Assessing the Impact of US Tariffs on Cambodia's Garment Sector and Identifying Resilient Investment Opportunities

The U.S. tariff landscape has long shaped the fortunes of Cambodia's garment and footwear sector, a lifeline for nearly one million workers and a cornerstone of the country's $49.8 billion economy in 2025. After a dramatic reduction from a proposed 49% to a 19% tariff rate in 2025, the sector faces a critical juncture. This adjustment, negotiated with U.S. President Donald Trump, has preserved Cambodia's competitive edge against rivals like Vietnam and Indonesia. Yet, the broader geopolitical and economic shifts—ranging from U.S.-China trade tensions to regional supply chain realignments—demand a deeper analysis of both risks and opportunities for investors.

The Tariff Negotiation: A Lifeline for a Fragile Sector

Cambodia's garment exports to the U.S. accounted for 37.9% of its total shipments in 2024, valued at nearly $10 billion. The sector's survival hinged on the 19% tariff agreement, which averted a potential collapse of the industry. Deputy Prime Minister Sun Chanthol emphasized that a higher tariff would have led to mass unemployment, disproportionately affecting women who comprise 75% of the workforce. The negotiated rate has stabilized the sector, but it remains a temporary reprieve.

Strategic Realignment: Diversification and Innovation

The sector's reliance on the U.S. market—accounting for 38.5% of GFT export revenue in 2024—highlights a vulnerability. Experts like Dr. Penghuy Ngov stress the need for diversification into ASEAN and EU markets, leveraging Cambodia's membership in the Regional Comprehensive Economic Partnership (RCEP) and its China-Cambodia Free Trade Agreement (CCFTA). These agreements provide preferential access to China's $14 billion market for Cambodian agricultural and manufactured goods.

Chinese investments, now accounting for 49.82% of total foreign investment in Cambodia, are reshaping the sector. Projects like the Sihanoukville Special Economic Zone and the Phnom Penh-Sihanoukville Expressway are enhancing logistics and connectivity. Meanwhile, technology adoption—such as automation and digital supply chain management—is critical for long-term competitiveness.

Investment Opportunities: Beyond the Factory Floor

1. Infrastructure and Logistics
   Cambodia's Belt and Road Initiative (BRI)-linked projects, including the proposed Phnom Penh-Poi Pet high-speed railway, present opportunities for investors in construction and engineering firms. The railway upgrade, backed by Chinese funding, aims to integrate Cambodia into regional trade networks.

2. Agricultural Value Chains
   The “Fish and Rice Corridor” initiative, supported by Chinese expertise, is modernizing Cambodia's agricultural sector. Investors in agribusiness, food processing, and sustainable farming technologies can capitalize on growing demand for Cambodian exports to China and ASEAN.

3. Digital Transformation
   The China-Cambodia Joint Committee on Science, Technology, and Innovation is driving digital infrastructure development. Startups and tech firms focused on e-commerce platforms, AI-driven manufacturing, and blockchain-based supply chain solutions are emerging as key players.

4. Tourism and Cultural Assets
   With 2025 designated as the “China-Cambodia Year of Tourism,” investments in hospitality, heritage preservation, and sustainable tourism infrastructure are gaining traction. The Siem Reap Angkor International Airport, a gateway to UNESCO sites, exemplifies this trend.

Navigating Risks: Geopolitical and Labor Challenges

While the 19% tariff has stabilized the sector, investors must remain vigilant. U.S. trade policy shifts, regional competition, and labor rights issues—such as the refusal of some global brands to sign collective bargaining agreements—pose ongoing risks. The Cambodia Agreements, a legally binding framework for standardized CBAs, offer a model for sustainable labor practices but require broader industry adoption.

Conclusion: A Strategic Bet on Resilience

Cambodia's garment sector, though vulnerable, is demonstrating adaptability through strategic diversification, infrastructure investment, and technological innovation. For investors, the key lies in aligning with initiatives that enhance supply chain resilience and long-term value creation. While geopolitical uncertainties persist, Cambodia's proactive trade policies and deepening ties with China position it as a compelling emerging market opportunity.

Investors should prioritize sectors where Cambodia's strategic realignment intersects with global demand: logistics infrastructure, agricultural value chains, and digital transformation. By focusing on these areas, capital can not only weather short-term volatility but also capitalize on the country's trajectory toward high-income status by 2050.