Economy: Cambodia faces threat of Donald Trump's radical trade measures

In a spectacular announcement justified by somewhat summary, even biased, statistics, the United States has announced that it intends to impose a tariff of 49% on goods imported from Cambodia, the highest rate among the many countries targeted by President Donald Trump's latest ‘trade’ initiative.

This decision places Cambodia at the forefront of countries facing significant economic repercussions from the US administration's initiatives to ‘rebalance the dynamics of world trade’.

Background

President Trump unveiled the new measures at a White House ceremony, presenting them as initiatives designed to counter what he perceives as ‘unfair trade practices by other countries’.

Arguing that Cambodia ‘imposes a 97% tariff on US imports, it will now have to pay a 49% tariff on its exports to the United States’. However, the 97% rate is only a fraction of what Cambodia charges on US goods.

Taxes

Cambodia imposes several taxes and customs duties on imported goods, including those from the United States. These are:

Import duties

Rates vary from 0% to 35%, depending on the type of goods. Primary products and raw materials are generally subject to a customs duty of 7%, capital goods and locally available raw materials to a duty of 15%, while finished products, alcohol, petroleum and precious metals are taxed at the highest rate of 35%. Certain items such as agricultural equipment, school supplies, pharmaceutical products and sports equipment are exempt from import duties.

Value Added Tax (VAT)

A flat-rate VAT of 10% is applied to all imported goods. However, goods intended for re-export are exempt from VAT.

Special tax

This excise tax applies to specific goods such as alcohol and tobacco products. The tax base includes the cost, insurance and freight (CIF) plus customs duties.

Cambodia adheres to the ASEAN Harmonised Tariff Nomenclature (AHTN) system for tariff classifications and offers preferential rates under free trade agreements such as the Agreement on Trade in Goods. The General Department of Customs and Excise can be consulted for detailed information on these tariff rates.

Impact

The United States is Cambodia's largest export market, accounting for nearly 38% of its total exports. The majority of Cambodian exports to the United States are clothing, travel goods and footwear, sectors that are likely to be most affected by these new tariffs.

Trade landscape

Cambodia is not the only country facing an increase in customs duties. Other countries, including Vietnam (46%), Sri Lanka (44%) and China (34%), must also endure significant increases in customs duties. The European Union will face a 20% increase in tariffs, while Japan and South Korea will face increases of 24% and 25%, respectively.

Trump's announcement regarding ‘Liberation Day’

President Trump described the day of the announcement as ‘America's Day of Liberation’, emphasising his administration's commitment to remedying what it considers decades of commercial exploitation by foreign nations.

Implications

As the global trade landscape continues to evolve under the impact of these new tariffs, the countries involved are likely to reassess their trade strategies and retaliate with their own measures. The long-term effects of these tariffs on international trade relations and economic stability remain uncertain, with many experts warning of the risk of escalating trade wars.