Trump's Cambodia Trade Deal, Arms Exports, and the Role of Non-Trade Concessions
In this post, I'm going to talk about some aspects of the recent U.S. trade deal with Cambodia that I haven't heard raised yet, including the following questions: (1) Is the decision to allow U.S. arms exports to Cambodia pursuant to this deal designed to boost U.S. manufacturing? And (2) is removing the stigma of corruption/human rights accusations, as part of the arms export authorization, an important non-trade concession that helped make the deal happen?
On the first point, when people talk about using trade policy to increase manufacturing in the U.S., the conversation is usually focused on commercial products such as cars or furniture. But it's worth keeping in mind that some manufacturing involves weapons, and when the final accounting is being done on how manufacturing did under the Trump administration, I hope whoever is doing the tracking tries to break down the numbers as between commercial and military manufacturing.
In this vein, I was interested to see the following notice from the State Department last week about "lift[ing] the embargo on defense trade with Cambodia":
Based on Cambodia’s diligent pursuit of peace and security, including through renewed engagement with the United States on defense cooperation and combating transnational crime, the Secretary of State made a determination to lift the embargo on defense trade with Cambodia. ... As a result of this change, requests for authorization for transfers of defense articles and defense services to Cambodia will be adjudicated on a case-by-case basis and exemptions that are unavailable for transfers to countries listed in ITAR § 126.1 are now available for transfers to Cambodia, subject to the relevant criteria in the exemption being satisfied.
There were hints of this development in the text of the U.S.-Cambodia trade agreement itself, but I didn't catch it at the time:
Article 5.3: Other Measures
1. The United States shall work with Cambodia to streamline and enhance defense trade.
A White House Fact Sheet on deals made during Trump's Asia trip had spelled things out in more detail:
UNLOCKING NEW OPPORTUNITIES WITH CAMBODIA: ...
- Based on Cambodia’s diligent pursuit of peace and security, the United States will remove the arms embargo on Cambodia, and both sides agreed to restart the bilateral ANGKOR SENTINEL defense exercise, last held in 2017. Additionally, the United States will increase seats for Cambodian officers at U.S. military colleges such as West Point, Air Force Academy, and others.
The backstory here is as follows. Early in the Biden administration, "[i]n response to deepening Chinese military influence in Cambodia, which undermines and threatens regional security, as well as growing corruption and human rights abuses by the Government of Cambodia," the Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR) "to apply more restrictive treatment to exports and reexports to, and transfers within, Cambodia of items subject to the EAR." In addition, the State Department amended the International Traffic in Arms Regulations (ITAR) "to add Cambodia in the list of countries for which it is the policy of the United States to deny licenses and other approvals for exports and imports of defense articles and defense services."
According to a Reuters article at the time, "[t]he actions by the departments of State and Commerce reflect Washington's effort to counter China's growing influence in Southeast Asia, as Cambodia has become one of China's most important allies in the region."
Around the same time, the State Department, Treasury Department, and Commerce Department also issued an advisory "to caution U.S. businesses currently operating in or considering operating in Cambodia to be mindful of interactions with entities and sectors potentially involved in human rights abuses, criminal activities, and corrupt business practices." The advisory stated: "The deteriorating human rights situation in Cambodia, combined with increased and widespread corruption in the financial, real estate, casinos, and infrastructure development sectors, pose significant challenges in Cambodia for investors."
Undoing things that Biden did is a major theme of Trump administration policy, so the fact that the arms trade restrictions were a Biden action might have been enough on its own for the Trump administration to do what it did here. In addition, the policy priorities of the two administrations are very different (human rights and corruption in particular are being deemphasized now). It's possible the Trump administration would have undertaken this policy reversal regardless of any trade negotiations, but it's easy to see how packaging it into a trade deal with Cambodia made practical sense for the administration.
Beyond those considerations, though, maybe the Trump administration wants to sell weapons to Cambodia as a way to increase U.S. manufacturing? For what it's worth, the Reuters article from the Biden era notes that "[a]ccording to a report by the Stockholm International Peace Research Institute, the United States is not a supplier of arms to Cambodia." Will this regulatory change actually lead to U.S. exports of weapons to Cambodia?
Turning to the second point, related to non-trade concessions, in thinking about what U.S. trading partners are getting out of the trade deals they are signing with the Trump administration, issues such as pulling back on human rights criticisms and loosening controls on arms exports may be part of the answer. To a great extent, these deals seem unbalanced on their face, with the U.S. giving virtually nothing on market access and the trading partners making all the concessions. The administration is not offering the traditional version of concessions, in which tariffs are lowered from their initial level. Instead, it kicked things off by raising tariffs well above the initial level, and then made a concession in which it lowered them to a rate that is still above the initial level. Putting this together with the tariff and other concessions made by U.S. trading partners, these deals seem very one-sided.
However, as shown by the lifting of the arms embargo on Cambodia, the Trump administration is offering concessions of a different type, by removing the stigma associated with criticism of corruption and human rights abuses in Cambodia, and possibly even facilitating the sale of weapons. It's interesting to think about how Cambodia saw this. Is Cambodia hoping that this policy change will allow them to buy some new weapons? Or for them, is this more of a symbolic gesture that removes the corruption/human rights stigma that the Biden administration put out there, and also generates a bit of defense cooperation?
Trying to weigh a foreign government's trade concessions against these non-trade issues so as to come to an assessment of a trade deal's overall balance is difficult, but nevertheless these considerations may help illustrate what trading partners are getting out of these deals.