Foreign direct investment (FDI), especially investment coming from China, is expected to be hard hit by America's reciprocal tariff policy, says a unit of China Galaxy Securities (CGS), a state-owned brokerage, which noted that the steep US tariff would dent Thai GDP by about 1% this year.
The sectors that are likely to be hit hard once the 36% tariff becomes effective on July 8 include industrial estates, electronics, electrical appliances and auto parts, assuming the reciprocal tariff is not further postponed, said Kasem Prunratanamala, head of research at CGS International (CGSI).
CGSI believes that this would impact FDI applications, especially from China, which amounted to 175 billion baht (US$5 billion), forming 21% of total FDI in 2024, Mr Kasem said, citing figures from the Board of Investment (BoI).
FDI applications from China ranked second in 2024 after Singapore, whose BoI applications amounted to 358 billion baht ($10 billion) forming 43% of FDI applications for the year.
"However, we believe that some of the Chinese FDI may be channelled through Singapore. If this is the case, we believe the reciprocal tariff would also negatively affect FDI from Singapore. This would bode ill for industrial estate developers," noted Mr Kasem.
Meanwhile, the government estimates that the reciprocal tariff will affect exports by about $7-8 billion or 13-15% of exports to the US, or 2.3% of total exports last year.
The country's proposals to Washington include raising Thai imports of US energy, as well as aviation and agricultural goods, while suppressing the use of Thailand as a transit point for goods heading to the US.
"In our view, it will be difficult for the Thai government to reduce tariffs on agriculture products as it has to protect local farmers. However, the government may allow access for certain US agricultural products that are unlikely to affect many Thai farmers, such as animal feed and beef products from the US," he noted.
CGSI estimates that the total impact of the reciprocal tariff on the Thai economy will be around 0.9-1.2% this year.
Assuming the US tariff causes Thailand's total exports and imports to decline by 10% year-on-year in 2025, the negative direct impact on GDP will be about 0.5%.
However, lower exports are likely to translate into lower private consumption, especially for the low-income segment as factory workers may not be required to work overtime, Mr Kasem said.
Thus, the tariff could dent private consumption by 3-5%. This could hit GDP by 0.4-0.7% as the manufacturing sector forms roughly a quarter of GDP in 2025.
"As such, the total impact on the Thai economy this year will be 0.9-1.2%, assuming that other factors do not change. Consequently, our economist has cut the GDP forecast for 2025 from 2.3% to 1.8%," he added.
Greater impact from the US tariffs and political uncertainties are downside risks while the central bank's policy rate cuts and government stimulus measures could catalyse the Stock Exchange of Thailand's index, which CGSI has estimated will reach 1,200 points at the end of 2025.