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China Tariffs: investors eye on Cambodia and Vietnam

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As trade wars might plummet the American economy, China tariffs seem to bring promising outcomes for south eastern Asian countries, such as Cambodia and Vietnam.

While “Made in China” might soon become a stamp for luxury products, investors are looking for the next manufacturing destination.

Cambodia, with competitive prices, is attracting more and more capital and foreign companies. However, its lack of    might be the Achille’s heels to limit a full expansion.

On the other hand, Vietnam, which shares a border with China, seems to be a safer and cheaper option.

Cambodia, a new alternative

Steve Madden and Coach have already moved South: for high-street retailers, Cambodia is the latest manufacturing destination.

Why have they taken this decision? Since 2016, several thousand of products from Cambodia are duty-free to ship to the United States, which makes it a very lucrative location. As a result, Cambodian footwear exports rose by 25 percent and shipments to the United States rose by 11 percent in 2017.

Moreover, a recent study from the United States Fashion Industry Association showed that about 67 percent of American retailers are thinking of relocating their Chinese factories to another Asian country. According to Steve Lamar, the Vice-President of the Association, tariffs have generated “a lot of anxiety” in the industry.

Cheap, but politically challenged

While the brand Steve Madden seems to have spotted the opportunity first, the shoes and accessories designer plans to produce more than 60 percent of its items in Cambodia by next year. In 2017, the United States and the European Union represent 72 percent of Cambodia’s total footwear and garments exports.

However, Cambodia is a risky destination, if one thinks of political stability. While China’s leaders have successfully transitioned their economic policy, Cambodia’s elections drove the country into a general turmoil. The results of the general elections are said to be fraudulent and the country is undergoing a major crisis.

Kaing Monika, the Deputy Secretary General of the Garment Manufacturers Association of Cambodia shared in the Cambodian press that “peace and stability are key” for investors to settle in the country.

Nevertheless, experts fear a deep “democracy crisis” – and several companies have already decided to move to Vietnam, where millions of worker in the garment industry offer cheaper options, in terms of labor force.

Vietnam, the stable alternative

While some luxury maisons are brainstorming on where to relocate, several high fashion labels have already decided to move from Cambodia to Vietnam.

Coach and Kate Spade, owned by luxury company Tapestry, productions are moving to Vietnam, an even cheaper destination for workforce. As for now, Tapestry only have five percent left of its total production in China.

Also, Vietnam offers a common border with China and thus hopes to benefit from this geographical asset, especially in the Guangxi regions. According to the South China Morning Post, this common border could allow Vietnam to receive more investments – especially as the political situation is stable in the country.

Another aspect is the drastic wage gap between the two countries: a Chinese worker costs on average $750 a month, while a worker from northern Vietnam only costs $15. This pay is situated twice below the WHO’s poverty line.

From today onwards, America will add a 25 percent tariff on additional of $16 billion of Chinese products. China said it would retaliate with American exports.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.