Failing U.S. tariff discussions could pose significant risks to Thailand's economy, according to SCB's Executive In-Charge.
Thailand faces a critical juncture in its trade relations with the United States, with the looming threat of a 36% tariff on all exports to the US looming if negotiations are not resolved by August 1, 2025. This potential tariff could have profound consequences for Thailand's economy, as outlined below.
Loss of Export Market Share
The high tariff would make Thai goods significantly less competitive in the US market, leading to decreased demand for exports such as furniture, tyres, hard drives, rubber gloves, clothing, canned fruits, computers, ceramics, medical equipment, footwear, metals, plastics, air conditioners, and machinery. This would reduce Thailand's export volume and market share in the US, a critical trade partner.
Adverse Impact on Agricultural and Livestock Sectors
Many agricultural products and processed foods are among the affected exports. Tariffs of this magnitude would likely lower export income for these sectors, reducing farmers' and producers' profitability and potentially leading to production cutbacks or job losses.
Negative Effects on Domestic Demand
Reduced export earnings would weaken economic growth, likely curbing domestic income and consumption. Lower earnings in export-dependent industries can reduce overall demand in the Thai economy, slowing GDP growth.
Potential Rise in Interest Rates
The economic uncertainty and risk of slower growth caused by tariff imposition could prompt the Bank of Thailand to tighten monetary policy to maintain financial stability, leading to higher interest rates. Increased borrowing costs would put additional strain on businesses and consumers.
Slowed Government Market Liberalization
The tariff conflict with the US and linked border dispute with Cambodia create political and economic instability, which may delay government efforts to liberalize markets and implement reforms conducive to economic growth and trade facilitation.
In summary, failure to resolve the trade and border issues by August 1 risks severely impairing Thailand’s export competitiveness, damaging key agricultural and manufacturing sectors, weakening domestic demand, driving up interest rates, and obstructing government market reforms—collectively threatening broader economic stability and growth.
The Siam Commercial Bank's Economic Intelligence Centre (SCB EIC) has identified five major risks for Thailand's economy if negotiations with the United States regarding tariff issues are not resolved by August 1. Thailand is in a precarious situation, facing both domestic structural issues and political uncertainty, compounded by slower-than-expected recovery in tourism.
Stricter trade policies emerging from both the US and China limit Thailand's options for a well-coordinated response. This influx of imports would erode the competitiveness of vulnerable domestic sectors, particularly agriculture, which employs nearly 28.6% of Thailand's workforce in 2024. Over the long term, imports from the US could rise by 27%, or 188 billion baht, particularly affecting agriculture, food and beverages, automobiles, transport equipment, textiles, leather goods, and plastics.
To mitigate the impact of US-China tariff reductions, Thailand should accelerate market diversification and engage in trade negotiations with other countries to regain a degree of economic independence. Achieving balance and finding a safer, more secure path forward will be crucial for Thailand to navigate this trade crisis successfully.
- The potential 36% tariff on Thailand's exports to the US could significantly impact the business sector, making Thai goods less competitive in the US market, consequently reducing the country's export volume and market share.
- Increased tariffs could have a detrimental effect on the agriculture and livestock sectors, causing lower export income, reduced profitability for farmers and producers, potential production cutbacks, or job losses.
- A weakening economy due to decreased exports could lead to a reduction in domestic income and consumption, potentially slowing the growth of GDP.
- If negotiations with the US are not resolved by August 1, the Bank of Thailand may tighten monetary policy to maintain financial stability, which could result in higher interest rates, putting additional strain on businesses and consumers.
