Thailand faces its first major trade challenge under the new US administration. President Donald Trump has signed an order imposing a 25% tariff on steel and aluminum imports into the United States, effective from March 12.
This move has widespread implications not only for the US economy but also for countries like Thailand that rely on exports.
Escalating tariffs and threats
The Trump administration has threatened to extend its tariff policies to other sectors, including automobiles, pharmaceuticals and computer chips.
Additionally, the president introduced the concept of a “reciprocal tax”, which aims to impose high taxes on countries that maintain high tariffs on US products.
For Thailand, which was the 10th biggest aluminum exporter to the US last year with sales valued at $270 million, these developments are of serious concern.
Trump's tariff policy has already taken a toll on US trade with its neighbors Canada and Mexico, and has escalated tensions with China, which retaliated against a 10% tariff imposed on its goods by increasing taxes on certain US products.
Thailand's limited bargaining power
The options available for Thailand in this trade conflict are limited, says Somporn Isvilanonda, a senior fellow at the Knowledge Network Institute of Thailand.
“As a small country, Thailand cannot retaliate against the US like China does. What we can do is negotiate,” he says.
Somporn lamented Trump’s prioritization of trade over maintaining positive international relationships.
This stance complicates Thailand's position, especially as the country enjoyed a trade surplus of $41.5 billion with the US last year, from January to November, according to the US Census Bureau.
This surplus places Thailand among the top 10 countries with significant trade surpluses with the US, making it a prime target for potential tariffs.
Impact of Trump 2.0
Burin Adulwattana, managing director and chief economist at Kasikorn Research Center (KResearch), believes that Trump 2.0 will continue to leverage import tariffs to maximize US interests.
Tariffs have become a key tool in US foreign policy, aimed at achieving political and security goals, including addressing illegal immigration and extending US influence globally.
In Trump's first term his administration increased tariffs, particularly on China, and replaced the North American Free Trade Agreement with the US-Mexico-Canada Agreement.
The trade war has impacted US trading partners more severely than the US economy itself.
“Trump's policies reflect the views of Robert Lighthizer [former US trade representative], who sees China as a primary competitor in various domains. The US aims to reduce its trade deficit with China and create jobs in sectors like manufacturing,” says Burin.
KResearch indicates that Thailand, which has the 10th-highest trade surplus with the US, will inevitably be affected by the policies of Trump 2.0.
Overall, Trump’s focus on economic and military security for the US may lead to significant changes in the international economy, with the US utilizing its economic clout to advance its interests.
Thailand’s top 10 exports to the US
According to the Ministry of Commerce and KResearch, the top 10 products that Thailand exports to the United States are:
1. Computers and parts
2. Telephones and parts
3. Rubber products
4. Semiconductor devices
5. Electrical transformers
6. Machinery and parts
7. Jewelry
8. Motor cars
9. Other electrical equipment
10. Air-conditioning units
The combined value of these exports is approximately $18.3 billion.
Products at risk of high US tariffs
KResearch predicts that several Thai products may face increased tariffs in the US. These products include:
- Bluetooth modules
- Broadband products
- Solar modules
- Power adapters
- Machinery and parts
- Auto parts (including wheels, brakes, and steering wheels)
- Mobile camera modules
- Air-conditioning units
Mitigating the impact of US tariffs
These potential tariffs could significantly impact Thailand's export economy, making it crucial for businesses to prepare for the challenges ahead.
“To mitigate the impact, Thailand could consider opening its markets to US businesses and increase imports from the US,” says KResearch. Currently, major US products imported by Thailand include crude oil, machinery and parts, chemicals, natural gas, airplanes, electrical machinery and parts, integrated circuits, scientific and medical instruments, vehicle parts, soybean and wheat.
If the trade wars escalate, the US Federal Reserve may find it challenging to lower interest rates beyond the two cuts projected for 2025. Many global economists are worried that Trump’s policies could potentially push inflation up again, forcing the Fed to resume its policy of hiking the interest rate to contain it.
If the US retains higher interest rates for longer, it would impact the global as well as Thailand’s financial markets.
Somporn warned that Thai fragrant rice and other food products, such as canned tuna, could face high tariff rates from the US.
He believes Thailand may need to increase its purchases of US products. For example, Thai Airways could consider buying Boeing airplanes. Additionally, Thailand could enhance military and security cooperation in the region.
“The Thai government may also need to navigate sensitive political issues that could upset China,” says Somporn.
One potential strategy could involve delaying the repatriation of Uyghurs, a Muslim minority group, back to China. Bangkok could cite human rights concerns as a reason to deny Beijing's request to send Uyghurs currently detained in Thailand back to China.
Indirect impact of US tariffs on Thailand
The indirect impact of US tariffs could manifest through an influx of Chinese products flooding the Thai market, as China would seek alternative markets if its exports to the US are curbed.
Thailand's local manufacturing sector is already reeling under the effects of cheaper Chinese goods entering the country.
Anusorn Tamajai, dean of the economics faculty of University of the Thai Chamber of Commerce, emphasizes the need for Thailand to strengthen local manufacturing capabilities to remain competitive in an increasingly uncertain international market.
"At the same time, the country needs to liberalize its economy further and adopt a strategy of independence," Anusorn suggests.
He also recommends that Thailand increase its purchases of US agricultural products as part of trade negotiations before any potential tax hikes. The US typically exports corn, wheat and soybeans to the global market.
Additionally, Anusorn believes Thailand could leverage the ASEAN Economic Community to enhance its bargaining power in negotiations.
While he acknowledges concerns about US tariffs, Anusorn is less worried about their impact on Thai aluminum exports to the US, suggesting that the effects may be limited.
He believes Thailand can manage its exchange rate to mitigate any adverse impacts.
By adopting these strategies, Thailand could better position itself in the evolving trade landscape while addressing potential pressures from both the US and China, according to the local experts.