On July 7, 2025, the US announced it would apply a 36% tariff on all goods imported from Thailand and Cambodia, effective August 1. The decision follows earlier warnings and months of talks, during which both countries tried to avoid the measure by proposing trade adjustments. While Vietnam and others reached partial deals with Washington, no final agreement was made in time by Thailand or Cambodia.
According to official letters, the US views these tariffs as a way to push for fairer trade and to reduce the gap between imports and exports. However, the messages also suggested that there is still room for further discussion, depending on each country’s response.
Unless a breakthrough happens soon, exporters in both Thailand and Cambodia will face one of the highest US import duties in decades, raising serious challenges for businesses across key sectors.
The 36% US tariff on Thai exports threatens significant pain for Thailand’s export-driven economy. The US is Thailand’s largest export destination, accounting for approximately 18.3% of total exports, which amounted to around $55 billion in 2024, or 10.4% of the country’s GDP. Key Thai industries – notably electronics, machinery, automotive parts, and rubber products – are bracing for impact. In 2024, Thailand’s top exports to the US included computers, telecommunications equipment, and rubber tires. A 36% duty will drastically raise the cost of these goods in the US, eroding their price competitiveness. Thai manufacturers in sectors from consumer electronics to automotive supply face the prospect of reduced orders and thinner margins as American importers seek cheaper alternatives. The business impact could be severe: Thailand’s finance ministry warned US tariffs might slow Thai GDP growth to just over 1% this year, as export revenues fall and supply chains are disrupted.
Thailand’s government has responded proactively, aiming to avert or mitigate the tariff shock through negotiation. In the weeks leading up to the July 7 announcement, Thai officials engaged in intense talks with Washington. On the same day the White House unveiled the new rates, Thailand’s finance minister Pichai Chunhavajira revealed Bangkok’s latest trade concession proposal. Thailand offered to eliminate tariffs (0% import duty) on many US goods and pledged to boost imports of American products, from natural gas to corn, to help balance the trade relationship. The Thai government’s strategy is to address US concerns by opening its own market: for example, Pichai noted Thailand would sharply cut its steep 73% tariff on US corn and had its state energy firm sign a major LNG purchase deal from Alaska. These favorable concessions were aimed at convincing Washington to spare Thailand from the full 36% levy. Prime Minister Srettha Thavisin’s administration also publicly emphasized dialogue over retaliation, expressing readiness to cooperate closely with the US on a more mutually beneficial trade arrangement.
In parallel, exporters are evaluating alternative markets, such as the EU, China, and the Middle East, to offset losses in the US, while some firms are exploring production shifts to lower-tariff countries or revisiting their supply chain strategies to reduce exposure. Industry associations have intensified lobbying efforts, aligning with the government’s negotiation push, and urging swift domestic support. In response, the Thai government is preparing a 40 billion baht (approximately $1.2 billion) relief package aimed at sustaining affected sectors and maintaining employment. Officials also hinted at possible monetary policy adjustments, including interest rate cuts, to support broader economic stability. These actions reflect a coordinated effort between public and private sectors to weather the impact and keep Thailand competitive amid changing trade dynamics.
For Cambodia, the tariff poses an especially serious challenge. The US is Cambodia’s largest export market, accounting for around $10 billion in 2024, These shipments are driven by labor-intensive sectors such as garments, footwear, and travel goods, which form the backbone of Cambodia’s export economy. A flat 36% duty significantly undercuts price competitiveness, raising the risk of order cancellations, factory closures, and job losses. According to World Bank estimates, up to 360,000 jobs tied to US-bound manufacturing could be affected. This would be a major shock to a country of 17 million people and could reverse years of economic progress.
Facing this existential threat to its export sector, Cambodia has pursued a two-track approach combining negotiation and diversification. Diplomatically, the government moved quickly to engage the US. Since May 2025, officials from the Council for the Development of Cambodia and the Ministry of Commerce held multiple rounds of talks with the US Trade Representative. Just days before the July 9 deadline, Cambodia announced it had reached a preliminary framework with the US as the basis for a future trade agreement – a clear indication that Cambodia is willing to make commitments to avoid prolonged 36% tariffs. Indeed, US officials acknowledged ongoing negotiations with Cambodia, and Trump’s July 7 letter to Prime Minister Hun Manet reduced Cambodia’s tariff rate from an initially slated 49% down to 36% – a change considered as a successful outcome of talks so far. Cambodian leaders praised the tariff reduction as a positive step and “left the door open” for further negotiations, rather than condemning the US action outright. This cautious diplomatic response reflects Cambodia’s recognition of its limited leverage and its need to stay engaged with Washington.
