a political win, but also an economic win. However, Cambodia should reduce its reliance on a single export market. Market diversification is critical to sustaining growth in Cambodia, but there are a lot of challenges in the short-term.
“Cambodia should focus on product diversification, further build on the success of the agro-processing sector, electronics assembling and supplementing its strong base in garments manufacturing.”
When Khmer Times asked about the economic impact of the ongoing border conflict between Cambodia and Thailand, Milan said the implications are much bigger by the order of magnitude.
“That’s because it’s affecting three important flows for Cambodia – labour, trade and tourism. Almost a million workers have returned since the conflict began and that is a potential loss of up to 80 percent of annual remittances, which is 5 percent of the GDP in 2024.
“Thailand accounts for 12 percent of Cambodia’s imports and 4 percent of Cambodian exports. The transportation costs for imports have now increased and that’s affecting the households.
“Despite a very strong start to the tourism numbers in 2025 with an increased number of Chinese visits, annual visits to the Angkor Archaeological Park are barely up year-on-year. This reveals that the second half of the year has really seen a depression in tourist arrivals.”
Soulinthone Leuangkhamsing, a Principal Economics Officer at the Lao PDR Resident Mission, ADB, another speaker at the webinar, said Laos continues to struggle with high Trump tariffs. “A 40 percent levy makes Lao exports significantly more expensive and less competitive in the US market, which has historically been a key destination for its goods after Thailand, China and Vietnam.”
Dao Ngoc Tien, Vice President of Vietnam’s Foreign Trade University, said Vietnam is focusing on innovation and value-addition to overcome the difficulties caused by Trump tariffs. “We are hopeful of the negotiation process while focusing on market diversification.”
Moderating the session, Dr Jayant Menon, a Visiting Senior Fellow at ISEAS-Yusof Ishak Institute and formerly Lead Economist in the Office of the Chief Economist at Asian Development Bank, said the tariff scenario has not ended yet. “There is a lot of unpredictability in various areas. It still needs to be seen as to how the 40 percent transshipment tariffs will be applied and the subsequent outcomes.”
