06-07-2025
Thailand holds its breath
The Thai business sector remains optimistic that tariff negotiations with the US can yield a favourable outcome after Vietnam recently made headlines by securing a 20% tariff rate on shipments to the US along with a waiver on import duties for American products.
Thailand is part of a group of key trading partners, including Japan, the European Union (EU) and South Korea, still awaiting final decisions ahead of a July 9 deadline US President Donald Trump imposed back in April for negotiations.
Under the terms of the US-Vietnam tariff agreement, Washington is imposing a 40% levy on goods that originate from third countries but are routed through Vietnam, a measure widely seen as curbing Chinese efforts to bypass tariffs.
Economists say Thailand may have a competitive edge in its negotiations with the US, as it already enforces mechanisms to prevent such practices.
TRUMP'S REAL TARGET
Nattapol Kamthakrua, director of securities analysis at Yuanta Securities (Thailand), said Trump's real intention with reciprocal tariffs seems to be blocking China's growth and isolating the mainland.
"That's why I believe Thailand holds a competitive advantage when compared with Vietnam because Thailand was among the first countries in the world to introduce measures to prevent China from using our country to obtain a preferred tariff rate for exports to the US," he said.
Vietnam did not impose such measures to obstruct Beijing from using the country's low manufacturing capability for exports, said Mr Nattapol.
In addition, Thailand's trade surplus with the US is lower than that of Vietnam, he said.
Mr Nattapol said S-curve industries may consider investment in Vietnam instead of Thailand given that nation's competitive labour costs. Yet Thailand still holds a competitive advantage in terms of infrastructure development.
Victor Ngo, chief executive of UOB Vietnam, said the US tariff has triggered "a sense of urgency, where firms are seizing the opportunity to expand to new geographic markets".
Vietnam's government is stable and is pushing to develop the country, aiming to accelerate economic growth, he said.
"Vietnam is still relevant as a cost-effective and productive investment destination. The country repositioned itself for the next phase of growth into a high-income country by 2030," said Mr Ngo.
Sompop Manarungsan, president of Panyapiwat Institute of Management, said Thailand is probably not a target of US reciprocal measures.
He assessed the US goal as trying to get Thailand to offer the most proposals and concessions that are beneficial to the US in negotiations.
"The real test is how our products compete with those from other countries after we implement cost management, which each country will handle differently," said Mr Sompop.
He said if the US administration is prudent, it is unlikely to impose a discriminatory tariff rate on Thailand that significantly differs from countries, as doing so would not benefit the US in terms of diplomacy or the management of international relations.
Thailand is not a major competitor of the US, such as China, the EU, or even Canada and Mexico.
Likewise, countries closely aligned with US rivals, such Laos and Cambodia, which have strong ties with China, might face more scrutiny from Washington, said Mr Sompop.
US Treasury Secretary Scott Bessent said he wants to wrap up all tariff agreements by Sept 1, which is the US Labor Day, announcing them at that time.
The US is expected to maintain the 10% baseline tariff rate until the end of August, except for countries deemed uncooperative, which may be singled out as examples to deter others, said Mr Sompop.
"I believe countries that are not US adversaries will ultimately receive tariff rates within a similar range," he said.
POTENTIAL LOSERS
Aat Pisanwanich, an analyst in international economics and advisor on Asean affairs at Intelligence Research Consultant, said the US's new tariff policy will impact both industrial and agricultural products from Thailand.
Based on Thailand's trade surplus with the US in 2023, industrial items will face a greater impact because roughly 90% of Thailand's exports are industrial products, he said.
Specific industrial goods under threat include telecom equipment, computers and data processing systems, machinery parts, tyres, electronic equipment and semiconductors, transformers and power supply devices, motors and engines, rubber products, and electrical appliances.
Agricultural products such as rice and rice-based products, fresh and dried fruit, fruit and plant juices, and fresh and processed vegetables may also experience significant impacts, according to Mr Aat.
If the US imposes the same tariff rates on all countries in the region, Thai exports might struggle to compete based on higher production costs and less effective marketing strategies in the US, he said.
Conversely, if the US imposes different tariff rates on different countries, Thai exports could face serious challenges if tariffs on Thai products are higher than those from other Southeast Asian nations, said Mr Aat.
If Thai tariff rates are lower than those of its peers, the effect on exports to the US should be minimal, he said.
Proposals from countries in the region offer options to reduce trade deficits with the US while yielding broader economic benefits, said Mr Aat.
Should Thailand be hit with higher tariffs than its competitors, he urged Thai manufacturers to reduce production costs and called for government initiatives to support this goal.
