The heavy economic cost of the Thai-Cambodian border conflict

The current escalation in the Thai-Cambodian border conflict poses significant risks to both nations' economies, as retaliatory measures will restrict the movement of goods, services and people.

Tensions erupted between the two countries following military clashes at Nam Yuen district in Ubon Ratchathani province since May 28, which have now escalated into a full-fledged border dispute without signs of resolution any time soon.

The recent military skirmish has resulted in tightened border controls and shortened operational hours.

Border restrictions and their immediate impact

Both Thailand and Cambodia have implemented measures that restrict mobility across their shared border. Daily border opening hours have been curtailed, while visa stays have been reduced from 60 days to only seven days.

These actions are a direct response to the deepening territorial dispute, which has reignited longstanding tensions between the two nations.

For Thailand the stakes are particularly high due to the substantial trade surplus it enjoys with Cambodia. Thailand exports goods valued at approximately 180 billion baht annually via border checkpoints, making Cambodia a key trade partner in the region.

Restrictions on border crossings threaten to disrupt the flow of goods transported by road, although, as noted by Tanit Sorat, a logistics business owner, the current impact has been relatively manageable.

A prolonged conflict, however, could exacerbate economic losses.

Moreover, Thailand's dependency on Cambodian labor is a critical factor. Estimates suggest that around 500,000 to 800,000 Cambodian workers are employed in Thailand, predominantly in labor-intensive industries.

These workers form the backbone of several sectors, fueling economic growth through their contributions. Further tightening of border controls would impede labor mobility, impacting both nations.

Threat to investment and tourism

Thai investors have established a strong presence in Cambodia, diversifying across industries such as textiles, hospitality, fuel stations and coffee chains.

These investments are not only a source of economic collaboration but also symbolize the interconnectedness of the two economies. Restrictions on trade and labor movement could jeopardize the profitability and viability of such investments.

The current scenario also poses challenges to Cambodia’s tourism sector as the border dispute deepens.

Thailand is the largest source of tourists visiting Cambodia annually, contributing significantly to the Cambodian economy. Cambodia also relies heavily on imports from Thailand, including construction materials, oil, electricity and internet services.

Disruptions in these sectors could lead to severe shortages and economic instability in Cambodia.

Historical tensions and political implications

The border conflict cannot be analyzed without acknowledging its historical roots. The adversarial relationship between Thailand and Cambodia dates back centuries, with episodes such as the Thai kingdom's destruction of Angkor Wat leaving a bitter legacy.

This historical backdrop continues to fuel nationalist rhetoric on both sides, complicating efforts to reach resolution.

Thailand prefers to resolve the conflict through the Joint Boundary Commission (JBC) mechanism between Cambodia and Thailand.

A two-day meeting of the JBC ended on Sunday (June 15) in Phnom Penh without producing any agreement. The next JBC meeting is scheduled to be held in Bangkok in September.

Cambodia has vowed to take the territorial dispute to the International Court of Justice, aiming for an impartial verdict. However, Thailand has made it clear that it will not recognize the court's decision, advocating instead for bilateral negotiations.

This divergence in approach underscores the political complexities surrounding the conflict.

Assoc Prof Aat Pisanwanich, an independent researcher, highlights the economic impact of the dispute, emphasizing that Cambodia holds certain advantages over Thailand.

“The Cambodian government’s strategy to stir nationalism appears aimed at consolidating domestic support amid the crisis,” he says. Such political maneuvers, however, come at the cost of economic stability, he adds.

Long-term economic risks

If the border dispute remains unresolved, there could be a high economic price for both countries. The interconnected nature of their economies means that disruptions on one side will have cascading effects on the other.

Prolonged restrictions on trade and labor movement could lead to reduced productivity, higher operational costs and diminished investor confidence.

Furthermore, the conflict risks alienating international partnerships and investments. Both nations must consider the broader implications of their actions, as prolonged instability could deter foreign investors and disrupt regional economic integration.

Border trade at risk

Over the past five years (2020–2024), the value of border trade between Thailand and Cambodia has shown continuous growth, with major border posts being key trade transit points between the two countries, amounting to nearly 200 billion baht annually.

For 2024, the Thai Commerce Ministry’s Department of Foreign Trade reported total trade at five key border checkpoints between Thailand and Cambodia of 174.5 billion baht.

This comprised 141.846 billion baht in exports and 32.7 billion baht in imports, yielding Thailand a trade surplus of 109.2 billion baht.

This amount is part of total trade valued at 366.7 billion baht and via border posts totaling 181.3 billion baht.

Key export products include beverages, automotive/motorcycle parts, engines and agricultural machinery, accounting for over 30 per cent of the total export value.

Major imports include cassava, metal scraps (aluminum, copper), and electrical wires, which are crucial for Thailand's downstream industries such as animal feed, recycling and electronics.

There are 18 border checkpoints between Thailand and Cambodia in seven provinces: Trat, Chanthaburi, Sa Kaeo, Buriram, Surin, Si Sa Ket, and Ubon Ratchathani.

The five key checkpoints for border and cross-border trade as of 2024 are:

1. Aranyaprathet Customs, Sa Kaeo, with a trade value of 110.7 billion baht, accounting for 63.4 per cent.

2. Khlong Yai Customs, Trat, with a trade value of 29.3 billion baht, accounting for 16.8 per cent.

3. Chanthaburi Customs, Chanthaburi, with a trade value of 26.6 billion baht, accounting for 15.3 per cent.

4. The Chong Chom checkpoint in Surin, with a trade value of 6 billion baht (3.5%).

5. The Chong Sa-ngam checkpoint in Si Sa Ket, with a trade value of 1.8 billion baht (1.0%).

Closure of these key checkpoints would impact trade worth 174.5 billion baht.

"The current situation has not impacted border and cross-border trade between Thailand and Cambodia," the Department of Foreign Trade said.

Many Cambodians cross into Thailand for medical treatment, with consequences for healthcare businesses and related sectors. Similarly, many Cambodian workers cross over to work in Thailand.

Ukrit Wongthongsalee, chairman of the Chanthaburi Chamber of Commerce, is worried about labour shortage.

He said that Cambodian workers in Chanthaburi's fruit processing industry, including harvesting, sorting, and packing, make up over 80 per cent of the agricultural workforce.

Assoc Prof Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce and chief advisor of the Economic and Business Forecasting Center, warned that a complete border closure could potentially result in economic losses of around 10 billion baht per month.