Photo: From L; Donald Trump, Pichai Naripthaphan, Supavud Saicheua
Thailand’s economy could face downside risks if Donald Trump pursues the aggressive trade policies he promised during his election campaign.
Trump made a stunning comeback to win a second term in his third attempt at running for president.
His threats to increase tariffs on US imports have made governments around the world nervous about the implications for their economies.
Trump ran his election campaign on the “America First” theme, pledging to levy tariffs of 10-20 per cent on all imported goods and 60 per cent or more on Chinese-made products.
Trump has argued that the high taxes on imports will help reduce the massive US trade deficit, budget deficit and increase investment in the country.
Thai Commerce Minister Pichai Naripthaphan, however, is optimistic that Thailand would not be affected. “Thailand has to position itself well to be neutral, acting like the Switzerland of Asean, attracting everyone to invest and trade with,” he said.
He pointed to trade statistics that showed Thai exports to the US had increased since the US engaged in a so-called trade war with China.
For example, Thailand’s exports to the US rose 12.5 per cent year on year in the first nine months of the current year. “Thai goods have replaced Chinese products in the US market quite significantly,” he said.
Many economists and analysts are, however, concerned that high tariffs would hurt both the US economy and others.
“Should Trump keep his promise of imposing tariffs, it would become harder for Thailand to achieve the targeted economic growth of 3 per cent next year,” said Supavud Saicheua, chairman of the National Economic and Social Development Council.
“Given the large trade surplus with the US last year, Thailand might be one of 20 countries that might be targeted by the Trump administration,” Supavud warned.
According to Commerce Ministry data, Thailand had a trade surplus of $22.3 billion (around 760 billion baht) with the US in the first eight months of this year.
During Trump’s first term, the US Commerce Ministry had investigated Thailand along with 16 countries that had a trade surplus with the US.
Long history of trade and investment
The US-Thai Treaty of Amity and Economic Relations of 1833, known in short as Treaty of Amity, is a bedrock of economic relations, and it gives US investors advantages over other investors whose countries do not have that kind of trade agreement with Thailand.
For example, US firms could have 100 per cent ownership and are given "national treatment".
But all businesses are covered by the Alien Business Law of 1972, which still protects local businesses in the service sector.
Foreign investors, including Americans, have long been calling for Thailand to liberalize services such as banking, telecom, insurance and professional services.
Trump 2.0 could alter the trajectory of the relationship.
“Under Trump, US economic relations with Thailand will not be based on friendship, but it would be transactional — meeting US interests,” said Pongkwan Sawasdipakdi, political scientist at Thammasat University.
But looking at the other side, the country could have the leeway to make business deals with other countries, she added.
Intensified trade war
Should the trade war intensify next year, it would be harder for Thailand to boost the economy and achieve the export growth target of around 3-4 per cent, up from the estimated 2-2.8 per cent this year.
Thailand’s exports to the US are worth around $48 billion annually, accounting for almost 10 per cent of gross domestic product. Hence, any trade barrier erected by the US would significantly impact the country’s exports, according to Supavud.
The way around this problem would be to seek other markets, but that is not an easy solution.
“If other countries are facing high US tariffs, their economies would also be adversely affected and they would have lower purchasing power to buy Thai goods,” Supavud warned.
Some items, such as food products, may be spared high tariffs, as the US government may not want the prices of groceries to be high, which was blamed primarily for the Democrats losing the election.
Supavud suggested that as Trump would focus on creating tariff barriers against goods, Thailand may need to export more services, such as tourism and wellness hospitality.
Change in trade pattern
Another scenario is of China dumping goods in other markets, including Thailand, as it has done recently, if the US imposes high punitive tariffs on Chinese-made products.
The flooding of local markets with cheaper Chinese products would hurt both local industry and employment.
Commerce Minister Pichai is cautiously optimistic, saying the government has set up a task force to supervise the issue.
“In the past three months, the government has successfully implemented good standard measures leading to a 35 per cent reduction in low quality and cheap imported products,” he said.
But economists are worried that China could route its products to the US market via Thailand. This kind of indirect trade would ruffle US feathers, raising the risk of Thai products being subject to high tariff rates similar to China.
“The US would monitor such practices of rerouting products,” said Supavud.
Impact on investors in global financial assets
The central bank has significantly liberalized portfolio investment abroad, helping financial institutional investors or retail investors to hedge their risks and find investment opportunities.
Many Thais invest in the stock and bond markets in China, Hong Kong, Taiwan, Japan, Europe and the United States via mutual funds or trade directly.
According to Bank of Thailand statistics, as of November 10, Thai portfolio investment position abroad was huge, worth an estimated $96.7 billion (3.3 trillion baht).
Top destinations are: European Union and the United Kingdom ($30 billion), the US ($16.4 billion), Asean ($11.5 billion), Japan ($6.9 billion), Hong Kong ($3.5 billion), China ($2 billion) and South Korea ($1.6 billion).
With a trade war on the horizon, the financial markets could change radically when Trump takes office in January next year.
“Investors may need to adjust their portfolios, but it would take time for Trump’s policies to take effect,” said Paiboon Nalinthrangkurn, CEO at TISCO Securities.
For example, during his first term as president, it took about a year before Trump imposed the first round of high tariffs on Chinese products, he pointed out.
The US bond market has already reacted to Trump's win with a rise in the yield of 10-year maturity bonds, as investors anticipate risk of high inflation from tax policies, both high tariffs and tax cuts, said Supavud.
The market foresees that should inflation reverse the current downtrend, the US Federal Reserve would delay further rate cuts, or even hike the rate to fight inflationary pressure.
As the US stock market soars to record highs, there is a risk of an asset bubble next year, according to some analysts.
Trump has promised to cut corporate tax to 15 per cent from 21 per cent, which would boost the stock market.
Kongkiat Opaswongkarn, founder and CEO of Asia Plus Group, played down the risk of an asset bubble, saying that US shares give high returns and when prices go up, investors could sell some shares and wait to buy them back when the price drops.
