How rising trade barriers can shape Thailand’s future

When the United States formally announced the enforcement of its new reciprocal tariff policy on April 9, Thailand, once labelled among the “worst offenders” due to its large bilateral trade surplus and perceived trade barriers, found itself in Washington’s crosshairs. Initially facing punitive tariffs of up to 37%, Thailand negotiated a reduction to 19%, in line with several ASEAN peers.

The US rationale included Thailand’s high average tariffs on American goods (especially agricultural products), non-tariff barriers, and persistent concerns over intellectual property, labour rights, and alleged Chinese transhipment activities through Thai supply chains. Central to the dispute is a USD 48.7 billion trade imbalance, fuelled in part by Thailand’s 9.8% average tariff rate on US imports—compared to 3.3% in the opposite direction.

To retain access to a market that accounts for 18% of Thai exports—or USD 55 billion, roughly 1.6% of gross domestic product (GDP)—Thailand agreed to a sweeping package of concessions. These include zero-tariff treatment for 90% of US goods, streamlined investment access in the Eastern Economic Corridor, increased purchases of American energy and aircraft, expanded quotas for US agricultural imports, and digital service tariff exemptions. Thailand also committed to reducing its trade surplus with the US by 70% within five years and tightening rules of origin to curb tariff evasion or transhipment.

However, the risk landscape remains volatile. Thailand could face further tariff hikes—up to 40%—if deemed complicit in transhipment or overly reliant on Chinese inputs, especially in light of its BRICS alignment and integration into Chinese supply chains. With the tariff regime now in force, Thailand stands at a crossroads, balancing economic necessity with geopolitical sensitivity in an increasingly fragmented global trade order.

A shock to trade, growth, and domestic resilience

The economic impacts have been swift and significant. Thailand’s Office of the National Economic and Social Development Council forecasts a GDP contraction of 1.3% to 2.3% in 2025, while private-sector projections warn growth could fall below 1%. The broader economic toll is estimated at USD 24.6 billion.

Trade has been hardest hit. The Thai Chamber of Commerce anticipates export losses of USD 11 billion (1.93% of GDP), with shipments to the US alone expected to fall to USD 8.7 billion. The steepest losses are projected in electronics (USD 2.01 billion), machinery (USD 1.38 billion), and processed food and beverages (USD 1.01 billion). These declines stem not only from diminished price competitiveness due to tariffs, but also from demand slowdowns in the US and other key markets.

Moreover, the global ripple effects have further strained Thai exports. As Chinese and regional exporters also face US tariffs, they are rerouting goods to third-country markets—many of which overlap with Thailand’s. This intensifies competition, particularly in ASEAN, where Thai food exports such as sugar and chicken are being displaced. Simultaneously, Chinese exporters are increasingly targeting Thailand’s domestic market. Imports of electronics, steel, and consumer goods from China have surged, pressuring local producers—especially small and medium-sized enterprises (SMEs)—and contributing to Thailand’s highest trade deficit with China in six years.

SMEs are under acute pressure. Over 3,700 SMEs, especially in electronics, food processing, textiles, and furniture, depend heavily on the US market—accounting for USD 7.6 billion or 20% of their exports.  These businesses face shrinking margins, rising costs, and intensifying domestic competition from cheap imports. SMEs focused on local sales—particularly in plastics, furniture, clothing, and rubber goods—are especially vulnerable.

Thailand’s role as an upstream supplier to manufacturers in China and other major economies adds further complexity. Many Thai firms provide intermediate goods—such as rubberwood, synthetic rubber, extruded aluminium, and plastic pellets—for assembly in China and export to the US. As US tariffs curb Chinese exports, demand for these Thai inputs has fallen sharply, with losses estimated at USD 1.1 billion to China, USD 420 million to Mexico, and USD 76 million to Canada.

Investment sentiment has also weakened. Unlike the earlier US-China trade war, which led to FDI relocation to Thailand, this round of tariffs has not brought the same benefit. With a 19% tariff rate applied to Thailand, both foreign and local investors have adopted a “wait and see” approach, particularly in electronics, machinery, and automotive sectors. Chinese firms are also reconsidering Thailand as a production base, wary of transhipment scrutiny. While there is potential for increased US investment—especially in data centres and digital infrastructure—the near-term outlook remains uncertain.

Agriculture, though contributing less to GDP, plays a vital social role. Thailand has agreed to expand imports of US agricultural products like corn and soybeans to reduce the trade imbalance. While strategically necessary, these moves expose rural producers to additional pressure in a sector that still employs nearly half the Thai population.

Building resilience amid disruption

To manage the fallout from reciprocal tariffs and prepare for future volatility, Thailand must pursue a multi-pronged strategy focused on diversification, regional integration, industrial upgrading, and fiscal resilience.

Diversify trade and strengthen domestic markets

Thailand must reduce its reliance on a narrow set of export destinations. Expanding product range, deepening access to new markets, and boosting domestic demand will be essential. Sectors less exposed to tariffs should be scaled up, and domestic value addition increased to secure stronger positions in global value chains.

Advance regional integration and trade risk management

Deepening cooperation through ASEAN, the Regional Comprehensive Economic Partnership (RCEP), and other regional frameworks can reduce exposure to global disruptions. Thailand should also prioritise high-growth markets in Africa, the BRICS, the European Union, and the Middle East. Safeguards, such as tighter product standards, transhipment screening, and readiness to apply anti-dumping and countervailing duties, must be strengthened to protect domestic industries.

Invest in industrial capabilities and SME competitiveness

Sectors most vulnerable to tariff shocks—electronics, processed food, textiles, and automotive components—require targeted support. Thailand must accelerate the adoption of new technologies, upskill its workforce, and enforce compliance with global standards. SMEs should receive assistance to diversify markets, build brands, and leverage digital tools for greater efficiency. Investment in digital infrastructure, primarily through data centres, also presents a key opportunity.

Expand social and fiscal buffers

Trade shocks strain public finances and displace workers. Thailand must strengthen social protection systems to shield vulnerable groups and ensure smooth transitions across sectors. Fiscal policies should remain flexible yet responsible, while international cooperation—including concessional financing—will be critical for long-term resilience.

Maintain strategic neutrality in great power rivalries

As US-China tensions escalate, Thailand must carefully balance its economic ties with both powers. While implementing the reciprocal tariff agreement with Washington, Thailand must also preserve its relationship with Beijing. Maintaining a neutral, non-aligned stance will be essential to safeguard access to both markets and avoid being drawn deeper into strategic competition.

Upalat Korwatanasakul is an Associate Professor in the School of Social Sciences, Waseda University, Japan.

Image: shutterstock.com