Thailand confronts Trump's trade war challenges

TUESDAY, MARCH 11, 2025

Economic experts warn of long-term impact on the Thai economy, with few bright sides to new US trade strategy

 

Government, business, and academic representatives gathered on Monday for a panel discussion  – "Trade War 2025: How to Deal with Trump?"  – to map out strategies for handling new US trade policies. 

 

Don Nakornthap, the Bank of Thailand’s Reserve Management chief, spoke on "The Impact of Trade War on Business and Solutions" and warned that the world could face another Great Depression if more countries waged trade war through tariff increases. 

 

"No country can escape the tariffs being imposed by Trump," Don said. He highlighted  China, whose trade surplus with the US hit a record $1 trillion last year, before being hit by import tariffs of up to 20% under Trump.

 

Canada and Mexico have also been targeted with US tariffs, under the pretext of immigration and drug crackdowns.

 

Thailand, with its increasing US trade surplus, is now bracing for higher duties on its exports to America.

 

Trump 2.0 policies have triggered increased volatility in global exchange rates and stock markets. 

 

The three countries hit by US tariffs – China, Canada, and Mexico – have seen their exchange rates weaken, reflecting the impact of the trade war on financial and capital markets. 

 

The US is not immune, as there are growing market fears that Trump's policies could push the country into recession, causing the dollar to weaken amid market expectations of the Federal Reserve cutting interest rates three times this year.

 

Don emphasised three key actions essential for Thailand to mitigate the impact of trade war and Trump's policies. 

 

First, he stressed the need to build domestic strength through reliance on internal consumption to ensure the Thai economy is insulated in the event of a global economic downturn or recession. 

 

 


Second, managing foreign currency reserves more effectively by monitoring capital outflows and preventing excessive foreign currency borrowing or exchange rate issues. 

 

Third, leveraging regional trade agreements, particularly within ASEAN, which is experiencing strong growth, to increase export opportunities in these markets.

 

Business leaders preparing for rough ride

Kobsak Pootrakool, chairman of the Federation of Thai Capital Market Organisations (FETCO), emphasised the need for Thailand to prepare for impending trade volatility. He warned that changes have already become evident over the past month, citing the accelerated decline of the Dow Jones and Nasdaq stock indices in the past three weeks. 

 

Meanwhile, the US Dollar Index (DXY) – measure of the dollar’s value relative to a basket of foreign currencies – increased by 7% before weakening back to 102, indicating turbulence across all markets. Only gold prices have remained relatively stable, rising to $2,950-3,000 per ounce.

 

Kobsak warned trade-war risks extend beyond economics and could lead to international conflicts that persist long after Trump leaves office.

 

He said more unprecedented changes are expected, warning investors to buckle up for turbulence.

 

"This storm will stay with us for four years, not just two days, but four years. Amid this volatility, many assets will fluctuate, making direction difficult to discern. Now that the storm has arrived, investing is no longer like it was before January 20. Investors may buy stocks or assets one day, only to find they have been buffeted by the words of certain individuals, leading to losses the next day," Kobsak said.
 

 

 

Trade war slowing global economic growth

Dr Kirida Bhaopichitr, director of Economic Intelligence at the Thailand Development Research Institute (TDRI), said trade war brings increased risks and uncertainties for both the global and Thai economies.

 

She highlighted three key issues: 

First, the trade war is slowing down growth of trade and the global economy, affecting Thailand and other export-reliant countries. 

Second, trading is set to become more challenging, with Thailand potentially facing difficulties as exports and imports account for around 60-65% of its GDP.

Third, Thailand is likely to be hit by tariffs under Trump 2.0 given its high trade surplus with the US. Thailand might also be forced to open its markets to foreign pork, corn, and other goods. 

 

However, Kirida also identified opportunities among the risks for the Thai economy.

 

"Besides increased market openness for US imports, imports from other countries like China have been rising since four years ago, and we will see an even greater influx of Chinese goods going forward," she said.

