Built To Escape China, Cambodia Broken By Tariffs? Fashion And The New Trade War Reality

Cambodia is reeling with US President Donald Trump’s surprise tariff announcement which has thrown a wrench into the well-laid plans of countless small business owners and some of the hardest-hit are in Southeast Asia.

On Wednesday, Trump slapped an unexpectedly steep tariff on all US imports from the country. It’s now the highest rate in Asia and the second-highest in the world. Overnight, everything changed for Cambodian exporters.

In a bid to soften the blow, Cambodia quickly fired back on Friday, cutting its own tariffs on a range of American goods – motorcycles, cars, you name it. Commerce Minister Cham Nimul even sent an official request to the US Trade Representative, asking for negotiations and more time before the tariffs kick in.

But the damage may already be done. For many companies with long-standing factories in Cambodia, employing thousands, this news is devastating.

But Cambodia isn’t alone. Countries like Vietnam, Laos, Myanmar, and Sri Lanka have also been slapped with tariffs over 40%, a move that threatens to wreck their already fragile, export-reliant economies.

For over a decade, these nations were riding the wave of global investors looking to reduce reliance on China. Rising labor costs and political tensions between the US and China pushed brands like Nike and Adidas to shift production to places like Cambodia, where labor was cheap and growth potential high.

That shift only accelerated during COVID-19 and amid US-China friction – from garments to electronics, these labor-intensive industries became lifelines for countries like Cambodia.

But now, with these sweeping tariffs, that lifeline is at risk.

Even before this, Cambodia had already been struggling with the effects of Trump-era cuts to US foreign aid, especially USAID, a critical source of support in a disaster-prone region.

Cambodia is the hardest-hit of all, noting its massive reliance on US apparel and footwear exports. And while the country has made strong economic strides in recent years, it still struggles with a dark past – one that includes US bombings during the Vietnam War and the horrific Khmer Rouge regime that killed nearly 2 million people in just four years.

Today, over 37% of Cambodia’s exports go to the US. Apparel and footwear alone made up more than 43% of total overseas shipments last year. Most of the one million workers in the sector, many of them women, live on a monthly minimum wage of just $200. These are the people most at risk now.

Exports to the US make up around 27% of Cambodia’s GDP. In short, this trade helped lift millions out of poverty. And now, it’s all hanging by a thread.

Kevin Chang, who runs a trust company in Phnom Penh with over 300 foreign clients, said his phone has been ringing nonstop since the announcement. Many investors are rattled. Still, like most, he’s in wait-and-watch mode, hoping the US and Cambodia can hammer out a deal before the tariffs take full effect.

“This Isn’t Over” — But the Damage Has Begun

“I don’t think it’ll be final,” said one investor, holding out hope. “I do believe, for the benefit of all, there’s going to be some solution.”

But while hope hangs in the air, the deeper story is hard to miss – China is the real target here.

Many experts believe the harsh tariffs on Southeast and South Asian countries are less about those nations themselves and more about blocking Chinese exporters who’ve quietly moved operations to friendlier shores. And the numbers seem to back that theory.

Laos is facing a 48% tariff, Vietnam 46%, Myanmar 44% – all painful, especially for some of the region’s poorest countries. Vietnam, a rising star in clothing manufacturing, sends nearly 30% of its exports to the US. That’s a huge chunk of business suddenly at risk.

Meanwhile, Chinese money has been pouring into places like Cambodia, nearly half of the country’s foreign investment last year came from China, according to Chinese embassy figures. Which makes the real picture clearer.

“The real target of Trump’s policy is China,” said Siwage Dharma Negara, a senior fellow at the ISEAS-Yusof Ishak Institute in Singapore. According to him, the US wants to cut off China’s backdoor access to its markets, especially through third countries where Chinese firms have quietly shifted operations.

Edwin Lai, a trade expert from the Hong Kong University of Science and Technology, agrees. He points to the large trade deficits with these countries, which Trump is using as justification for the tariffs. But beneath the surface, Lai says, it’s really Chinese investment being rerouted through these nations. And now Trump’s trying to stop that too.

