The specter of a global downturn reminiscent of the Great Depression of the 1930s looms large, with egregious consequences for Thailand’s economy, after President Donald Trump hiked tariffs on all US trading partners.
With the baseline 10 per cent tariff already in effect from April 5, Thai exports face significant challenges ahead when the 36 per cent levied on Thailand comes into effect.
Trump’s controversial decision to implement sweeping high tariff rates on all US trading partners has prompted worries of a global recession. Thai economists are wary of the repercussions for Thailand's economy.
Reasons behind US trade claims
The US argues that Thailand, along with other countries, imposes higher import duties on US products, along with non-tariff barriers, which hinder sales of American goods.
According to the “2025 National Trade Estimate on Foreign Trade Barriers by the President of the US on Trade Agreement”, Thailand’s average applied tariff rate as a Most-Favored-Nation was 9.8 per cent in 2023. The rate was much higher on agricultural products at 27 per cent, while non-agricultural products faced a 7.1 per cent tariff.
Thailand currently restricts the import of biofuels intended for fuel use, aiming to support domestic farm income as a primary objective of its Alternative Energy Development Plan.
Import licenses are required for many items, including wood, petroleum, industrial machinery, textiles, pharmaceuticals, cosmetics, food and agricultural products such as plants, seeds, processed meats, and salt. Moreover, Thailand imposes food safety inspection fees in the form of import permit fees on all shipments of cooked and uncooked meat.
Concerns over customs penalties and reward system
Thailand provides incentives to customs officials who initiate investigations and for enforcement actions, making it one of the few major US trading partners with such a system. This has been a cause for concern among Thailand’s trading partners due to the scope for corruption and associated costs, uncertainty and lack of transparency. The customs penalty and reward system remains a contentious issue, casting a doubt over fair trade practices, according to the US report.
Technical barriers to trade
In June 2024, Thailand notified the WTO Committee on Technical Barriers to Trade about a new draft regulation regarding marketing restrictions on food for young children. US industry raised concerns that these restrictions do not provide sufficient clarity for companies to understand which products must comply. US industry also voiced concerns about the potential negative impacts on US exports of various milk products to Thailand, according to the US report.
Implications of increased tariffs
The tariff hike by the US poses a huge threat to Thailand’s economy, considering exports comprised nearly 65 per cent of gross domestic product in 2024. Higher tariffs on Thai exports to the US could lead to reduced demand for Thai products, resulting in lower revenues for Thai businesses and potential job losses at home.
This, in turn, could ripple through the economy, affecting consumer spending, investment and overall economic growth.
The heightened trade barriers could also exacerbate existing tensions between the two countries, potentially leading to retaliatory measures from Thailand. Such a scenario could further strain bilateral relations and disrupt trade flows, ultimately harming both economies.
Does Thailand have a choice?
Thailand has almost no leverage to negotiate with the US on tariff rates, according to some economists.
The 36 per cent reciprocal rate Trump has imposed could have immediate deleterious consequences for Thailand’s economic growth. According to the “2025 National Trade Estimate on Foreign Trade Barriers by the President of the US on Trade Agreement”, Thailand ran trade surpluses worth $45.6 billion last year, ranking 11th among countries having large trade surpluses with the US.
The challenge before the Thai government is to come up with a strategy to negotiate a lower tariff rate. Local economists think Thailand has no choice but to give in to the US demand on reduction of tariff rates and the removal of non-tariff barriers.
“We do not have negotiation power as we depend heavily on the US market, while the US depends less on ours,” said Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Financial Group.
The new tariff rate of 36 per cent would slash Thailand's economic growth rate by 1.1 percentage points, according to estimates. However, the extent of the fallout would depend on how long the reciprocal tariffs would last. The tariff rate could be lower at around 10 per cent plus, he said.
Thailand’s key exports to the US include telephone sets and parts for wireless, computer and hard disc drives, rubber tires, solar PV, static converters and parts for machines. Among manufacturing goods, exports of auto parts and hard disc drives could be hit hard, said Pipat.
“If Thailand concedes to the US demand and reduces tariff rates on maize and soybeans from the US, some local agro-businesses that import maize from neighboring countries via contract farming would be hurt, but the animal feed industry would benefit as they use maize and soybeans as key raw materials,” Pipat said.
Opening the Thai market for US meat, pork, chicken and milk products could impact the local livestock industry, but it would be beneficial for Thai consumers, said Pipat. He suggested that Thailand purchase more US products, such as crude oil, liquid natural gas, airplanes, machinery and weapons. The country could also invest more in the US and address US concerns over intellectual property rights protection and labor rights.
Piyasak Manason, head of economic research at InnovestX Securities, believes there is a 50 per cent chance of Thailand being successful in negotiating a reduction in tariff rates to the universal rate of 10 per cent.
“A baseline forecast for Thai GDP this year is that it would grow by 1.7 per cent, lower than the 2.5 per cent forecast before Trump announced the reciprocal tariffs,” said Piyasak.
In the worst-case scenario, if negotiations fail and the US imposes a reciprocal tariff rate of 36 per cent on Thai products or an average tariff rate of 28 per cent for all countries — of which there is a 40 per cent chance — Thai GDP would contract by 1.1 percentage point.
“And in the nightmare scenario where no country succeeds in negotiations with the US and every country implements retaliatory policies against each other — a 10 per cent likelihood — then Thai GDP could contract by 10-20 per cent,” said Piyasak.
“The nightmare scenario would look like what happened during the Great Depression of the 1930s when the average US tariff rate was at 50 per cent."
As Thais noticed Vietnam's leader moving fast in negotiations with Trump, Thai netizens took to social media platforms to slam the coalition government led by the Pheu Thai Party for its slower response to the US tariff threat. They condemned the government for being busy with pushing the casino bill into the Parliament agenda, with some blaming the government for prioritizing the wrong issues.
Strategies for mitigation
To survive the threat of a potential economic depression, many analysts believe Thailand must adopt proactive measures to mitigate the impact of increased tariffs and trade barriers. These strategies could include:
︎- Diversifying export markets: Thailand should seek to expand its export markets beyond the US to reduce dependency on a single trade partner.
︎- Enhancing trade relations: Strengthening trade relations with other countries and regional blocs could help offset the negative effects of US tariffs.
︎- Improving domestic competitiveness: Invest in innovation, technology and infrastructure to enhance the competitiveness of Thai products on the global stage.
︎- Negotiating trade agreements: Engage in diplomatic negotiations to secure favorable trade agreements and reduce tariff barriers.
︎- Supporting local industries: Provide subsidies, tax incentives and financial support to local industries affected by higher tariffs.
︎- Monitoring and reforming customs practices to ensure transparency and fair practices.
