Trump’s 36% tariff a disaster for Thai economy, banks warn of ripple effect across sectors

Thailand is facing growing pressure from the looming deadline for negotiations over retaliatory US tariffs, with just two weeks left. The risk is especially high if the US imposes tariffs on Thai imports that are significantly higher than those on competing countries, threatening not just exports but the broader economy.

Piti Tantakasem, CEO of TMBThanachart Bank (ttb), said a 36% tariff would be catastrophic for Thailand. While some countries have already conceded to the US by offering tax breaks in exchange for lower import duties, Thailand now faces an economic threat of historic proportions.

1. Export impact: High-value exports to the US—such as electronics, auto parts, appliances, jewellery and rubber—would suffer significantly. Thailand’s competitiveness would be severely undermined, especially for products the US imports from multiple countries, including mobile phones, computers and car components.

2. Domestic supply chain disruption: Sectors with complex domestic supply chains, like semiconductors, rubber and appliances, would suffer indirect losses amounting to 497 billion baht as factories and parts suppliers take a hit.

3. Impact on labour and consumption: The tariffs are expected to affect 1 million workers by 2028, mostly in manufacturing. This would reduce household income and drag down domestic consumption, further weakening the macroeconomy.

Piti added that in the medium to long term, Thailand’s dependence on foreign direct investment (FDI) is a vulnerability, as it lacks proprietary technology. If US tariffs are higher for Thailand than for its competitors, the country stands to lose in two key areas:

• Competitiveness: A 36% tariff, compared to Vietnam’s 20% or Indonesia’s 19%, would see Thailand fall down the global supply chain and become perceived as a high-risk investment destination.
• FDI losses: Vietnam’s FDI has outpaced Thailand’s by 15 times since 2015. Key Thai export sectors like electronics, autos, and processed food could shift production elsewhere for better tariff advantages.

Minimal impact from US import duty exemptions

Conversely, some analysts argue that conceding to lower US tariffs may be beneficial. The loss of revenue from waiving US import duties would be only around 35.9 billion baht a year—just 0.2% of total government revenue. US imports already face low tariffs and come in limited volumes.

The economic upside includes:

1. Lower animal feed costs: US corn is 14% cheaper than Myanmar and Laos. Importing US corn could save 60 billion baht in animal feed costs, improving the competitiveness of Thai processed food exports (chicken, pork, pet food), while reducing incentives to grow corn on highlands—thereby cutting PM2.5 emissions from agricultural burning.
2. Cheaper medicines and medical supplies: Imports of US pharmaceutical products and equipment would become more affordable, benefiting public health services without undermining domestic producers, who target different market segments (low-end vs high-end).

Ultimately, while zero tariffs on US goods may upset certain sectors, it would help stabilise the Thai economy and prevent deeper damage. In contrast, if the US imposes the 36% tariff, the ripple effects on industry, jobs and investment could cost Thailand an estimated 1.23 trillion baht.

Hoping for no more than 10% tariff gap with rivals

Kris Chantanotoke, CEO of SCB (Siam Commercial Bank), said that with around 20% of Thai exports—worth roughly 2 trillion baht annually—bound for the US, a high import tariff would have serious consequences.

Personally, he believes that the outcome of the negotiations should aim to ensure that Thailand is not at a significant disadvantage compared to other ASEAN competitors. Ideally, the tariff difference should not exceed 10%. “If we can manage that, Thailand’s export sector can still compete reasonably with ASEAN peers,” he said.

“But if the gap exceeds 10%, Thailand will be at serious risk. Vietnam already has the upper hand, and while we wait for clarity, we must negotiate hard to stay competitive against Malaysia and Indonesia. The key is that the relative tariff gap must not exceed 10%.”

Kris added that the tariff hike would mainly affect major industries like automobiles, electronics, food, and certain commodities. However, SCB’s exposure appears manageable, with the main affected group being food exporters to the US. He emphasised the bank is closely supporting these clients through the crisis. “If our clients don’t survive, neither do we. So we must weather this storm together.”

