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The US-Thailand tariff deal, set to take effect from August 2025, marks a significant milestone in the relationship between the two nations. The deal, which reduces the US reciprocal tariff on Thai goods from 36% to 19%, carries numerous impacts and implications for Thailand's economy, politics, and international relations.
Economic Impacts
The tariff reduction to 19% makes Thai exports to the US more competitive, potentially boosting export volumes and revenues. Thailand has also agreed to near-total tariff exemptions on over 10,000 US import items, which can increase the availability of US products in Thailand, improve supply chains, and foster technology transfer. However, this may put pressure on certain domestic industries.
The deal includes reducing non-tariff barriers, simplifying trade, and lowering costs for US exporters, possibly encouraging more US investment. Thailand is offering investment incentives, particularly in the clean energy, semiconductors/ICT, and logistics sectors, aiming to become a US investment hub in ASEAN. The phased tariff liberalization with exemptions protects some sensitive Thai industries while adapting to reduced tariffs, striking a balance between opening markets and maintaining domestic industrial support.
Political Implications
The deal reflects Thailand's pragmatic and strategic engagement with the US at the highest government levels, demonstrating Thailand's diplomatic capacity and willingness to compromise to maintain favourable trade terms. Preparing to submit the deal for parliamentary approval highlights democratic and procedural rigor, with debates likely reflecting different political interests balancing trade openness and protecting local producers.
International Relations Implications
The deal aligns Thailand with US trade policy in Southeast Asia, harmonizing tariffs with neighbouring countries and promoting regional trade stability. Opening Thailand’s markets and infrastructure investments to US companies strengthens US-Thailand economic ties, potentially balancing China's regional influence and enhancing Thailand’s strategic position in ASEAN.
The reduction in tariffs and improved trade facilitation might increase Thailand’s appeal to global investors and reinforce its role as a key ASEAN manufacturing and export hub. The focus on rules of origin and compliance reflects Thailand's commitment to international trade standards, which could boost Thailand's reputation and trustworthiness in global supply chains.
Political Landscape
The tariff deal comes at a time of political transition in Thailand. Stithorn Thananithichot, a political science lecturer at Chulalongkorn University, notes that existing conservative parties have fallen short of expectations despite being in government for the past two years. The Bhumjaithai Party, a current conservative party, has seen a slight increase in popularity after withdrawing from the coalition government, indicating a significant voter base still up for grabs.
Intra-coalition differences could emerge over how the tariff concessions align with broader industrial and agricultural policies. The People's Party (PP) is reportedly devising its own ambitious military reform platform, which could compete with Bhumjaithai's proposal. Figures like Sethaput Suthiwartnarueput, outgoing central bank governor, and Gen Songwit Noonpakdee, the chief of the defence forces, are potential prime ministerial candidates for a new conservative party.
Criticism and Future Challenges
Critics have framed the deal as capitulating to American pressure. Former finance minister Korn Chatikavanij warned of long-term risks from the US tariff and urged the government to invest more in sharpening the country's competitive edge. The legislative process could revive political tensions if the opposition exploits the deal to question the government's transparency or economic strategy.
In conclusion, the US-Thailand tariff deal eases trade barriers, bringing economic benefits through increased trade flows and investment opportunities. Diplomatically, it strengthens Thailand’s position as a key US partner in Southeast Asia, positively affecting regional trade relations and Thailand's international standing. However, the deal also requires political navigation domestically, with potential implications for the country's political landscape.
The US-Thailand tariff deal might attract more political scrutiny and internal discussions among Thai politicians, as they weigh the benefits of trade openness against the protection of domestic industries. This political landscape, characterized by a time of transition and shifting alliances, could see new parties like a potential conservative party led by figures such as Sethaput Suthiwartnarueput or Gen Songwit Noonpakdee rise to prominence.
The positive relationship between the US and Thailand, established through the tariff deal, could lead to increased political cooperation in the domain of finance, as both nations work towards ensuring compliance with international trade standards and maintaining strong reputations in global supply chains. This cooperation may involve discussions surrounding matters of mutual interest, such as technology transfer and investment opportunities in sectors like clean energy, semiconductors/ICT, and logistics.
