For decades, cheap labour fueled the world economy. Multinational corporations took advantage of cost differences by outsourcing manufacturing to cheap nations, which created consumer price pressures and profitability. However, those days are fast disappearing. With China’s growing labour costs, heightened geopolitical tensions, and revolutionary breakthroughs in automation and AI rewriting the rules, it is nigh time for a technological renaissance. This change can significantly affect low-cost manufacturing-based economies such as Cambodia, which have historically prospered as low-cost manufacturing bases.
The US Wakes Up to China’s Strategic Rise
For years, the West and the US searched for cost savings through outsourced production and underpaid China’s strategic plan. While US companies offshored manufacturing, China systematically developed its technological and industrial strength. As explained by JD Vance, the US Vice President, this outsourcing inadvertently gave China the power to control key industries such as battery technology, electric cars, satellite communications, processing of rare earths, AI hardware, and military drones. It was a gradual but seismic realignment.
While products carried labels like “Designed in California, Made in Shenzhen,” China was gaining access to higher segments of the global value chain without anyone noticing. US spy agencies, the NSA and CIA, did not anticipate the extent and pace at which this changed, thus putting the country open to the risks of being dependent on supply chains from its economic arch-enemy.
The End of the Cheap Labor Model
Nations like Cambodia made themselves industrial giants by providing cheap labour. The clothing industry alone, the International Labour Organization (ILO) estimates, has more than 750,000 workers and generates about 70% of the country’s exports. Western firms were drawn by cheap wages and trade concessions and invested heavily in Cambodian output. This pattern is being cut sharply. China’s rising wages are eroding its competitiveness, and companies are mechanizing or moving to low-cost markets. Meanwhile, US trade tariffs and barriers are reducing the appeal of foreign production. More fundamentally, robots and artificial intelligence-based assembly lines render low-cost human labour obsolete, threatening labour-intensive economies.
Implications for Cambodia and Other Low-Cost Economies
The US move towards domestic innovation and automation has significant implications for labour-intensive countries like Cambodia. With reshoring diminishing the need for offshore production, Cambodia will lose vital FDI flows, destabilizing its export-led economy. With low-skilled labour requirements diminishing, Cambodia’s garment industry can undergo colossal retrenchment, destabilizing the livelihood of over half a million workers. In addition, Cambodia’s dependence on production based on labour can subject it to future economic instability if its manufacturing industry fails to diversify.
Cambodia must adopt new policies to remain competitive in the new world economy. Investment in vocational skills and computer education will equip Cambodia’s labour force to keep up with increasingly high-tech industries. Investments led by technology will flow into upgrading transport infrastructure, power supply systems, and logistics systems. In addition to subsidies, tax incentives, and other policy assistance, investments in automation, green technology, and high-value manufacturing can be encouraged. By cultivating innovation and a more sustainable economic model, Cambodia can counter the risk of declining cheap labour and position itself for long-term prosperity.
Conclusion
The era of cheap labour is over, and American ingenuity has brought a new era of industrial competitiveness. The transition is an opportunity for technology-led economies to grow but a problematic choice for labour-surplus countries such as Cambodia. To thrive in the new world, Cambodia needs to adopt economic diversification, invest in the capacity building of workers, and develop a culture of technological innovation. Otherwise, the international manufacturing model will be left in the dust as it irreversibly moves towards automation and local sovereignty.
