Thai economists urge caution despite lower US tariff

Thailand should remain cautious despite the US tariffs being adjusted, as uncertainty in global trade policy continues to pose risks, according to two Thai economists interviewed by Thai PBS World.



Although US President Donald Trump’s original sweeping trade tariffs were struck down by the Supreme Court of the United States last week, a new 15% tariff on all imports into the United States has been imposed under Section 122 of the US Trade Act and will remain in effect for at least 150 days.

A serious wake-up call

Pavida Pananond, a lecturer at Thammasat Business School, describes this as a temporary breathing space, but also a serious wake-up call for Thailand in the long term. This is because Thailand has, so far, not concluded any trade agreements with the Trump administration.

“That is a small reprieve, in terms of gaining time to breathe,” she explains.

“The 15% tariff imposed on all countries removes the tariff differential advantage enjoyed by some countries but not others. So, now it is 15% for everybody and we really have to compete based on the competitiveness of our exports.”

Former trade representative, Werapong Prapha, also feels that this is only temporary good news for Thailand, because their exports will become more competitive in the short term.

But make no mistake, the 15% is only temporary.

“After that, we will enter a period of uncertainty,” Werapong explains, adding that the Thai government should not be taking a 'wait and see' approach and must be preparing to mitigate additional risks ahead of their trade talks.

“Remember, Vietnam and Thailand still have pending trade deals. That means that we have no deal agreed yet and that leaves us in a more vulnerable position when it comes to negotiation,” says Werapong.

Pavida also warned of other legal measures that could be imposed or invoked by the US, leading to permanent tariffs, which would further hurt Thai exporters, “but I think the even deeper and more concerning issue is foreign direct investment,” she explains.

“We have to be aware that the items we export are often intermediate products traded between multinational companies. So, if those companies reconfigure their supply chains, by perhaps consolidating in one region over another, Thailand would face increased risk in terms of being able to attract foreign direct investment.”

Are there more stumbling blocks ahead?

Global trade and economic uncertainties not only put Thai exports at risk, but also have a significant impact on Thailand’s economic growth.

As global supply chains change, having a competitive advantage in the export sector is an absolute must.

The Thai private sector, particularly the Federation of Thai Industries (FTI), have urged exporters to consider diversification of their markets, instead of relying on the same major markets, such as the US, and to accelerate the conclusion of free trade agreements with other countries.

Despite that, Finance Minister Ekniti Nitithanprapas has expressed optimism that the new 15% tariff will benefit Thailand. Commerce Minister, Suphajee Suthumpun, also offered an assurance that bilateral trade talks with the US will ease the impacts on Thai exporters.

There is also an even bigger spectre on the horizon. The use of Section 301 of the US Trade Act, which allows the US to impose retaliatory measures against countries using unfair trade practices. Thailand remains on the watch list of the Office of the United States Trade Representative.

Both experts feel that this could impede trade negotiations with the US. Werapong cited a recent Bloomberg interview by a US Trade Representative Jamieson Greer, who said that he’s opening trade investigations into forced labour practices in the supply chain.

“These are all the things that the US Trade Rep has made clear are behind Thailand’s presence on the watch list. So, I think it's a really strong signal that, if we don't prepare for it, it could severely weaken our case in terms of our negotiation.”

Future trade talks with Trump still possible

Meanwhile, Thailand’s exports in January this year increased by 24.4%, to US$31.5 billion, or about 980 billion baht. This was the largest monthly increase in four years, attributable to increased global demand for Thai electronic products, according to the Office of Trade Policy and Strategy.

Thailand’s major export markets for electronic and tech products are the US, China, the European Union and ASEAN member countries, which saw impressive growth of 27% for markets in the US, China and Japan, 5% in the ASEAN market and 22.7% for secondary markets.

Ultimately, both experts believe that a proactive and strategic approach is required if Thailand is to secure advantageous trade deals with the US. Pavida suggests that the government avoids rushing into agreements, though, and takes sufficient time to understand the shifting global supply chains.

“We cannot just look for other (export) markets. We also have to prepare the upstream manufacturing capacity, upgrading processing capacity to be greener, more sustainable, while offering more traceability and transparency in supply chain,” Pavida explains.

On the other hand, Werapong has called for immediate engagement with the US trade representatives at the policy level. He also suggests that a lot could be learned by studying other countries’ successes, such as Indonesia, in negotiating tariffs with the US administration.

Most importantly, the government should also get the Thai business sector involved in those conversations.

As Werapong explains, associations such as Federation of Thai Industries, the Thai Chamber of Commerce and SME-related associations have the data and statistics needed to support the current competitive advantage claims by Thailand, for use as a bargaining chip in negotiation.

“Without that information, when they are negotiating with their US counterparts in Washington D.C., it's not going to end up being the best deal for Thailand going forward,” says Werapong.

Despite the challenges ahead, both Pavida and Werapong have high hopes that the new government will be able to secure trade deals with the US, as well as FTAs with other countries, which will help diversify export markets for Thailand.