Thailand Wary as US Tariff Deal Threatens Export Sector Stability
Despite a reduced 19% US tariff, a leading Thai think tank warns of significant economic costs, potential import floods, and the need for urgent economic recalibration
- While a US tariff on Thai goods was lowered from 36% to 19%, this new rate still represents a significant cost burden for exporters, threatening their income and the sector's stability.
- Major concerns stem from undisclosed concessions, particularly the potential opening of Thailand's domestic market to US imports, which could directly harm local producers and farmers in sectors like pork.
- The deal may require Thailand to reduce its trade surplus with the US by 70% over five years, forcing a difficult economic adjustment of increasing imports and decreasing exports.
- Thailand is urged to address the fraudulent re-exporting of Chinese goods ("round-tripping") to resolve a key US trade grievance and build trust.
Thailand's recent agreement with the United States, which saw a key import tariff reduced from 36% to 19%, has been met with cautious optimism and significant concern from the Thailand Development Research Institute (TDRI).
While the lower tariff is a welcome relief, the think tank warns that hidden concessions could severely impact Thai exports and necessitate a major economic rethink.
Nonarit Bisonyabut, a senior researcher at TDRI, noted that while the 19% reciprocal tariff aligns Thailand with regional competitors, details of what Bangkok conceded in exchange for this reduction remain unclear.
On the upside, the significant drop from the initial 36% tariff is expected to mitigate some negative impacts on the export sector and lessen the risk of businesses relocating to avoid "Trump-era" duties.
However, Nonarit stressed the considerable downside. A 19% tariff, for products previously untaxed, represents a substantial new burden.
"This means exporters will have to bear this burden to varying degrees," he explained, noting that while some costs might be passed to US consumers or absorbed across the supply chain, "19% is still a substantial figure that will significantly affect the export industry's income."
A major point of ambiguity lies in the "market openings" Thailand may have agreed to. Reports suggest tens of thousands of items could see liberalised import access, potentially reducing import tax revenue.
Nonarit suggested this might not be critical, as many opened categories likely include goods Thailand doesn't produce domestically or in sufficient quantities, thus benefiting consumers rather than impacting tax income.
"The real issue," Nonarit cautioned, "is which products the US will be able to directly compete with Thailand on, potentially affecting Thai producers, including farmers."
He specifically highlighted the potential liberalisation of the pork market, which could severely impact the domestic industry due to Thailand's higher production costs and safety standards.
While a balanced opening might stimulate competition, vigilance against issues like growth stimulants and disease outbreaks would be paramount.
Moreover, Nonarit emphasised the pre-existing need to enhance the agricultural industry through technology adoption, higher standards, and larger-scale production, presenting a clear challenge for government support and stimulation.
Looking at the broader picture, Thailand may have committed to reducing its trade surplus with the US by 70% over five years. This is a critical figure, given Thailand's annual surplus runs into trillions of baht.
Such a reduction implies a need for increased imports and decreased exports. While the government can facilitate imports, Nonarit questioned its sustainability, suggesting Thai consumers might not be able to afford a significant increase in US goods.
"When Thailand imports more, it also means the export sector must decrease," he warned. "This will undoubtedly impact the broader economy. Therefore, urgent adjustments are needed to sustain the economy, whether by increasing exports to other countries, reducing production costs, or finding alternative sources of income."
Finally, Nonarit urged the government to swiftly address "round-tripping" or origin fraud, which he believes contributes to Thailand's trade surplus with the US by re-exporting Chinese goods as Thai.
He called for improved inspection mechanisms, stricter monitoring of goods, and enhanced cooperation with the US to build trust, educate exporters on correct procedures, and penalise perpetrators. SME businesses, he added, would require support to find their niche, lower costs, or scale up to remain competitive.
