Will Cambodia's Public Fury Against The U.S. Endanger Its Economy?

Forbes | 6 October 2017

Cambodia entered a risky war of words with one of its greatest investors and export targets, the United States, as Prime Minister Hun Sen puts his faith in China and its stagnant support so far.

The month has been pocked by back-and-forth punches between the two countries, starting with the U.S. issuing visa restrictions on Cambodia’s top foreign affairs officials and their family. Cambodian Prime Minister Hun Sen lashed out by refusing to help find and return deceased soldiers from the Vietnam War and stating the U.S. should withdraw its Peace Corps volunteers.

Simmering below the surface are the countries’ long-held disputes: the U.S.’s insistence that the developing nation repay a $500 million war debt, partially caused by a decade of bombings from the U.S., and the U.S.’s contentious deportation of Cambodian Americans convicted of crimes.

Despite their fiery political dialogue, Cambodia’s Commerce Ministry officials have plead the U.S. to increase duty free access for least developed countries, particularly Cambodia, to at least 97%, up from 80%.

The U.S. is often cited as Cambodia’s greatest export market, buying $3.54 billion in exports, according to OEC data.

And because Cambodia doesn’t produce a limited, high-value product like Venezuelan oil, the U.S. will easily move on if Cambodia’s market becomes too hostile, said Sophal Ear, a Cambodian-American professor, policy analyst and author of Aid Dependence in Cambodia: How Foreign Assistance Undermines Democracy.

“It’s easy for garment buyers to shift production to Haiti or Bangladesh or wherever labor costs are low and governments not rabidly anti-American,” he said. “The U.S. would not feel much, Cambodia’s contribution to U.S. trade is so small, it’s a drop in the bucket.”

Though the U.S. is the largest singular export destination for Cambodian goods, the European Union outpaces the U.S. as a market for garments by about 18 percentage points, said Ken Loo, secretary general of the Garment Manufacturer’s Association of Cambodia. But the E.U. too is growing wearyof the signs of dictatorship poking through Hun Sen’s government.

Cambodia has been growing into an attractive site for foreign business investment, contends Bradley Jensen Murg, a political science and global development professor at Seattle Pacific University and director of the Greater Mekong Research Center.

Compared to the rest of the region, the country has made major leaps forward in marketing itself as an international business hub, he said, and it remains one of the fastest growing economies in the region and the world at about 7% growth this year.  

Starting a business in the kingdom has generally been a simple task, with few hoops to jump through at the beginning. Low cost of living and a minimum wage of $163, as of next year, make it easy for major companies--from apparel brands like Levi’s, Nike and H&M to other well-known manufacturers like Coca Cola and GE--to set up high-production factories in the country.

(TANG CHHIN SOTHY/AFP/Getty Images)

China’s been the one true ally of the ruling party’s blows to Western countries’ democratic mantra, being the one country to offer resounding support to Hun Sen’s attacks.

Cambodia’s officials, including Hun Sen, have responded with saccharine commendation for China’s investments, indicating that they expect the massive Chinese economy to continue its support through the ruling party’s actions.

Ear, who is a professor of diplomacy and world affairs at Occidental College in Los Angeles, argues that China’s aid and investment, while lauded by the prime minister, won’t benefit the country as their American customers, who import about $3.5 billion annually from Cambodia’s garment factories.

“Try selling those garments to China,” he said. “China makes its own garments fine, thank you.”

Since Cambodia’s support only requires small donations, Murg said he thinks China will be willing to do all it can to help the country in the short term, but China’s flow of support may run dry if other countries react the way they did.

“In my view, Beijing could easily ‘come to the rescue’ in light of any western pull out,” Murg said. “However, the costs for Beijing in terms of the credibility of its oft repeated narrative that China is a ‘responsible power’ would be significant.”

But short of causing a Tiananmen Square-style uprising, Murg suggests U.S. businesses would not be moved by Hun Sen’s venomous comments.

GMAC’s Loo agrees; garment factories have not seen any shift in purchases recently, and he expects business will continue as usual.

“Business is business and politics is politics,” he said. “I think we're far away from the point where politics would affect business relations.”