The US decision to lower its proposed tariff on imports from Thailand and Cambodia to 19 per cent, tied to a ceasefire between the warring Southeast Asian neighbours, augurs well for Thailand at least in the short term, many experts believe.
Hostilities broke out between the two ASEAN countries on July 24 over a territorial dispute.
Five days of clashes along the border led to loss of lives, displacing 350,000 people from their homes on both sides of the border and billions of baht in economic cost.
President Donald Trump has taken credit for ending the conflict by using US economic leverage to halt the deadly clashes. Thailand and Cambodia agreed to cease fire from midnight on July 28.
The reduction in US tariff rates from the earlier proposed 36 per cent to 19 per cent has been celebrated as a success by Finance Minister Pichai Chunhavajira after months of negotiations.
Business leaders have expressed their satisfaction, recognising the uniform 19 per cent rate levied also on regional peers Malaysia, Indonesia and the Philippines, while Vietnam's rate is slightly higher at 20 per cent.
Impact of the trade deal on the economy
The 19 per cent tariff, in addition to the existing average of 2-3 per cent, is far better than the 25-30 per cent many economists had estimated. The lower rate offers Thai exports, a key economic driver, the potential for growth.
“Thai exporters may be able to compete for more market share at the expense of Chinese products,” says Kirida Bhaopichitr, director of the Economic Intelligence Service at the Thailand Development Research Institute, an independent think tank.
China is at the top of Thailand’s 20 biggest competitors in global export markets.
Negotiations between China and the US are ongoing. A preliminary agreement suggests that the US would raise tariffs on Chinese goods by an additional 30 per cent, leading to a final rate as high as 55 per cent.
“US importers may turn to Thai suppliers,” says Kirida, as lower tariffs compared to Chinese goods would make Thai exports less expensive.
Levies on transshipment—countries who reroute their exports through another country to avoid higher US tariffs—would also play a crucial role.
Thailand and Vietnam were told they could face 40 per cent tariffs on transshipments, but the US has not yet provided a clear definition of what constitutes transshipment, or whether this would be determined by local content requirements.
Around 25 per cent of components used in Thai products are imported from China, while Vietnam imports around 40 per cent from China due to its more recent supply chain development, according to Kirida.
This would give Thailand an advantage over Vietnam, she argues.
As the US will impose a 25 per cent tariff on Indian goods, its jewelry exports may be at a disadvantage compared to jewelry from Thailand, according to Kirida.
Despite these positive factors, the outlook for Thailand’s exports and the overall economy remains uncertain.
Thai exports surged 15 per cent in the first half of the year, largely due to US importers rushing to place orders ahead of the implementation of Trump's reciprocal tariffs.
“Thailand’s exports may expand marginally by 1-2 per cent this year but the economy may not grow more than 2 per cent,” says Kirida.
High US tariffs are likely to significantly slow global trade, according to many overseas and local economists.
Thailand's economy could struggle due to a smaller domestic market as compared to countries like Indonesia, India and China which have much larger populations.
How imports would affect the domestic market
Many people have demanded that the Thai government fully disclose what it has offered the US in exchange for lower tariffs. There have been reports that the government may have to exempt tariffs on several US products.
Pichai, who is also a deputy prime minister, has assured there would be limited impact on local producers.
The government would allow tariff exemptions only on high-tech goods and products that already have zero tariffs under free trade agreements with other countries, he said.
Implementation of exemptions on some products may take three to five years. Thai Airways International plans to purchase 80-90 Boeing planes in the next 10 years.
Thailand will import a million metric tonnes of liquefied natural gas next year with import of US crude oil making up around 10 per cent of total crude oil imports.
The government will also increase import quotas for maize and soybean, estimated at 1-2 million tonnes per year, and import pork meat at less than one per cent of local consumption to prevent adverse impacts on local farmers.
Full details of the trade deal will be released after approval by Parliament.
The outlook for foreign direct investment
The Board of Investment (BOI) is confident that the 19 per cent tariff will keep foreign investors in Thailand.
BOI secretary-general Narit Therdsteerasukdi says that both foreign and Thai investors have confirmed their commitment to their investment plans, citing record numbers of applications for investment promotion filed with the BOI—up 139 per cent year on year in the first half of 2025.
Some observers are concerned about the implications for Thailand from lower tariffs at 10 per cent on the United Kingdom and Singapore, and 15 per cent on Japan, South Korea and the European Union.
“There are many factors affecting the flow of foreign direct investment, not just tariffs,” Kirida argues.
From free trade to protectionism
“Trump has reset global trade, ending free trade and replacing it with protectionism,” says Prof. Teerana Bhongmakapat, former dean at Chulalongkorn University’s Economics Faculty.
The US has dominated the global trade order due to its leverage over other countries. “These bilateral trade negotiations are dictated by the US,” says Teerana, a prominent economist who closely follows international trade.
Small countries have no choice but to yield to US pressure, as they do not know how to respond, says Teerana.
In the future many countries may retaliate against the US by increasing their own tariff rates to earn tax revenue. The US president wants to collect more tariffs to finance the huge budget deficit and narrow the trade deficit. Trump also plans to spend more on defense.
“Tariff dispute is not just about tax but also geopolitical issues—the US and other countries will spend more on military,” says Teerana.
The future of the tariff regime is also uncertain and could change after Trump’s term. Many US economists have warned that the Trump administration’s high tariffs would increase inflation and slow down US economic growth.
Tariff hikes are not popular in the US, according to several polls. The Republicans could lose control of the House of Representatives in the midterm elections next year. Some US importers are also challenging the government in court due to the impact on their businesses.
The latest economic data suggests the labor market is weakening, according to many experts, while economist and Nobel Prize winner Paul Krugman has blamed the employment situation on the uncertainty caused by Trump’s trade policies.
