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Cambodia vs. Guatemala for Manufacturing
For U.S. companies making labor-intensive products and looking to exit China, Cambodia and Guatemala come up repeatedly as lower-cost alternatives. I am bullish on Guatemala, but cautious on Cambodia.
This is not because Cambodia cannot manufacture. It can. The issue is control. Cambodia's risk profile is harder to manage and more likely to create problems during investor due diligence, bank due diligence, or an acquisition.
The United States imposes a 10% tariff on most products from Guatemala, and a 19% tariff on most products from Cambodia.
Cambodia: The middleperson plus distance problem
For many U.S. companies, the core Cambodia risk is structural. You are often operating through an agent, integrator, or other intermediary, and you are doing it from thousands of miles away. That combination creates information gaps that become painful in due diligence and dangerous in disputes.
Common failure modes include:
Accountability gaps. When quality failures, IP leakage, or labor violations occur, it can be hard to determine what actually happened and who is responsible. The intermediary blames the factory. The factory blames the intermediary. Meanwhile, the buyer, investor, or regulator looks at you.
Contract mismatch. Your compliance, quality control, IP protection, and audit terms may be strong in your contract with the intermediary, but the factory actually making the product may not be bound by those same terms, or the downstream contract may be weak or inconsistent. This is where "good paperwork" stops protecting you.
Audit interference. Restricted access and stage-managed visits are common enough that you should assume it is a risk unless proven otherwise. We have seen situations where a QC team was shown one production line and told the rest of the facility was "closed for maintenance," only for that story to unravel later when capacity and production claims did not match reality.
Unauthorized subcontracting. You think you know where your goods are made. Due diligence reveals the intermediary has been using multiple factories, including facilities you never visited and never approved. That can blow up compliance representations and create customs and origin problems.
Documentation problems. You may have certifications and supplier declarations, but when customs or a buyer's diligence team asks for production records, input sourcing proof, or factory-level documentation, the intermediary cannot or will not produce it. Paper compliance is not enough when someone demands operational proof.
If you cannot directly see and control the factory relationship, it becomes harder to prove what happened and harder to enforce remedies.
Cambodia: Political and tariff risk for U.S. importers
Cambodia's close ties with China matter for U.S. companies trying to de-risk. In a more aggressive U.S. trade posture aimed at China-linked supply chains, Cambodia can become a politically easier pressure point than China itself. If policymakers want to squeeze China-adjacent supply chains while reducing the odds of direct China retaliation, Cambodia is the kind of jurisdiction that can end up in the crosshairs.
The United States and Cambodia reached an Agreement on Reciprocal Trade in October 2025, which is a meaningful step toward stabilizing commercial relations.
Even with that agreement, Cambodia is not operating inside a long-standing, deeply integrated U.S. free trade framework like CAFTA-DR. Mature FTA systems tend to be easier to plan around, easier to diligence, and harder to change overnight.
The transshipment enforcement problem
Cambodia also carries a perception risk in U.S. enforcement circles: alleged transshipment of China-origin goods through third countries to avoid tariffs and duties. CBP's duty-evasion program has identified Cambodia as a transshipment country in a meaningful number of cases.
In practice, "stronger enforcement" looks like increased origin scrutiny, shipment detentions, demands for production records, supplier affidavits, and deeper questions about where inputs came from and where substantial transformation occurred. Even if your goods are legitimately made in Cambodia, the compliance burden can rise simply because the jurisdiction is viewed as higher risk.
The enforcement risk is not theoretical, and the standard applied to importers can be unforgiving. In one case my law firm worked on, the U.S. government recovered $62.5 million from Univar USA Inc. for routing Chinese-origin saccharin through Taiwan and falsely declaring it as Taiwanese to evade a 329 percent antidumping duty. DOJ brought the case under 19 U.S.C. § 1592, and described it as the largest recovery under that customs penalty statute in the Court of International Trade. DOJ also emphasized the enforcement expectation that importers take "all reasonable steps" to vet suppliers and confirm true country of origin.
That Univar case is not about Cambodia. The lesson is broader: when enforcement tightens, importers get judged on what they did to verify origin, not on what they hoped was true. If Cambodia is treated as a higher-risk routing jurisdiction in your product category, you should expect that same "reasonable steps" scrutiny, even if your operation is legitimate.
If those assumptions harden in a targeted category, the downside is not limited to a detained container. It can include more aggressive scrutiny, higher duties in practice through enforcement friction, and policy changes that narrow or reduce Cambodia's relative tariff advantage. In certain categories, effective treatment could move closer to China levels where enforcement becomes punitive or where a category becomes politically sensitive.