 

 

Industry leaders confirm US scrutiny of Thai trade balance

Kriengkrai Thiennukul, chairman of the Federation of Thai Industries (FTI), confirmed that Thailand is under scrutiny by the Trump administration after its 2024 trade surplus with the US ranked 11th in the world at over $45 billion. Trump 2.0 is pushing for relocation of business investment from China and elsewhere to the US.

 

Kriengkrai noted that Washington is taking action against countries with high US trade surpluses and imposing clear restrictions on technology imports.

 

He said the Thai government needs to engage in more consultations, as Trump focuses on deal-making negotiations, shifting from multilateral to bilateral country-by-country talks where he has greater bargaining power.

 

He noted the US had slapped 25% tariff hikes on Canada and Mexico, with Mexico sending 80% of its exports to the US, as companies from China, Japan, and other countries have relocated operations there. Kriengkra added that China is facing an additional 10% tariff hike and is preparing retaliation in various forms.

 

 

Fears of production slump as imports rise

Trump’s administration has already hit Thailand with 25% tariffs on steel and aluminium exports, threatening Thai aluminium shipments worth nearly $20 billion annually. 

 

With more tariffs expected, Thailand must urgently seek new markets as it currently relies on the US for around 17% of its total exports. 

 

Exports to the US have accelerated since late 2024, despite a decline in the Thai manufacturing sector index.

 

This discrepancy may stem from importing goods, transforming them in Thailand, and exporting them through Thai-registered companies, or from importing components that make up 80-90% of a product while using only 10% local content. Trump, a businessman, will be scrutinising all countries, including Thailand, on this issue to prevent Chinese exports entering the US “through the back door”.

 

The panel discussion noted that measures blocking Chinese goods from entering the US have been highly effective since 2023, with the US no longer being China's number one trading partner. China has reduced exports to the US by 20%, but these goods have flooded into ASEAN countries. 

 

“Last year, ASEAN imports from China rose by 12%, with Thailand importing the most due to lower prices. In 2025, this will definitely increase further," Kriengkrai said.

 

 

 

Automotive industry faces tariff pressure

Most of Thailand’s 47 industry groups have been established for over 50 years, with Original Equipment Manufacturing (OEM) serving as the supply chain for foreign manufacturers.

 

However, global economic slowdown has hit major Thai industries, including car manufacturing, which usually produces 2 million units annually, with 50% for export. In 2024, production and sales slumped by 24%, the highest drop in decades.

 

Kriengkrai presented private sector proposals to the government, first outlining short-term measures: 

1. Use trade data to identify negotiation strategies 

2. Establish a war room to handle US trade talks and expand opportunities, including appointing expert negotiation teams. 

3. Enforce laws to protect domestic industries from dumping.

 

Long-term measures include: 

1. Restructure industries to promote strengths like food and biotechnology connected to the global supply chain.

2. Develop products and services with added value through technology and innovation 

3. Reform education to develop workforce capacity for future industries.
4. Improve laws, regulations, and the bureaucracy through digitisation.
5. Promote economic cooperation in the ASEAN region.

 

"Major impacted industries include auto manufacturing, with approximately 42,000 units exported to the US in 2024. A 25% tariff increase here would definitely have a big impact,” Kriengkrai said. 

 

He predicted less problems for exporters of semiconductor components, hard disks, and various other computer parts, noting most were manufactured in Thailand by US companies.

 


Seven immediate proposals for prime minister

Pisan Manawapat, an ex-senator and former Thai ambassador to the US, noted that the question used to be what the US could give to various countries. But now Trump is asking what countries can give to the US, leading to tariff policies against other nations.

 

He presented seven proposals for Prime Minister Paetongtarn Shinawatra that could be implemented immediately:

1. Gain a thorough understanding of Trump, which is easy because he speaks his mind. Reading each of his executive orders would reveal his working methods, thinking, and intentions.