But Lai also warns that this strategy could backfire badly. By going solo with high global tariffs, the US may be isolating itself while China quietly takes the lead in global trade.

What Trump’s Tariffs Mean for Fashion? A $1 Trillion Industry on Edge

The fashion industry was blindsided.

In what’s being called one of the boldest moves in trade policy in nearly a century, Trump rolled out a sweeping set of tariffs, with the highest duties falling squarely on some of fashion’s biggest supply hubs.

Standing in the White House Rose Garden, he announced a baseline 10% tariff on everything the US imports. But that’s just the starting point.

Roughly two dozen countries with which the US runs a trade deficit, including many that supply American closets, are getting hit much harder.

Vietnam, the #2 apparel supplier to the US after China, now faces a 46% tariff. Cambodia is staring at a 49% levy. Bangladesh at 37%. China, already knee-deep in earlier tariffs, just saw its rate jump to a brutal 54%. Even the EU got clipped with a 20% duty.

“We are deeply disappointed,” said the United States Fashion Industry Association in a statement. “This will hurt American fashion brands and retailers more than anyone.”

And Wall Street responded immediately. Fashion stocks tanked in after-hours trading—Lululemon dropped more than 10%, Nike and Ralph Lauren were down 7%, and companies like Tapestry, Capri, and PVH Corp. slid about 5%. Even the broader S&P 500 futures took a 4% hit.

Following earlier tariff waves on goods from China, Mexico, and Canada, this latest move is poised to raise costs and stir up chaos for pretty much every business that sells clothing or shoes in America. And that’s no small deal, because the US is the fashion marketplace. It buys more clothes and shoes than almost any country on Earth, importing over 98% of its clothing and 99% of its footwear.

Even as Trump revealed his tariff plan with a giant chart, listing out all the countries he’s targeting and what percentage of new duties each will face. The numbers were higher than many expected, and the rationale, Trump says it’s just “matching” what those countries supposedly throw at the US in tariff and non-tariff barriers.

“We will pry open foreign markets,” Trump declared, “and ultimately, more production at home will mean stronger competition and lower prices for consumers.” He called it the return of “the golden age of America.”

Bold words. But fashion insiders aren’t quite so sure.

Retailers like Walmart had already been in scramble mode after Trump’s earlier tariffs, trying to renegotiate contracts with suppliers. Most factories already operate on razor-thin margins, cutting costs any further could push them to the brink. And when factories start to feel the pinch, it doesn’t stop there; the squeeze travels up the chain- textile manufacturers, cotton farmers, you name it.

Now, brands face a tough choice – eat the higher costs themselves or pass them on to customers’ however shoppers are already battling inflation, and consumer confidence is slipping – March saw its lowest reading since the pandemic.

Luxury and Sportswear. Big Names, Big Problems

Some sectors are especially exposed, luxury being one of them. The US has remained a bright spot for high-end brands amid a global slowdown. But most luxury labels don’t make their goods in the US, and they’ve already been raising prices for years. Add tariffs to that, is not a pretty picture.

A few like LVMH have made strides in local manufacturing—they’ve got three factories in the US; but even that only covers about half their local product volume. And let’s not forget – Switzerland, where many high-end brands are based, got slapped with a massive 31% tariff. That could hit both margins and sales, especially with aspirational shoppers who’ve already been cooling off on luxury after years of price hikes.

Then there’s the sportswear segment. Brands like Nike and On shifted production out of China after the first round of Trump tariffs, but many moved to Vietnam and Cambodia. Now, they’re caught in the crosshairs again. Nike, for example, made half its shoes in Vietnam last year – a whopping 90%!

Even brands that proudly make their final products in the US can’t rest easy. A lot of raw materials—textiles, dyes, zippers, you name it—still come from overseas. So the new tariffs will sneak their way in, one way or another.

Bottom line is that no one gets out of this unscathed. Fashion is heading into a storm, and the industry will need to brace itself for what could be a long, windy ride.