The recent tariff announcements from the United States, particularly under the previous administration of President Donald Trump, have significantly impacted many businesses and economies in Southeast Asia and South Asia. Tim Hsu, a Taiwanese entrepreneur known for selling modern lamps and ceiling lights, illustrates this disruption vividly. His plans to diversify his production by investing in Cambodia—a strategic move to mitigate potential tariff risks on imports from China—have encountered a severe setback. The unexpected imposition of a 49% tariff on all U.S. imports from Cambodia has caused him to reconsider his investment plans entirely. Hsu candidly expressed that if the tariff remains in effect, he would likely withdraw from Cambodia altogether.
The ramifications of the high tariffs extend well beyond Hsu’s business. Many companies with long-standing operations in Cambodia are now facing overwhelming challenges since they directly employ thousands of workers in one of Asia’s poorest nations. Cambodia’s economy heavily relies on its garment and footwear industry, which is one of the country’s major exporters to the U.S. The scope of this tariff impact is alarming, as other nations in Southeast Asia—including Laos, Vietnam, Myanmar, and Sri Lanka—have also been subjected to similarly high tariffs, exceeding 40%. Such economic pressures threaten to cripple the export-reliant economies that have been trying to find alternatives to China’s manufacturing.
The backdrop to these challenges includes the U.S.-China trade tensions and the disruptive effects of the COVID-19 pandemic, which have catalyzed a notable shift in global supply chains. Countries in the region have become increasingly attractive alternatives for labor-intensive industries, such as garments, footwear, and electronics, which have driven economic growth for over 15 years. However, the recent tariffs risk reversing the gains that these countries have achieved, as they now face a potential decline in foreign investment and a slowdown in exports.
According to research associate Ahmed Albayrak from the Lowy Institute’s Indo-Pacific Development Centre, Cambodia stands out among Southeast Asian nations as the hardest hit by these tariffs. Given that over 37% of Cambodia’s total exports go to the U.S., it is acutely vulnerable to any imposed tariffs. The garment, textiles, and footwear sector account for a significant portion of Cambodia’s exports, emphasizing the gravity of the current situation. With many garment workers making minimal wages, the potential for job losses is particularly concerning, especially for the majority of the workforce comprised of women.
International brands such as Nike and Adidas have continued to move their production lines to Southeast Asia to mitigate risks linked with their exposure to China. However, the new tariffs are poised to create a ripple effect throughout the broader economy, leading to reductions in production and significant job layoffs in affected countries.
In addition to the devastation felt in Cambodia, Laos faces a staggering 48% tariff, Vietnam a 46% tariff, and Myanmar a 44% tariff. While Indonesia finds itself less affected at a 32% tariff due to a lower percentage of exports directed towards the U.S., its economy nonetheless is at risk. Myanmar, already grappling with civil unrest and recent natural disasters, appears to be particularly vulnerable to the compounding challenges of economic sanctions.
Turning to South Asia, Sri Lanka faces the steepest tariffs under Trump’s recent measures, which impose a 44% levy due to its ongoing economic recovery struggles following a severe crisis. Bangladesh, home to a robust garment industry, finds itself contending with a 37% tariff, raising concerns about significant job losses and economic strain as access to the U.S. market—their largest exporter—becomes increasingly precarious. Experts predict that both Bangladesh and Sri Lanka will experience dire consequences from these tariffs, which threaten not just their garment sectors but their broader economic stability.
In conclusion, the impact of U.S. tariffs on Southeast Asia and South Asia is far-reaching, affecting not only individual businesses and their plans but also threatening the economic stability of entire nations. The potential for increased unemployment, particularly among low-wage workers in the garment industries, puts a spotlight on the complex interplay between international trade, geopolitical tensions, and local economies that must be carefully navigated in these turbulent times.