"We should establish more distribution centres for Thai products in the US, and exporters should diversify into other markets to reduce reliance on the US," said Mr Aat. "More distribution centres will provide US consumers with better access to Thai products."
For instance, in Virginia Vietnamese businesses established retail and wholesale outlets similar to Makro to sell fruit and processed agricultural products.
Dhanakorn Kasetrsuwan, chairman of the Thai National Shippers' Council (TNSC), said higher tariffs from the US could significantly impact Thailand's automotive and auto parts industry.
Without a free trade agreement (FTA) with the US, Thai auto parts could be damaged by US protectionist measures targeting products from nations that lack such agreements, he said.
Primary competitors of Thailand such as Mexico, South Korea and Vietnam all benefit from trade agreements with the US or lower labour costs.
Electrical appliances and electronics could also face a severe impact, as major Thai exports to the US such as rice cookers, air conditioners and washing machines would likely lose their competitive edge to Vietnam and Mexico if tariff rates increase, said Mr Dhanakorn.
Thai exports of furniture and household items to the US ramped up amid the US-China trade war. These sectors face stiff competition from Vietnam, which benefits from certain tariff exemptions and lower labour costs.
Rubber products, including gloves and tyres, are also at risk, especially if the US imposes anti-dumping or countervailing duties, which could impact exports. Malaysia and Indonesia are significant competitors in this field.
Processed agricultural goods, such as frozen foods and canned fruit, may come under scrutiny for relying on inexpensive labour, raising fair trade concerns that may affect US tariffs, according to the TNSC.
ADDRESSING CHALLENGES
In the future, Mr Dhanakorn said digital trade taxes and tariffs linked to environmental, social and governance (ESG) concerns could create new challenges, pressuring Thailand in these areas.
To address these challenges, he said Thailand must pursue an FTA with the US. An alternative could be developing another version of the Generalized System of Preferences, along with a trade framework that creates a foundation for dialogue and mitigates risks, said Mr Dhanakorn.
He said Thailand should gather data on comprehensive production costs and ESG to address claims of labour exploitation and environmental harm.
Transparency within agricultural and labour-intensive supply chains is vital, while implementing traceability systems will demonstrate Thailand's dedication to preventing illegal transshipment and promoting responsible supply chain practices, said Mr Dhanakorn.
He also suggested Thai exporters explore opportunities in the Middle East, China and South Asia. Some production activities may need to be shifted to countries with existing FTAs with the US, said Mr Dhanakorn.
Thai producers should focus on developing innovative and high-quality products to offset rising costs, he said.
Supant Mongkolsuthree, chairman of IT product distributor Synnex (Thailand) and former chairman of the Federation of Thai Industries, said Thailand cannot shoulder more troubles as it struggles with a domestic political squabble and a tourism slowdown.
He said manufacturers should seek new markets to reduce dependence on the US.
Mr Supant said Southeast Asia would be a good start, as Thailand can generate economic value via exports to these countries or through border trade with neighbouring countries, though the nation remains at odds with Cambodia.
Other potential markets for Thailand include Islamic countries with demand for halal products, as well as target customers in niche markets, said Passakorn Chairat, director-general of the Office of Industrial Economics.
"We have to think of new business opportunities in an aged society and among unmarried consumers who like functional food," he said.
VIETNAM PERSPECTIVE
Tran Phuoc Anh, Vietnamese ambassador to Singapore, said Vietnam received a good tariff deal with the US.
"While some observers may have a different perspective, I believe this is a good, balanced trade deal, acceptable to all parties," he said at a Singapore conference entitled "Asean Integration in a Multipolar World", co-hosted by United Overseas Bank (UOB).
Vietnam finds itself at a strategic crossroads, geopolitically, economically and diplomatically, said Mr Tran.
"The geopolitical position of Vietnam is very important, because we connect with the major economic regions in the world. Coupled with our political stability, this has made Vietnam an attractive partner in the global economy," he said.
The country has signed 16 FTAs, including international groupings such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership and the EU-Vietnam FTA.
"The strategic supply chain is well-diversified," said Mr Tran.
Vietnam has appealed to global manufacturers seeking stability, cost efficiency and skilled human resources, with Samsung, Apple, Lego and Foxconn all expanding their footprint in the country, he said.
"Despite headwinds from global inflation and trade fragmentation, Vietnam recently posted 7.1% GDP growth, and we are determined to record 8% growth this year and double digits the following year," said Mr Tran.
According to UOB's Mr Ngo, the US is the top export market for Vietnam, accounting for 30% of its exports in 2024, followed by China at 16%, South Korea 7% and Japan 6%.
"Based on our assessment, there are four sectors that face the greatest impact from the US tariff: electronics, textiles and footwear, wood and furniture," he said.
