Cambodia: Hostility at the borders and punitive customs duties threaten to create a downward spiral

Late May 2025: The border region between Thailand and Cambodia, which for decades has been a gateway for trade, labour and cultural exchange, is plunged into chaos after a deadly skirmish reignites old animosities.

The repercussions are being felt in local communities – market vendors, migrant workers and small traders – who have long depended on daily crossings for their livelihoods. The once-fluid crossings between the seventeen official border posts are now hampered by closure orders and reduced opening hours. These sudden barricades have an immediate impact on the border economy, where some 500,000 Cambodian workers hold essential jobs in the Thai labour market.

Fruit sellers, stall operators and cross-border commuters report economic concerns and a drop in income as the prospect of a return to a divided border looms.

‘The early closure of the border has led to a significant drop in my income... I am worried about the future.’ — Vatey Mony, Cambodian food vendor.

The political repercussions are equally unstable. Nationalist rhetoric on both sides is fuelling tensions, while diplomatic de-escalation efforts by the Joint Border Commission have stalled.

Cambodia, which feels aggrieved by Thailand's tightened restrictions and military posture, is turning to the International Court of Justice. Thailand, unyielding and distrustful, rejects international arbitration in favour of bilateral negotiations. Mutual economic retaliation follows: Cambodia bans Thai agricultural imports and reduces its energy dependence on its neighbour, while Thailand blocks Cambodian motorcycles and restricts access for day labourers.

The strangled trade artery: cumulative economic cost

The border is an economic artery: in 2024, cross-border trade exceeded US$3 billion, with Thailand enjoying a substantial surplus thanks to its significant exports of fuel, machinery and beverages. As the new restrictions bite, fruit exports are collapsing in Thailand's Trat province, threatening a £700 million trade with Cambodia.

Border tourism is evaporating; development projects, including the Chinese-backed high-speed rail and special economic zones, are at a standstill as labour and material flows are paralysed by red tape and political unpredictability.

Bans and restrictions are blocking the movement of goods: Cambodian and Thai farmers are seeing their produce rot, petrol is becoming scarce and local businesses are facing higher costs and fewer customers.

Thailand's dependence on Cambodian labour is becoming a vulnerability; Factories and farms are struggling to replace missing workers, at the risk of increasing costs or seeing productivity decline.

Tourism and cross-border trade: Transport bottlenecks, uncertainty over opening hours and security concerns are decimating tourist numbers, with border towns hardest hit.

The growing sense of unpredictability is undermining investor and consumer confidence, making business planning risky and undermining the momentum of post-pandemic recovery efforts in both countries.

Trump's tariffs: relentless global pressure

Adding to this regional instability is a second threat: the reimposition of aggressive tariffs by the United States under President Donald Trump.

Starting on 1 August 2025, Thailand and Cambodia will be subject to 36% tariffs on all exports to the United States, a measure aimed at addressing what Trump calls ‘persistent trade imbalances’. The US market, a crucial destination for clothing, bicycles, electronic components and agricultural products, is now out of reach for many Southeast Asian exporters.

Even more dramatic for the region's future, tariffs of up to 375% are being imposed on solar panels and green energy products, devastating entire segments of the industry overnight.

Exporters are beginning to look at lower tariff rates in Vietnam and Malaysia (20% and 25% respectively) or are considering relocating their production entirely, which would result in job losses and investment in Thailand and Cambodia.

Southeast Asia, which has long been the main source of affordable solar technology for the United States, is seeing factories close and skilled workers laid off as the US market closes to its products.

Cambodia, in particular, faces a crisis: the United States remains one of its main markets, and entire sectors that depend on duty-free or low-tariff access (clothing, footwear, agriculture) are now threatened in their very existence.

From local despair to regional crisis

The juxtaposition of growing hostility at borders and punitive tariffs could create a downward spiral. Supply chains already strained by political tensions are now being rendered unprofitable by tariffs.

For farmers, manufacturers and service providers, the cost of doing business is skyrocketing: input prices are rising as cross-border flows slow, while export subsidies are disappearing amid global competition for duty-free access.

Supply chain risks: Infrastructure projects are stalled, the availability of imported raw materials is declining, and manufacturers must adapt their supply chains or face closure.

Investment freeze: Investor confidence in long-term regional stability is eroding as the combined weight of border unpredictability and uncertain returns on exports makes Southeast Asia less attractive.

ASEAN cohesion tested: With Cambodia turning to the ICJ and Thailand hesitating, the broader dream of ASEAN economic integration is being undermined by rising protectionism and nationalist policies.

Navigating a changing context

Taken individually, the resurgence of tensions between Thailand and Cambodia and the imposition of large-scale US tariffs each pose a serious threat to regional stability.

Together, they have a cumulative effect: they undermine decades of economic integration, jeopardise cross-border livelihoods and accelerate the flight of capital and talent.

 The result is not only a bilateral crisis, but also a harbinger of broader fragmentation in Southeast Asia, where local conflicts and global trade wars feed off each other in an unstable cascade, all in the shadow of once-uninterrupted prosperity.

Without decisive progress, whether in the form of diplomatic innovation at the border or a revision of tariff policy, the risk is of sinking into even greater hardship, regional rivalries and a lost decade for the millions of people who live along the Cambodian-Thai border and depend on it for their livelihoods.