Photo credit: This file photo, dated May 28, 2018, shows local swine producers backing the Thai government in banning US pork imports
As the global trade war intensifies, Thailand must navigate the challenges while minimizing risks and capitalizing on emerging opportunities. Understanding both the potential obstacles and advantages for the Thai economy and businesses is crucial.
Key challenges include the impact on trade, particularly regarding exports and imports. Since Thai goods exports account for nearly 60% of the country’s gross domestic product (GDP), they will likely suffer due to increased tariffs imposed by the Trump administration and retaliatory measures from China. Consequently, the growth of global trade will adversely affect Thai exports, not only to the US but also to other significant markets, including China, the EU, Japan, and ASEAN. This year, the value of Thai exports in US dollars might only increase by 2-3%, which is half of last year’s growth rate.
Primary Thai exports to the US, such as electronics, electrical appliances, machinery, automobiles and parts, agricultural products, and jewelry, will be negatively impacted by the Trump’s tariffs. Although a 90-day pause on US reciprocal tariffs has been announced for most countries (excluding China, Canada, and Mexico), a 10% tariff increase on all countries will still take effect on April 5, 2025. After the pause, tariff levels will likely remain elevated compared to pre-existing rates, leading to higher import prices in the US and potentially decreased demand for these products, resulting in a slowdown of Thai exports to the US in the latter half of the year.
The extent of this slowdown in Thai exports to the US will depend on the tariffs imposed on competing countries relative to those on Thai products. If the tariffs on competitors are significantly higher, Thai products may have an opportunity to gain market share in the US. For instance, US imports of syringes and needles from China currently face a total tariff of 245%, while those from Thailand are subject to an average tariff of 15%. It remains to be seen how the additional tariffs will be applied to key Thai exports after the 90-day pause compared to competitors like Vietnam, Indonesia, or Mexico.
Simultaneously, imports into Thailand are expected to increase as countries encountering higher tariff barriers, particularly from the US, seek out new markets, including Thailand. This is particularly true for Chinese goods, including raw materials, intermediate goods, and capital goods, which have been the top imports to Thailand for the past four years and are likely to rise further due to increasing Chinese direct investments in Thailand. Products subject to US tariffs, such as steel and aluminum, may also find their way to Thailand from South Korea, Japan, and China.
Moreover, the US, aiming to reduce its trade deficits, may push Thailand to increase imports from America. This could involve requests to reduce tariffs on US goods (e.g., soybeans and automobiles), raise import quotas for US products (e.g., corn and coffee), and relax health standards prohibiting the import of certain US goods (e.g., beef and pork). Additionally, the US may seek to lessen restrictions on investment services for US companies in Thailand. Conversely, Thailand is looking to import more liquefied natural gas (LNG) and agricultural products from the US. The specifics of Thailand’s market openings will depend on negotiations during the 90-day window.
Despite these challenges, the relocation of businesses to Thailand is expected to continue, as multinational companies (MNCs) pursue diversification amid the trade war. Thailand’s neutral stance in geopolitical tensions makes it an appealing location, particularly as it remains relatively easy to import and export from compared to China, especially for non-US markets that encompass over 80% of global trade. Such a large-scale relocation of businesses is rare, presenting Thailand with a unique opportunity to attract foreign direct investment. The Board of Investment set a record for approved application values last year.
Other positive factors include declining global inflation and interest rates. As demand weakens, commodity prices, including oil, are decreasing. Brent crude oil prices are projected to average $73 per barrel in 2025, down $7 from 2024. Overall shipping costs are expected to decrease as global trade slows. With inflation declining, central banks worldwide will likely lower their policy rates, leading commercial banks to follow suit. In Thailand, inflation this year is anticipated to remain below 1%, and the policy rate could potentially be reduced two more times by 0.25% each time, with commercial banks lowering their minimum loan rates accordingly.
The Thai baht may weaken against the US dollar in the latter half of the year. With expected declines in export growth and increases in imports due to global tariff hikes, capital inflows into Thailand may diminish, putting downward pressure on the baht.
To adapt to the fragmented global trading and investment environments, countries and businesses must diversify. Thailand should continue to promote trade and investment with all nations while pursuing free trade agreements with additional partners, including the European Union and emerging markets in the Middle East and India.
Businesses should also seek diversification in their partnerships for both B2B and B2C. To compete with imports, companies should explore ways to utilize these imports as production inputs, particularly if they can.
