Thailand in the ‘Trump 2.0’ era: Impacts and coping mechanisms

The return of Donald Trump as President of the United States could disrupt the global economic order, with his “America First” policies, impacting trade, investment, and labour mobility worldwide. Trump has proposed imposing 10-20% tariffs on countries with trade surpluses with the US, with China facing a staggering 60% tariff.

Major losers in this scenario include Mexico, China, and the European Union, all of which have significant trade surpluses with the US. For Thailand, ranked 19th among US trade surplus partners, the surplus over the past 12 months stands at $32.8 billion as of October 2024.

However, the author believes that implementation of Trump's policies will not be swift. Trade wars typically involve import tariff hikes, which primarily burden American consumers with higher prices. As a result, the Trump administration must first strengthen the US economy, likely through corporate tax reductions from 21% to 15%. However, this could take time, possibly until late 2025, as the Tax Cuts and Jobs Act of 2017 is set to expire by then.

Significant tariff hikes might not materialise in 2025, but alternative measures could pressure global trade and investments, driving countries to negotiate with Trump’s administration.

For Thailand, reviewing the impacts of the Trump 1.0 era (2017-2020) offers insights into coping with these potential changes. During that period, Thailand faced three major trade challenges:

GSP Withdrawal: Thailand lost GSP (Generalized System of Preference) benefits worth $1.3 billion, leading to increased tariffs on several products.

The loss of GSP privileges has subjected Thai goods to standard import tariffs instead of preferential rates, diminishing their price competitiveness.

Additionally, Thailand remains on the US Watch List (WL) for intellectual property protection and enforcement. Key concerns include online copyright infringement, counterfeit goods, delays in patent approvals, and insufficient law enforcement. These issues could be leveraged by the US to exert pressure.

Currency Manipulation Watchlist: Thailand has also been flagged on the US Currency Manipulation Watchlist, evaluated based on three main criteria. Countries meeting at least two of these criteria are monitored, namely:

-        Bilateral Trade Surplus: Exceeding $20 billion annually. Thailand’s surplus with the US stands at $32.8 billion, meeting this criterion.
-        Current Account Surplus: Exceeding 3% of GDP. Thailand's surplus is 2.5% of GDP (~$13 billion), which does not meet this threshold.
-        Foreign Exchange Intervention: Net foreign reserves growing beyond 2% of GDP in 12 months. Thailand’s reserves increased by $25.3 billion,  meeting this criterion.

Currently, Thailand is at risk of being classified as a currency manipulator due to its high trade surplus with the United States and its accumulation of foreign reserves. If accused, Thailand may have to comply with certain US criteria to avoid trade and investment sanctions.

Red meat pork: Since 2004, during the Thailand-US FTA trade negotiations, the key issue hindering progress has been the US pressure on Thailand to open its market to pork containing growth-promoting chemicals.

In 2017, the US formally requested Thailand to reconsider opening the market, arguing that the ban on pork containing Ractopamine was an unfair trade barrier. However, Thailand insists on its right to establish its own food safety standards, similar to the European Union, which also bans the substance.

Currently, Thailand has over 180,000 small-scale pig farmers and around 20,000 medium-to-large farms. Opening the market could severely impact the industry due to Thailand's higher production costs, which are 15-20% higher than those in the US.

The author believes it is highly likely that the US will push Thailand to import red meat pork from the US, or else face higher trade tariffs on Thai goods.

In conclusion, the challenges for Thailand in the Trump 2.0 era will be more severe, as Trump will return with more experience and a stronger team. The GSP removal is just the beginning. With Thailand's continuing trade surplus with the US, the country may face more aggressive trade barriers, including issues such as currency manipulation and mandatory imports of red meat pork, among other challenges.

Although the situation appears challenging, the author sees this as a significant opportunity for Thailand to adapt and develop in four key areas:

Diversifying trade risks: Thailand should accelerate the expansion of its export markets to other regions, such as Europe, the Middle East, Latin America, and Africa, to reduce reliance on the US and China markets.

Developing the domestic market: Strengthening the internal economy by boosting domestic purchasing power and enhancing local industries to reduce dependence on exports.

Expediting trade negotiations: Pushing forward FTA negotiations with both the US and other countries.

Promoting investment: Encouraging Thai companies to expand investments in the US while opening markets for quality US products that meet Thailand's standards, to create a more balanced trade relationship.

The global trade war is about to begin. Is Thailand ready?

This article represents the author's personal opinion and is not related to any organisation with which the author is affiliated.

Piyasak Manason