Prime Minister Hun Sen warned on Tuesday that a developing trade war between the US and China could affect Cambodia, and said the Kingdom must act to mitigate any potential fallout.

In March, US President Donald Trump’s administration slapped tariffs on global imports of steel and aluminium, with the president later threatening to do so on up to $60 billion of Chinese goods. China responded by unveiling plans to impose tariffs on $3 billion of American imports.

“We must monitor this issue,” Hun Sen said, warning that other countries might feel the ripple effects.

“We do not export steel and aluminium, but please don’t forget that global economic issues influence all places. We must prepare ourselves to avoid crisis in the trade sector and reduce any impacts.”

Miguel Chanco, lead Asean analyst for the Economist Intelligence Unit, said the risks to Cambodia’s economy are evident from past experience with Vietnam.

Chanco said that the US imposed high duties on Vietnamese steel in December 2017, because they determined it had too much Chinese material in it. The US believed China was “basically exporting Chinese steel through Vietnam”, he explained.

The same duties could potentially be applied to Cambodia’s garment industry if it’s found to rely predominantly on Chinese material, which Chanco believes it does.

He believed Hun Sen’s strategy for reducing risk was likely to continue lowering dependence on the US while strengthening ties to China. So far, he said, the shift has served Cambodia well, with the economy “more diversified than it was five years ago”, though he warned it could go too far.

Chan Sophal, director of the Centre for Policy Studies, said an economic slowdown brought on by a trade war could reduce Chinese investment in Cambodia. He did note, however, a trade war might aid Cambodia’s economy in other ways by encouraging China to lower the price of its exports.

“For instance, if the export of Chinese steel and aluminium to the US declines because of the high tariffs . . . China might lower the price for exporting to Asia. We can purchase the Chinese steel cheaper than before.”

Additional reporting by Andrew Nachemson