US-China Trade War Brings Business To Cambodia

PHNOM PENH, Cambodia — The worsening trade war between the United States and China has intensified pressure on companies to leave China and set up factories in places like Cambodia, a verdant country of 16 million people with low wages and high hopes.

But anybody who moves here may have to deal with the water buffalo.

Huffing, snorting and in no hurry to move, the big-horned bovines occasionally meander across the Khmer-American Friendship Highway, the dusty, 140-mile route linking Phnom Penh’s factories with the port in the coastal city of Sihanoukville. They are not the only potential obstacles. At quitting time, factory workers heading home on foot and motorbikes clog the road.

For factory owners on deadline, those crowded roads can mean frustrating delays.

“Where Cambodia sits now is where China was 25 years ago,” said Piet Holten, who makes the microfiber cloths and bags for sport and fashion sunglass brands like Oakley. To get his sportswear products from his Phnom Penh factory to market, he flies them using DHL.

President Trump’s tariffs on Chinese products, which expanded to an additional $200 billion worth of goods on Monday, are prompting many companies to rethink their supply chains. As tariffs begin to make China look more expensive, many companies are considering cheaper places to make their products, like Vietnam, Cambodia, Bangladesh and Ethiopia. Already, companies with significant American business like Steve Madden, the fashion designer, and Puma, the German sports brand, have said they will look to shift production out of China.

But China will be hard to quit. From zippers and rivets on jackets and jeans to the minerals used in iPhones, China makes or processes many of the ingredients that go into today’s consumer goods. It has a dependable source of workers who know how to hold down factory jobs. It has reliable roads and rail lines connecting suppliers to assembly plants to ports.

Countries like Vietnam and Cambodia, by contrast, lack China’s vast supplier base and dependable roads. More workers have to be trained. Many companies have to start from scratch.

“When I came here in the beginning, it was a nightmare,” said Elli Bobrovizki, who runs a factory in Phnom Penh that makes Bloch ballet shoes.

Getting the pink ballet slippers and black jazz shoes out to places like the United States takes at least a day or two longer than it would in China, he said. To reach his factory, a visitor has to travel down a bumpy dirt road.

Inside, hundreds of workers cut leather from Brazil, then glue and carefully pinch, gather and hammer it into soles. The work could be partly automated, but the labor is cheap.

One day a few years ago Mr. Bobrovizki arrived at his factory to find several unions had locked it. Negotiations took weeks. In Cambodia some unions are backed by the party of Hun Sen, the prime minister, adding to political risks for foreign companies.

“I lost half a million dollars in those two weeks that they blocked my gate,” Mr. Bobrovizki said.

Companies are not looking to leave China just because of the trade war. Average wages have risen by about one-third in recent years, according to official data. The average Chinese factory worker makes roughly $10,000 a year, the official data shows. By contrast, the minimum wage for Cambodian garment workers amounts to about one-fifth of that. But rising tariffs, and the prospect of more on the horizon, add to the urgency.

“People are desperate to get out of China,” said Spencer Fung of Li & Fung, a go-between for Western companies and factories in developing countries.

One American company recently told a supplier with a factory in Phnom Penh that it wants to take its China production down to zero as soon as possible in order to avoid tariffs, said Bradley Gordon, a lawyer who advises multinational companies in Cambodia. That Phnom Penh factory plans to hire 1,000 more workers in the next month and employ nearly 10,000 workers by next year.

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