Economic headwinds dampen outlook

Bangkok Post

11-07-2025

Thailand's economic outlook is worsening amid rising pressure from steep new US tariffs, with business leaders warning that the country risks losing its competitive edge unless urgent policy action is taken.
Hasadin Suwatanapongched, deputy secretary-general and honorary chairman of the Federation of Thai Industries, expressed concern over the US imposing tariffs of up to 36% on Thai goods, significantly higher than those applied to regional rivals.
"Vietnam faces a 20% tariff, Malaysia and Japan 25%, Indonesia 32%, and South Korea 25%. Even neighbouring Laos, Myanmar, and Cambodia have secured tariff reductions," he said. "Why is Thailand still stuck at 36% after negotiations? This is a clear failure."
Mr Hasadin blamed political instability for hampering the Thai negotiating team's ability to safeguard national interests. He warned that tariff disparities of up to 16 percentage points compared with Vietnam would discourage foreign investment.
"If investors must choose, they will go to Vietnam or Malaysia. Major companies may relocate from Thailand. Japanese firms here may reconsider their presence," he said.
Critical export sectors -- including electronics, automotive tyres, and animal feed -- are expected to suffer the most.
"We cannot compete when facing 10–15% higher tariffs with the same production costs," Mr Hasadin stressed. Waning investor confidence could also impact the stock market and the broader economy.
Balanced Tariffs
Assoc Prof Juthathip Jongwanich of Thammasat University's Centre for Competitiveness and Development Studies (ICDS) cautioned against eliminating all import tariffs in response to US hikes, as Vietnam has done.
Instead, she proposed maintaining duties within a 25–28% range to remain competitive with Vietnam and Malaysia, describing this as a balanced and sustainable approach.
Her assessment, based on trade data and US policy uncertainty, noted that Washington's new tariff regime takes effect on Aug 1, leaving room for negotiation.
Should US tariffs stay above 28%, Thailand may need to broaden its offer -- but not by removing all tariffs. She added that Vietnam has greater experience managing free trade frameworks, especially with the EU, whereas Thailand still enforces strict tariffs and non-tariff barriers, particularly in the agriculture sector. Deep tariff cuts could harm Thai farmers and businesses unable to adjust.
She recommended boosting Thai imports of US products like defence equipment, aircraft, and natural gas as alternative bargaining chips. She also urged the government to prepare financial support for affected sectors and diversify export markets to reduce US reliance.
Meanwhile, Assoc Prof Archanun Kohpaiboon of ICDS said the tariff challenge offers an opportunity to address structural issues such as foreign nominee shareholders, a breach of the Foreign Business Act. He called for reviewing outdated regulations that may discourage legitimate foreign investment and questioned the benefits of recent Chinese investments.
With Thailand facing an ageing population and labour shortages, he suggested revising restrictions in certain sectors to allow greater foreign participation, while ensuring safeguards and job creation.
Trade Sentiment Slips
The business sector's concerns were reflected in a mid-June survey by the Thai-Chinese Chamber of Commerce, according to its president, Narongsak Putthapornmongkol.
Among 480 business leaders surveyed, 39% said the tariff measures were more damaging to trade than the Covid-19 pandemic, while 26% deemed the impact significantly worse.
The survey revealed 45% had already witnessed a serious trade slowdown due to tariffs, 36% reported minor impacts, and only 8% saw improvements.
Uncertainty surrounds the 90-day US negotiation window that ended on Wednesday. Only 15% of respondents believed a final deal was reached with China, while 14% expected protracted talks with most countries. On July 3, the US struck a final deal with Vietnam, imposing a 20% tariff in exchange for Vietnam not taxing US imports.
Thai businesses proposed three key measures to improve negotiations: reducing tariff and non-tariff barriers, allowing US agricultural imports such as soybeans and maize, and introducing legal safeguards against re-export fraud. Additional recommendations included boosting imports of energy and aviation products.
The survey identified vulnerable sectors including automotive, food and seafood, tourism, electronics, steel, and energy, he said.
Concerns also centred on a 32.7% drop in Chinese tourists in the first five months of 2025, with over half expecting numbers to remain low for the year. The influx of redirected Chinese goods intensifies local competition, and Thailand risks becoming a target if used as a manufacturing base for Chinese exports to the US.
GDP growth forecasts are muted, with 78.5% expecting growth below 1.8% in 2025. Respondents urged the government to launch tourism stimulus packages, explore new export markets, conclude US trade talks, and implement financial relief. Despite challenges, Thai–Chinese trade grew 18.69% year-on-year in early 2025, though Thailand ran a trade deficit of 799 billion baht.
Asst Prof Wiwat Chankingthong of Hatyai University presented findings from the June 2025 Southern Thailand Confidence Index, underscoring challenges in tourism and exports.
He attributed export declines to weakening demand from China, the US, and Europe, alongside stiff competition from lower-cost producers like Vietnam, Indonesia, and India -- countries that benefit from more robust state support compared to Thailand's limited, reactive assistance.
The tourism sector has also suffered, with fewer visitors from China, Europe, and Asean amid rising safety concerns, including scams and fraud targeting tourists, he said.
Asst Prof Wiwat noted the country's economy has deteriorated since mid-2024, with declining investment and purchasing power, and a sharp drop since April 21, 2025.
Both public and academic sectors agree on appointing a new finance minister -- knowledgeable and untainted by political or business interests -- to address the crisis, he said.
He stressed broad economic transformation, focusing on agriculture, Thailand's economic backbone. Collaboration between farmers and the government is needed to modernise agriculture through processing that preserves yields, adds value, and stabilises prices.
Citing durian oversupply as an example, he emphasised that strengthening the grassroots economy is essential for national recovery and equitable income distribution.
"The agricultural sector is the backbone of the country," Asst Prof Wiwat said. "Revitalising the grassroots economy through modernisation, value addition, and price stability is essential not only for rural livelihoods but for the broader national recovery."
With global uncertainties persisting, the consensus is clear: Thailand's future competitiveness hinges on visionary leadership that can navigate trade negotiations effectively, implement strategic reforms, and restore investor and consumer confidence.
Without urgent and coordinated government intervention, the risk of economic stagnation and lost opportunities will deepen, he noted.