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The US-China Trade War: Impact on Cambodia

ISSUE 2019
No 8
Release 25 July 2019
By Mr. Lim Menghour

US President Donald Trump instigated the trade war with China in 2018, following complaints of unfair trade policies and practices from its partner. Unlike military warfare, trade war focuses on one nation’s damage towards another’s trade, typically by the imposition of trade protection in the form of tariffs or quota restrictions. Until now, the two super-powers have retaliated by imposing tariffs on products, worth billions USD. This article argues that Cambodia may benefit from the trade war in the short run, but suffer in the long run.

Despite many rounds of trade negotiations, China’s President Xi Jinping and President Trump will unlikely end this war, due to contradicting approaches in resolving the issue. The US approach has been “bullying and American First”, while the Chinese approach has been based on “equality and cooperation”. The resulting tension from the trade war is getting higher and could persist for a long time. The consequences of this confrontation between these two giants will not only affect themselves, but extend to relevant regions and eventually to the rest of the World. From this aspect, Cambodia as a smaller state, will no doubt be affected by this trending issue.

The US-China competition for power, influence, markets and resources could be very dangerous to the international system, as it jeopardizes the stability of smaller states. Though it is not a new story to the region, the Asia-Pacific leaders have expressed their worries that this rivalry could force them to choose sides. China and the US would rely on their proxies as a means to avoid direct conflict between themselves, resulting in conflict within their proxy states. In this context, the domestic and regional stability of Asia-Pacific countries will be in great danger. This assumption has not yet included a fundamental change in the structure of the international system. The rule-based systems of WTO, the international rule of law, fair competition, predictability and transparency, have already been significantly weakened.

In addition to instability, the trade war has resulted in several short-term and long-term impacts. In the short-term, Cambodia will benefit in terms of trade. Struggling to export its products to the American market due to high tariff imposition from the US, China will be looking somewhere else for a new production base. Cambodia will be an alternative destination for Chinese investors, thanks to a good relationship between the two nations. In this moment, more Chinese investment will be flowing into the Kingdom, raising the competitive advantage and economic growth of Cambodia. This would consequently increase the export volume of Cambodia to the US. However, this could soon change for Cambodia. To recall, the US imposed high duties on Vietnamese steel in 2017, due to its majority makeup of Chinese materials. The US believed that China was exporting its products through Vietnam. This could potentially be a similar case for Cambodia, if the US deems that Cambodian products consist of mostly Chinese materials – specifically garment products. This could be a concern for Cambodia, as Phnom Penh is enjoying a positive relationship with Beijing, while dealing with minor political tension with the United States.

However, Cambodia and other exporting countries will experience negative impacts from the trade war, in the long run. International firms from the US and China have already been harmed by the trade war, while the WTO and IMF have expressed worries that the global economy will weaken and lead to a global trade crisis. Scholars from the US have warned that the trade war is hurting business investments, confidence and trade flows across the world. This has already been worsening the global economic slowdown. The spillover effect has already reached Europe, Australia and other parts of the world. If there is a global economic crisis resulting from the trade war, it will reduce investment from China to Cambodia and vice-versa. Therefore, Cambodia’s trading activities and economic growth will be hugely affected.

In conclusion, Cambodia and other smaller states in the Asia-Pacific region have to be cautious about the instability arising from the trade war. Although this US-China clash could provide immediate trade and economic opportunities, Cambodia must prepare itself to avoid crisis in the uncertain future.

The views expressed are the author’s own and do not reflect the views of the Asian Vision Institute.