2. While maintaining ties with China for benefits, avoid risking relations with Western countries by drawing too close to China.

3. Trump "breathes business". His deals to sell natural gas to India and Japan gained these countries preferential treatment from Trump. If Thailand needs to import natural gas, consider buying from the US to curry favour with Trump.

4. Collect, increase, and publicise the benefits Thailand provides to Trump and the US.

5. Announce a 4-year plan to purchase large quantities of US goods.

6. Announce a 4-year plan to increase investment in politically important US states, as investment is a golden opportunity and represents bargaining power in politics. Japan has pledged $900 billion in US investment, dwarfing Thailand’s figure of $2.5 billion.

7. Follow US private sector proposals that benefit Thailand.

 

 

Trump views China as a threat across all dimensions

China is the only country capable of surpassing the US as a superpower, noted Associate Professor Dr Piti Srisangnam, Director of the Centre for International Economics, speaking on "Economists' Perspective on Trade War and Future Trends”. In 2022, the US was heavily focused on China, causing investment to flow out to third countries like Thailand, which served as a springboard for exports to the US.

 

This resulted in unemployment and inflation problems in the US, leading to Trade War 3.0. Trump 2.0's challenge is addressing China as the number one threat while reducing domestic inflation to lower living costs and attract investment, creating jobs in the US and establishing a new world order, Piti said.

 

The new order will give states with superior power the ability to violate sovereignty and economic interests. Trump's approach, which focuses on trade balance figures, drives his strategy in security, trade wars, economic wars, and actual battlefield wars through negotiation, bargaining, and exchange.

 

Currently, the US relies less on Taiwan, potentially making deals with China easier as Taiwan can be used as a bargaining chip, Piti said. The most at-risk country is the Philippines, which is already facing internal problems and relies on the US for its security.

 

Piti predicted the South China Sea will become the next flashpoint of global tensions. Countries like Indonesia and Malaysia are lobbying to become BRICS members to reduce dependency risk on the US. India will increasingly rely on US military support and cut Russian assistance.

 

Piti added that nuclear power plants will emerge in Vietnam and Myanmar.

 

China meanwhile will develop its soft power globally, progressing fromits "Made in China 2025" trade initiative with "China Standard 2035" over the next 10 years.

 

Piti presented several potential scenarios in the wake of Trump 2.0.

 

The first was "elephants colliding", resulting in Trade War 3.0. In this scenario, Trump could relinquish Taiwan to China in exchange for benefits to the US.

 

Six impacts on Thailand if elephants collide:

1. US tariff hikes of 10-20% would make Thai goods less competitive in the US market, reducing Thailand's export value to the US.

2. Chinese goods facing 60% US tariff barriers will be redirected to Thailand, intensifying competition in the Thai market.

3. Chinese goods remaining in China will compete fiercely with Thai exports to the Chinese market.

4. In third countries, businesses from Thailand, China, and other nations seeking new markets will become competitors.

5. Chinese investment in Thailand will decrease when it no longer provides tariff-free access to the US.

6. US and other foreign investments will disappear as the US implements measures to attract investment back.


‘Elephants kissing’ 

The second scenario – "elephants kissing" (reaching agreement) – would impact Thailand in five ways:

1. Thai goods would face 10-20% US tariffs, affecting competitiveness alongside cheap Chinese goods intended for US trade.

2. Thai product sales would decrease as China imports more from the US.

3. Investment from China and other countries in Thailand would be redirected to the US.

4. Direct China-US trade would see exports from other countries will lose market share in both countries, leading to increased competition in the Thai market.

5. If the US and China reach agreement on Taiwan, China's radar will shift to the South China Sea, though Thailand is not directly involved in overlapping territorial claims there.


"If China sells goods cheaply to the US while agreeing to US import, technology transfer and investment in the US, both win. If the elephants kiss, Thailand would still face high tariff barriers from the US, lower Chinese investment, and loss of market share. Whether it's trade war or kissing, how can anything be good?" Piti said.