At the same time, Cambodia is preparing for near-term disruption. Local business and labor groups warn that unless the tariff is reduced, buyers may shift production to countries with lower US rates. Notably, Vietnam faces only a 20% US tariff, which creates a strong incentive for apparel buyers and factory investors to shift orders from Cambodia to Vietnam, Bangladesh (35%), or Indonesia (32%) (all of whom received slightly more favorable tariff terms). In parallel, Hun Manet’s government is seeking alternate export markets and support. Cambodia is accelerating trade facilitation under regional pacts like RCEP to boost exports within Asia, and it may appeal to allies (China, ASEAN neighbors) for investment to help absorb displaced workers
While diversification is underway, no alternative market can replace the scale of US demand in the short term (which ran a $12.3 billion trade deficit with Cambodia in 2024). Cambodia’s strategy now rests on sustained engagement with Washington while gradually building broader trade resilience.
The US tariffs on Thailand and Cambodia are part of a broader regional shift that is disrupting ASEAN trade dynamics and reshaping global supply chains. Several Southeast Asian economies now face differentiated US tariff rates: Indonesia (32%), Malaysia (25%), Myanmar and Laos (40%), while Vietnam secured a reduced 20% rate. This fragmented approach is prompting companies to reconfigure sourcing and production strategies.
This differentiated approach is weakening ASEAN’s trade cohesion and driving companies to shift final assembly or redirect shipments through lower-tariff countries. Although the US has warned against circumvention, enforcement gaps may encourage such strategies, increasing compliance risks and operational complexity.
At a global level, the move reflects a departure from multilateral trade norms. The World Trade Organization has raised concerns about the erosion of the most-favored-nation principle, warning that unilateral tariffs could reduce global trade volumes in 2025 by up to 0.8%.
In response, many countries are deepening ties with non-US partners and strengthening regional agreements like RCEP. For both governments and businesses, the message is clear: the global trade landscape is becoming more fragmented, and reliance on traditional frameworks no longer ensures predictability. The cases of Thailand and Cambodia underscore a wider shift that demands strategic adjustment across the region.
The US’s imposition of 36% tariffs on imports from Thailand and Cambodia marks a turning point for Southeast Asian trade. While both governments have responded swiftly, the broader message to businesses is clear: trade exposure to any single market, especially amid rising protectionism, now entails significant risk. Firms operating in or sourcing from the region must take strategic action to withstand this volatility and build long-term competitiveness.
Businesses across ASEAN and beyond should reevaluate their reliance on the US as a primary export destination. Although Thailand and Cambodia are currently one of the most affected countries, companies in neighboring economies may face similar risks. Expanding into alternative markets through ASEAN trade frameworks or by developing stronger commercial ties with the EU, China, or emerging economies can reduce dependence on a single country. A broader customer base enhances resilience against policy shocks.
The uneven tariff structure across Southeast Asia has created cost gaps between closely linked economies. To remain competitive, companies should consider regionalizing production, relocating or distributing manufacturing across several countries. Strategies such as moving final assembly to lower-tariff locations or partnering with firms in countries that have preferential access to key markets, including the US or EU, can reduce tariff exposure. Some companies may also consider joint ventures in Mexico or the United States to secure market access through free trade agreements.
Business engagement is increasingly important in trade negotiations. Industry groups should support government efforts by providing data on the effects of tariffs, identifying priority sectors, and suggesting mitigation tools. Constructive dialogue can help shape the outcomes of bilateral discussions and facilitate temporary relief or adjustments. Companies with international operations may also coordinate through regional business councils or bilateral chambers of commerce to amplify their concerns.
In a high-tariff environment, low-cost production alone is not sufficient. Businesses should focus on increasing product value through innovation, quality, branding, and specialization. Exporters of basic goods may benefit from moving up the value chain by developing proprietary products, entering premium market segments, or improving standards and certification. Governments can help by offering targeted support for product development, technology upgrades, and workforce training.
International investors and manufacturers should prepare for a prolonged period of trade volatility. Structural changes in global trade policy, reduced reliance on multilateral rules, and greater use of country-specific tariffs are likely to continue. Companies must improve their resilience by diversifying supplier networks, maintaining appropriate inventory levels, and integrating geopolitical risk assessments into sourcing and investment decisions. Agility and risk management will be critical to navigating future disruptions.
In conclusion, the US tariff decision has placed Thailand and Cambodia at the center of a shifting trade environment. However, the broader message applies across sectors and borders. Businesses that take action now to diversify markets, upgrade production models, and build resilience into their operations will be better prepared for the next round of global challenges. In a more fragmented world economy, adaptability and forward planning are no longer optional but essential for long-term success.
Author:
Linhchi Trinh
Analyst
References
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