Governance, labor, and reputational exposure
Cambodia is widely viewed as having weak institutions and high corruption risk. For U.S. companies, that can show up as inconsistent outcomes when disputes arise, exposure to pay-to-play demands, reputational risk when labor practices do not match buyer expectations, and audit problems when documentation does not track operational reality.
Logistics and distance
Even if everything else is fine, Southeast Asia means longer lead times and slower response when something breaks. Distance increases buffer inventory, increases working capital tied up in transit, and slows intervention when quality or delivery problems surface.
Guatemala: Structural nearshoring advantages, with real risks you can manage
Guatemala has real risks, including security concerns in certain regions, bureaucratic friction, and inconsistent enforcement. The difference is that Guatemala's structural advantages, especially proximity and CAFTA-DR, often make those risks easier to manage because oversight and course correction are simpler.
Proximity and operational control
Nearshoring is not only about freight cost. It is about control.
Guatemala's proximity gives U.S. management the ability to get on the ground quickly, conduct real audits, tighten quality systems faster, and shorten the time between identifying a problem and fixing it.
CAFTA-DR and more predictable market access
Guatemala is part of CAFTA-DR, which provides a mature framework that is well understood by U.S. importers, lenders, and buyers.
It is not automatic. Rules of origin and documentation still matter. The point is that the framework is stable and familiar, which usually makes it easier to diligence and plan around.
Manufacturing ecosystem and lower communication friction
Guatemala has long-standing manufacturing capability in areas such as apparel and light manufacturing, often with more institutional familiarity with Western quality control and compliance expectations.
Spanish also reduces communication friction and reduces the lost-in-translation buffer that can hide misunderstandings in negotiation, documentation, and contracting.
Logistics speed and resilience
For U.S.-bound goods, lead times from Guatemala are often dramatically shorter than from Southeast Asia. Shorter lead times can reduce inventory, reduce working capital, and support faster response to demand swings. Proximity also gives you more flexibility when disruptions happen.
When each makes sense
When Cambodia makes sense: If you are manufacturing simple, high-volume products where cost per unit drives everything, lead times are flexible, you have a trusted local partner with a proven track record, and your buyers and investors are not heavily focused on ESG narratives and audit expectations, Cambodia can work. Even then, plan for tougher origin scrutiny and build a defensible origin file from day one.
When Guatemala makes sense: If your priorities include speed-to-market, operational control, and diligence-ready predictability for your next financing or acquisition, Guatemala is usually the stronger platform. Many of our clients that make cotton clothing and other products are successfully producing in Guatemala.
Cambodia red flags for buyers and investors
If any of the following are true, slow down and reassess:
- Your integrator will not allow unannounced factory visits.
- You cannot verify where key inputs come from.
- The factory or intermediary refuses to provide production records in English.
- Your buyer, investor, or lender has raised origin or transshipment concerns.
- You are in a product category CBP is actively targeting for duty-evasion and transshipment enforcement.
- You cannot get direct contact information for factory management.
- The integrator controls all communication with the factory.
Practical takeaway and diligence-ready checklists
If your priorities are resilience and tighter operational control, Guatemala will often be the stronger platform.
Either way, plan for the diligence file now, not later.
If you choose Cambodia:
- Get direct factory visibility, not just integrator assurances.
- Contractually prohibit unauthorized subcontracting.
- Build an origin and production-records package that can survive CBP scrutiny, including supplier certifications, bills of material, production logs, and clear documentation of where inputs come from.
- Make audit rights real and exercisable, including unannounced audit triggers.
- Tighten IP and tooling controls and ensure those obligations flow down to the factory, not just the intermediary.
- Ask yourself whether you would be comfortable defending your origin story in writing to CBP or to a buyer's diligence team, because you may eventually have to.
If you choose Guatemala:
- Treat CAFTA-DR compliance as an operational system, not a legal footnote.
- Do the rules-of-origin analysis early and align sourcing decisions to it.
- Confirm port and routing realities and build redundancy into logistics.
- Put a security and travel oversight plan in place for your team and any third-party auditors.
- Vet suppliers for financial stability and labor compliance, and set clear quality metrics, escalation paths, and termination rights.
The point is not to pretend Guatemala is risk-free. The point is to use proximity to stay on top of problems before they become expensive.
If you are choosing between these two countries as part of your China exit or diversification plan, it is usually worth a structured review before money changes hands. The most expensive mistakes happen when companies assume they can fix compliance and origin issues later.
Finding Your China Substitute: Cambodia vs. Guatemala For Manufacturing:
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
