Thailand faces tax hike after US delays trade agreement; border clashes impact diplomacy

The Thai government is facing significant economic uncertainty as US President Donald Trump has delayed the finalisation of trade talks with Thailand due to ongoing tensions with Cambodia along their shared border. The reciprocal tariff negotiations, initially set to conclude before August 1, 2025, have been postponed until the border conflict is resolved. If unresolved by the deadline, Thailand will face a 36% tariff on goods traded with the US.

On July 28, Malaysia, in its capacity as ASEAN Chair, arranged a meeting between Thailand and Cambodia to negotiate a ceasefire and de-escalate the conflict. This ceasefire is seen as a critical step before proceeding with discussions on trade and tax agreements between Thailand and the US.

Thai Deputy Prime Minister and Finance Minister Pichai Chunhavajira, expressed hope for a fair tax rate, ideally on par with ASEAN countries. Thailand’s Trade Representative team recently submitted the final proposal to the US Trade Representative (USTR), with an expectation that the tax issue will be resolved before the 1 August deadline.

Poj Aramwatananont, Chairman of the Thai Chamber of Commerce, highlighted the potential benefits of the US ceasefire initiative, noting that it could help prevent further loss of life and economic damage in both Thailand and Cambodia. He believes that a successful ceasefire would provide the necessary stability for economic recovery, even if full normalcy is not immediately achieved.

However, if the US and Thailand fail to reach an agreement by July 31, all goods arriving at US ports from August 1 onward will be subject to the 36% tariff. This could significantly affect Thai exports that were ordered between May and June 2025, which will take approximately 30-45 days to reach the US via sea freight.

The outcome of the ceasefire negotiations will play a pivotal role in determining the US tax rate on Thai imports, with US Treasury Secretary Scott Bessent confirming that the deadline is crucial for finalising the trade deal. Secretary Bessent has urged both Thailand and Cambodia to reach an agreement, underlining the importance of a peaceful resolution for the future of bilateral trade.

Thanakorn Kasetsuwan, president of the Thai National Shippers' Council (TNSC), has called on the Thai government to request a delay in the US reciprocal tariffs amid the ongoing border conflict with Cambodia. He stated that while Thailand may appear at a disadvantage, there are still opportunities to manage the situation.

He urged the government to appeal to the US to postpone the implementation of the 36% tariff, citing the ongoing conflict between Thailand and Cambodia. Thanakorn argued that this escalation was initiated by Cambodia, with Thailand forced to protect its territory and prevent further encroachment. He emphasised that this is a regular defensive measure and not an act of aggression.

“The Thai government should ask the US to delay the tariff enforcement, assuring them that Thailand is committed to a ceasefire and diplomatic dialogue. Thailand has always advocated for peaceful negotiations,” Thanakorn said.

He added that Cambodia exports relatively few goods to the US, so the US tariffs on Cambodia’s goods would not have a significant impact. However, Thailand, being a major exporter to the US, is more likely to face substantial consequences if the tariffs are imposed.

Kriangkrai Theeranukul, Chairman of the Federation of Thai Industries (FTI), echoed these concerns, stating that if the US and Thailand fail to reach a resolution by July 31, US tariffs will apply at 36% across all Thai exports, putting Thailand at a competitive disadvantage compared to regional neighbours like Vietnam, Indonesia, and the Philippines, whose tariffs stand at 20%, 19%, and 19%, respectively.

The impact of these tariffs could severely affect key Thai industries, particularly those with the US as a major trading partner, such as processed food, agriculture, automotive parts, electronics, textiles, jewellery, and steel. The estimated damage to Thai exports could range between 800 to 900 billion baht.

Kriangkrai revealed that Thailand has already submitted a second proposal to the US, differing from the initial offer, particularly in the number of product lines that could benefit from a 0% tariff. However, there has been no response from the US yet, though he remains hopeful for a favourable resolution before the deadline.

“If the US proceeds with the full 36% tariff, it could significantly impact Thailand's exports. Additionally, there is the issue of Chinese exports being channelled through Thailand, which increases the risk of the US imposing trade retaliation on Thailand in the future,” he said.

Affected Thai exports include furniture, tyres, hard drives, rubber gloves, clothing, canned and processed fruits, computers and accessories, ceramics, medical equipment, leather shoes, miscellaneous metals, plastics, air conditioners, canned seafood, and machinery.