All eyes on Trump's August 1 deadline

Bangkok Post

2 days ago

As global markets continue to digest US President Donald Trump's latest trade announcements, attention now turns to the rapidly approaching Aug 1 deadline that could reshape Southeast Asia's economic landscape.
While recent bilateral deals have provided some clarity, Thailand faces the dual challenge of securing favourable trade terms with the US while managing an unexpected military escalation with Cambodia.
Trump's tariff template
The MSCI World Index of equities has continued its upward trajectory following Trump's announcement of new trade agreements that appear to establish a regional framework.
Japan secured a 15% tariff rate (down from 24%), while the Philippines and Indonesia both achieved 19% rates, down from 20% and 32% respectively. These developments, combined with Vietnam's earlier 20% agreement, suggest Southeast Asian nations may face similar tariff levels.
The US-Japan deal, which Trump dubbed "the largest trade deal in history", reveals the administration's negotiating blueprint. Japan's commitment to establish a $550-billion US investment fund, alongside promises to purchase 100 Boeing aircraft and billions of dollars' worth of defence equipment annually, demonstrates the scale of concessions required to secure preferential rates.
However, the agreement has drawn sharp criticism from US automotive manufacturers, who argue that reducing tariffs on Japanese cars fails to address the core trade imbalance while disadvantaging American producers.
With automobiles and auto parts comprising 80% of the US-Japan trade gap, industry representatives question whether the deal serves American interests.
EU prepares for trade war
Meanwhile, the European Union is preparing its most powerful trade retaliation tool -- the Anti-Coercion Instrument -- should Trump proceed with 30% tariffs on European goods. The EU outlined counter-tariffs on $117 billion worth of American products, including Boeing aircraft, automobiles and bourbon whiskey, signalling that trade tensions could escalate beyond Asia.
European officials have indicated a willingness to accept 15% tariffs on most goods, while negotiating to keep rates on steel and aluminium at current levels, though these products may still face 50% duties.
AI and monetary policy
Adding to the complex global landscape, Trump signed executive orders launching his "AI Action Plan", aimed at maintaining American technological leadership through deregulation and energy infrastructure expansion.
The plan emphasises federal standardisation over state-by-state regulation, while strengthening export controls to counter Chinese artificial intelligence development.
On monetary policy, Trump's unprecedented visit on Thursday to the Federal Reserve -- the first presidential visit in nearly two decades -- highlighted ongoing tensions with chairman Jerome Powell over both interest rate policy and the central bank's building renovation costs. Despite public disagreements, Trump indicated he would not remove Powell over cost overruns, while continuing to pressure for rate cuts.
Precarious position
For Thailand, the stakes could not be higher. Without a successful trade negotiation with the US, the kingdom faces a punitive 36% tariff rate -- among the highest proposed -- creating a significant competitive disadvantage against regional peers.
This cost differential of 10 to 16 percentage points compared with Vietnam (20%) and Malaysia (25%) could prompt foreign investors to relocate production bases.
Finance Minister Pichai Chunhavajira's confidence in securing competitive rates reflects the urgency of Thailand's situation. The country may need to consider sacrificing protection for certain sectors to achieve an agreement that benefits the broader economy.
Cambodian conflict
Thailand's trade negotiations have been complicated by an unexpected military confrontation with Cambodia. Following a Cambodian artillery attack on Thai territory, Thailand responded by deploying F-16 fighter jets to strike Cambodian firing positions, leading to a temporary 0.58% decline in the SET index.
While the immediate market impact appears limited -- Cambodia represents only 3% of Thailand's total exports -- the conflict could affect specific industries dependent on the Cambodian market, particularly energy products and consumer goods including beverages and fertilisers.
For Cambodia, the economic consequences are far more severe, with potential losses including worker remittances worth 6.6% of GDP and shortages of essential goods including refined oil, fertilisers and food products.
Market implications
InnovestX analysis suggests limited impact on major Thai stocks, as most SET50/SET100 companies have minimal Cambodian exposure.
However, stocks with significant Cambodian revenue face higher risks, including Samart Aviation Solutions (SAV) with 100% exposure, Carabao Group (CBG) at 14% and the consumer finance firm Aeon Thana Sinsap (AEONTS) with 7%.
We maintain a cautious outlook, noting Thailand's structural disadvantage when it comes to trade requires urgent diplomatic resolution before the Aug 1 deadline.
In the longer term, Thailand must diversify its trade relationships and accelerate free trade agreement negotiations with other regions to reduce dependence on the US market.
Investment strategy
In this environment of heightened volatility, investors are advised to maintain diversified portfolios across defensive stocks, government bonds, commodities including gold, and alternative assets.
The Thai stock market is expected to consolidate while awaiting new catalysts and monitoring trade negotiation progress.
As the Aug 1 deadline approaches, Thailand's ability to navigate both trade negotiations and regional security challenges will prove crucial for maintaining investor confidence and economic stability.
The coming weeks will determine whether the kingdom can secure terms that preserve its competitive position in an increasingly fragmented global economy.