SCB’s assistance measures are case-specific. “We can’t offer broad-brush support,” he said. “Each business has a different level of resilience.”

He also warned that the Thai economy is expected to grow no more than 1.5% this year, with second-half growth possibly as low as 1%. Many experts worry that Thailand could slip into a technical recession.

Only two weeks left before the US tariff deadline

Kobsak Pootrakool, Executive Vice President and Corporate Secretary of Bangkok Bank, stressed that Thailand has just two weeks left to negotiate with the United States. “Finding a way out starts with identifying the ‘problem’ clearly,” he said.

“In our case, the problem is the economic damage looming ahead. No matter what route we take, we face a form of loss. The key is to choose the path that causes the least damage.”

He outlined three types of damage:

• Harm to the export sector
• Harm to parts of the economy that Thailand has long protected
• Harm to the long-term future of Thailand’s economy

While the third form of damage may not be immediately visible, it will become more apparent with time. Currently, Thailand is trailing behind other major ASEAN countries. Singapore faces a 10% US tariff, Indonesia 19%, Vietnam and the Philippines 20%, and Malaysia 25% (still under negotiation). Key rivals like India are nearing a deal to reduce their tariff from 26%.

“Given this landscape,” Dr Kobsak concluded, “Thailand has very few options left.”

At 36% tariff, a 200-billion-baht relief package won’t be enough

Kobsak stated that if Thailand hesitates and the tariff ends at 36%, the damage will primarily affect the export sector, which accounts for 60% of GDP. The export sector is so large that it will be difficult to provide full relief. As a result, the 200-billion-baht soft loan might not be sufficient.

He said the government may need to increase the relief budget after Thai customers shift their supply chains to competing countries. A 36% tariff will severely harm Thailand’s future as the country is currently battling to attract new foreign companies and shift production bases into the modern world.

Thailand is already at a disadvantage compared to Vietnam and Indonesia, as investors typically consider Vietnam and Indonesia first, with Thailand ranking third. With Thailand’s 36% tariff versus competitors’ 19-20% tariffs, foreign companies are more likely to choose Vietnam and Indonesia, with Malaysia as a distant third.

Concerns of Thailand being left behind

The consequences of this situation could lead to Thailand being "left behind," with no strong production base to generate state revenue, resulting in a bleak future. The overall damage would be too great for Thailand to absorb, so the country must strive to avoid this scenario.

Thailand’s only path forward is to successfully negotiate a deal. Other countries have already succeeded in their negotiations, putting additional pressure on Thailand. If negotiations are delayed, there are two possible paths forward:

Option 2: Propose a 0% import tariff, similar to Vietnam and Indonesia, along with Total Access and Non-Tariff Barriers Free, which will impact all sectors.

Option 3: A middle-ground approach, negotiate but avoid total agreement—starting with Vietnam and Indonesia’s 0% tariff and Total Access, then assess what Thailand can realistically offer and remove from the table. This option would likely result in tariffs slightly higher than Vietnam and Indonesia’s rates.

“The target tariff Thailand should aim for is 25%,” said Kobsak. “If the tariff is only slightly reduced to 30%, there will still be a 10-11% difference that will make competition difficult, both in terms of exports and attracting investment. However, if the tariff ends at 25%, the difference will be 5-6%, which will allow the private sector to adapt. The export sector will still be able to perform, and the need for relief will be reduced.”

As for attracting FDI (Foreign Direct Investment), Thailand can still compete, and foreign companies have not dismissed Thailand. The government can help mitigate the 5-6% difference by covering costs related to energy, regulations, and other fees. While there will still be some damage, it can be managed.

Regarding the relief fund, the 200 billion baht allocated should be enough. As the adjustment process moves forward, the need for relief will gradually decrease. This middle-ground approach is expected to result in the least long-term damage for Thailand.