Thailand submits final proposal in US trade talks, aims for competitive ASEAN tax rates

Thailand has entered the final stage of negotiations with the United States on tax rates, with the deadline approaching on August 1, 2025. As pressure mounts from the success of trade deals between other ASEAN countries and the US, Thailand is hoping to secure a competitive tax rate in line with its regional counterparts.

Vietnam was the first in Asia to reach a deal with the US, agreeing to a 20% counter-tariff, followed by Indonesia at 19%. Recently, US President Donald Trump announced a reduced 15% tariff on Japan, down from 25%, after Japan agreed to open its markets, including importing cars, trucks, rice, and some agricultural products. The agreement is expected to create "hundreds of thousands of jobs."

Following a meeting with Philippine President Ferdinand Marcos Jr., Trump also announced a 19% tariff on imports from the Philippines, stating that the Philippines would open its markets to the US without any tariffs, also strengthening military cooperation. Trump did not provide further details on the trade agreement.

The ongoing negotiations, with several Asian countries having already reached agreements, are placing pressure on Thailand, which has officially submitted two rounds of proposals to the US. A final proposal was submitted recently, with Deputy Prime Minister and Finance Minister Pichai Chunhavajira revealing that the US has reviewed 90% of Thailand’s proposal and has made some counter-proposals based on their policy requirements. Thailand will consider these and decide whether they can be met.

“We hope the US will reduce the import tariff from 36% to a rate closer to that of the region,” said Pichai. He added that the US is considering the tax rate as a group of countries, aiming for more efficient management of tariffs.

When asked whether the US had added any new conditions, Pichai confirmed that the US has not requested additional terms, but has outlined the policies they expect from Thailand, which will be reviewed before final decisions are made. Pichai expressed hope that a final answer from the US would come before the August 1 deadline.

"Team Thailand is working hard on all fronts to complete the negotiations. The final proposal was submitted on July 23, and we expect the US to provide their response soon," Pichai said.

Thailand Prepares for Three Potential Tax Outcomes

The SCB Economic Intelligence Centre (SCBEIC) has forecast three potential scenarios regarding the impact of US tax negotiations on Thailand, as the country approaches its final round of discussions with the US:

1. No Tax Reduction: If negotiations fail to lower the current tax rate, and the US imposes a 36% tariff on Thailand, it could significantly affect the Thai economy. In this scenario, Thailand's GDP growth for 2025 would be limited to just 1.1%, with 2026 GDP growth at 0.4%.

2. Partial Tax Reduction: If some progress is made, but the tax rate remains higher than that of Thailand's competitors, assuming a 25% tariff, Thailand's GDP for 2025 would grow by 1.5%, and 2026 would see 1.2% growth.

3. Competitive Tax Rate: In the best-case scenario, Thailand secures a tariff reduction to around 23%, bringing Thailand's GDP growth for 2025 to 1.5%, and for 2026 to 1.4%.

Investment Conditions Beyond Tax Rates

Poj Aramwatananont, Chairman of the Thai Chamber of Commerce, remarked that Japan’s recent tax deal with the US at 15% is unlikely to significantly impact Thailand. Japan exports many automobiles to the US, but the tax deal does not affect Thailand’s investment or manufacturing base moving to the US. He explained that tax rates are not the sole factor in investment decisions or the relocation of manufacturing operations.

When deciding on where to invest, several factors come into play, such as investment readiness, land availability, labour, and overall costs. If manufacturers decide to relocate, they will consider other countries as well, not just Thailand.

The final outcome of the Thailand-US tax negotiations remains pending, as several ASEAN countries, including Indonesia and the Philippines, have already concluded deals with tax rates at 19%. Thailand hopes to negotiate a final rate of no more than 20%. Pichai will meet again with the US Trade Representative (USTR) online this week, with expectations that the deal will be finalised by next week, he said.

Impact of Japanese Investment in Thailand

Nonarit Bisonyabut, Senior Researcher at the Thailand Development Research Institute (TDRI), stated that Japan's recent tax deal with the US, setting the tariff rate at 15%, and Japan's plan to invest $500 billion in the US, requires a clear assessment of whether it will affect investments in Thailand. Investment decisions are generally long-term, with a focus on 5-10 years.

He noted that changing investment locations is not an easy process. The relocation of investments would occur only if investors are certain that Thailand has an uncompetitive deal with the US and that Thailand's taxes will be higher than Japan’s in the long run.

"Besides taxes, the cost of relocating investments is also significant, and it's not an easy decision to move. If Thailand's tax rates are not significantly higher than Japan's—say, more than 10-15%—they may not decide to relocate, as there are other factors to consider," he explained.

Currently, business owners are slowing down investments, awaiting clearer tax rate decisions before committing to ensure their decisions are correct.

As for Japan’s proposed $500 billion investment in the US, Nonarit suggested that the impact on ASEAN's foreign direct investment (FDI) remains uncertain, depending on the sector and duration of the investment. If the investment is long-term, the annual average investment value may not be significant.

He further stated that if the investments are in sectors not aligned with those in Thailand, it might not affect Japan's investment plans in the country. However, if the investments are directed towards sectors that overlap with those in Thailand, it could pose a greater risk.