As the trade war is now being waged globally, Thailand needs to cope with the emerging impacts while trying to minimise the risks and grasp the arising opportunities. It is therefore important to understand both the upcoming headwinds and tailwinds for the Thai economy and businesses in Thailand.
The major headwinds include the impacts on trade, both exports and imports. Thai exports of goods, which account for almost 60% of Thailand's gross domestic product (GDP), will be negatively affected in the current trade war as tariffs are hiked by the Trump administration, with retaliation from China. This will result in lower global trade growth affecting Thai exports not only to the US but also to other major export markets -- China, the EU, Japan, and Asean. The Thai export value in US dollars may grow by only 2-3% this year, or half of last year.
Top Thai exports to the US will be negatively affected by the Trump tariffs. They include electronics, electrical appliances, machinery, automobile & parts, agriculture and processed agriculture, and jewellery and parts. Even though the 90-day pause (from April 9, 2025) on the US reciprocal tariffs was announced for most countries except for China (now an additional 145% tariff rate), Canada (24%) and Mexico (25%), there is still a 10% tariff hike on all countries starting on April 5, 2025. After the 90-day pause, tariff rates will most likely remain higher than those before the additional tariff hikes were imposed. This would raise the prices of imports in the US and could reduce the demand for them. Thus, Thai exports to the US will slow down in the second half of this year.
The extent of the slowdown of Thai exports to the US, however, will depend on the tariff rate levied on Thailand relative to its competitors. Should the tariffs levied on certain competitors' products be much higher than those of the same products from Thailand, Thai products may have a chance of expanding their export share in the US market. For example, US imports of syringes and needles from China today face a total tariff of 245%, while those from Thailand face an average tariff of 15%. It remains to be seen after the 90-day pause as to how much additional tariff Thai key exports to the US will face compared to its competitors like Vietnam, Indonesia, or Mexico.
Amid the intensifying trade war, imports into Thailand will also rise. As countries face higher tariff barriers, especially from the US, they will try to find new markets, including Thailand. This includes Chinese products, especially raw materials, intermediate goods, and capital goods, which have been the top imports to Thailand over the past four years, and will continue to rise. This is supported by the demand for them by both Thai and Chinese companies in Thailand. This trend will increase over the next few years as more Chinese direct investments pour into Thailand. Specific products, such as steel and aluminum products that now face additional US tariffs of 25%, may also find their way to Thailand from South Korea, Japan, and China.
Moreover, the US, in its attempt to reduce its trade deficits, will also want Thailand to import more from the US. This could be done by requesting Thailand to reduce tariffs on US products (eg, soybeans and automobiles and parts), raise import quotas for US products (eg, corn and coffee), and reduce health standards that are now prohibiting the imports of US products (eg, beef and pork). In addition to goods, the US may ask Thailand to reduce its restrictions on investment in services for US companies. On the other hand, Thailand plans to offer to import more liquefied natural gas (LNG) or other agricultural produce from the US. The US products to which Thailand will open its market will depend on the negotiations that take place over the 90-day period.
Despite the above headwinds, relocations of businesses to Thailand will continue as multinational companies (MNCs) seek diversification amid the trade war. Thailand, being a country that is neutral to all sides in the geopolitical tension, is an attractive destination as it is relatively easy to import and export from Thailand. This is particularly true compared to China and for exporting to non-US markets, which account for over 80% of world trade. This global-scale relocation happens only once every few decades. It is therefore a rare opportunity for Thailand to continue attracting foreign direct investments, for which the Board of Investment registered a record-high approval value of applications last year.
Other tailwinds include falling global inflation and interest rates. As global demand softens, commodity prices, including those of oil, are also declining. Brent crude oil prices are projected to average $73 per barrel in 2025, down $7 per barrel from 2024. Overall shipping costs will also be lower than last year's as global trade slows down. As inflation falls, central banks in most countries will also reduce their policy rates, with commercial banks following the trend. For Thailand, inflation this year is estimated at no more than 1%. The policy rate could be reduced two more times this year by 0.25% each time, with commercial banks reducing their minimum loan rate (MLR) by around half of that.
The baht may weaken against the US dollar in the second half of the year. Thailand's export growth is expected to fall in the second half of the year, while imports would rise should US tariffs be hiked globally. This would lead to reduced capital inflows into the country, leading to a weaker baht against the US dollar.
To survive in the fragmented global trading and investment systems, countries and businesses must diversify. To do so, Thailand should remain neutral and promote trade with and investments from all countries. Free trade agreements with more trading partners should be drawn up soon, eg, with the European Union and other new markets such as the Middle East and India.
Businesses should also diversify to more partners for both B2B and B2C. To adapt to competition from imports, businesses should find ways to use those imports as inputs, especially if they can help to reduce the cost of production of manufacturing or services. These actions must be taken quickly, as the global trading system will be reconfigured at an increasing speed from now onwards.
Kirida Bhaopichitr, PhD, is a Research Director for International Economics and Development Policy and Director for the TDRI Economic Intelligence Service (TDRI EIS).