Avoiding Trump’s tariffs, some Chinese companies relocate to Cambodia’s “Special Economic Zone”

Phnom Penh, Cambodia — A convoy of semi-trucks passed by as our CBS News team drove about two hours south of Cambodia’s capital, Phnom Penh. Moments later we were greeted by an enormous arch with signage in two languages — the local Khmer and, beneath it, Chinese.

There could be no mistake about who’s in charge of the “Special Economic Zone” rising from the dirt. We approached a furniture factory, where the Chinese manager invited us in to shoot some video.

The production facility, which makes ottomans, moved to Cambodia from China about a month ago.

We asked the manager about his neighbors in the economic zone and he said most of the companies moving in are Chinese. A driving incentive behind the relocation of those manufacturing operations is avoiding U.S. tariffs on Chinese goods, and there are a lot of companies choosing to make the investment. 

The scale of the industrial park growing in the south of Cambodia is hard to fathom. Construction goes on for miles.

The U.S.-China trade war is the main reason for the explosion of Chinese investment in the comparatively small nation about 600 miles away from mainland China.

In 2016, before President Trump took office for his first term, Cambodian exports to the U.S. were worth roughly $3 billion per year. Last year they topped $13 billion, representing nearly 30% of the country’s GDP.

The Cambodian government says more than half of the factories in the country are now Chinese-owned — a total investment worth about $9 billion.

“It is a means of avoiding U.S. tariffs,” Casey Barnett, president of the American Chamber of Commerce in Cambodia, told CBS News.

While the Chinese companies operating in Cambodia are skirting U.S. tariffs, they are technically playing by the rules. But as the Trump administration puts China firmly in its economic crosshairs, there are concerns in Cambodia that the country’s own economy could sustain collateral damage.

“They’re totally dependent on exports to the U.S., and could become a target — a vulnerable target,” Barnett said.

For garment factory owner Mr. Huang, that would be devastating. He readily admitted to being concerned about the prospect of President Trump targeting goods like his — Chinese, but made in Cambodia — with new tariffs.

No newcomer, Huang set up shop in Cambodia 20 years ago, capitalizing on the tax breaks and lower wages in the country, while still running factories in China. But when the trade war began in 2018, he moved all operations to Cambodia.

He told CBS News that 60% of his business is in the U.S. market, with his goods going to familiar retailers including Walmart and Costco.

Huang said incoming orders had multiplied since Mr. Trump announced his new tariffs on China, the latest round of which could take effect on Tuesday.

An escalating U.S.-China trade war

Mr. Trump imposed a 10% blanket tariff on Chinese imports in early February, drawing retaliatory measures by China of 15% on imported U.S. coal and liquified natural gas, along with a 10% tariff on crude oil, agricultural machinery and some cars. Last week, Mr. Trump threatened China with another 10% duty on all imports, which would take effect Tuesday, resulting in a total 20% blanket tariff on all Chinse goods imported to the U.S.

Mr. Trump has imposed the tariffs on China, he says, for Beijing’s failure to stem the flow of deadly fentanyl into the U.S.

Already, Beijing is planning more countermeasures.

“China is studying and formulating relevant countermeasures in response to the U.S. threat of imposing an additional 10% tariff on Chinese products under the pretext of fentanyl,” the Global Times newspaper, largely considered a mouthpiece for the ruling Communist Party, reported on Monday, citing an anonymous source.

“The countermeasures will likely include both tariffs and a series of non-tariff measures, and U.S. agricultural and food products will most likely be listed,” the newspaper said.

CBS News has reached out to the White House for comment and will update with any response.

Unless and until the escalating trade war sees Mr. Trump turn his favored economic weapon of tariffs on Cambodia, Huang told CBS News more Chinese companies will likely become his neighbors in the country.

“Of course,” the businessman said. “Many people tell me they need factory building, need to move immediately, because they think taxes are going up.”

He believes the trade war is bound to escalate, and he’s convinced that Cambodia and other Southeast Asian countries are the future for Chinese manufacturers.