US tariffs will have significant impact on Lao economy, economists warn
The tariffs, and the ensuing global slump that is likely to result from the high levies, will result in a decline in demand and foreign direct investment (FDI) inflow.
The impact on Laos' key trading partners and foreign investors, namely China, Thailand, Vietnam and the European Union (EU), will seriously hurt Laos' growth.
'Declining economic growth in these countries will affect their demand for goods imported from the Lao PDR as well as FDI inflow and tourist arrivals into Laos,' the National Economic and Social Science Institute warned in its economic assessment released on Friday (June 27).
In 2024, exports from Laos to its top three trading partners — Thailand, China, and Vietnam — accounted for 82.4 per cent of the country's total exports, amounting to US$8.176 billion. These countries are also the top three foreign investors and key sources of foreign visitors to Laos.
The United States' reciprocal tariffs are forecast to remarkably impact the global economy. The International Monetary Fund (IMF) has projected that the global economy will experience slower growth to 2.8 and 3 per cent in 2025 and 2026 respectively, a drop from 3.2 per cent in 2024.
Tariffs as high as 48 per cent of the value of goods imported from Laos were cited when the world's largest economy announced on April 2 that it would impose reciprocal tariffs on its trading partners.
However, the rollout of the tariffs has been paused for 90 days from April 9 to allow time for negotiations.
Despite being a small economy, Laos has been penalised with a high levy determined by the United States based on the perceived trade deficit, according to the report by the National Economic and Social Science Institute.
But the Lao government argues that there is a huge discrepancy in the trade figures. The US cites a trade deficit of over US$762 million in 2024, while statistics from the Lao Ministry of Industry and Commerce show a trade surplus of just over US$42 million.
Laos exports to the US totalled US$283.8 million, while imports from the United States were valued at US$241.6 million.
The main goods exported from Laos to the US included furniture, mattresses, lamps, electrical appliances and equipment, finished chemical products, clothes, headgear, inorganic chemicals and footwear. Key imports comprised wood and paper products, mechanical equipment, animal feed, vehicles and automobile spare parts.
Given the huge difference in the figures, Prime Minister Sonexay Siphandone sent an official letter to President Donald Trump on April 7 - two days before the pause was announced. In the letter, the Lao government highlighted the differences and proposed that negotiations be carried out by both countries' trade agencies to establish common ground.
While the United States' broader tariffs policy will have a significant impact on Laos, the increased levy imposed on Laos will have only a minor direct impact, given the relatively low value of bilateral trade, the report added.
In 2024, Laos exports to the US accounted for just 2.9 per cent of total exports. In addition, Laos' exported goods fell into the labour-intensive, low value category, which are in high demand by US consumers.
'The US still needs to import these goods from the Lao PDR or other developing countries because the production cost of these goods in the US is high,' the report said, adding that the price of these imported goods plus the new tariff would still be lower than if they were made in the United States.
However, the Lao economists who compiled the report acknowledged that local producers might suffer from declining orders from exporters, which would reduce their incomes and cut jobs.
The economists cited disruption caused by the tariff changes as a key reason for Laos' economy being forecast to experience slower growth rates of 3.9 and four per cent in 2025 and 2026 respectively, a drop from 4.3 per cent recorded in 2024.
As the pause deadline of July 9 approaches, the United States and its multiple trading partners are engaged in negotiations to reach deals to ease the situation.
The report stated that if the United States goes ahead with the high levies, a notable impact on global growth, including in Laos, is inevitable.
Given that the value of two-way trade is low, Director of the Macro Economic Research Institute under the National Economic and Social Science Institute, Latdavanh Songvilay, said the direct impact might be only minor.
But the indirect impacts caused by the broader increased tariff policy could be enormous.
'The indirect impact is expected to be huge due to a projected decline in exports because the demand from trading partners would diminish, along with FDI and tourist arrivals,' she added. - Vientiane Times/ANN
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