Thailand faces a 37% reciprocal tariff, potentially reducing its GDP by 1.0%, depending on the outcome of negotiations with the US

•    On April 2, 2025, the US announced reciprocal tariffs on all nations. However, this move is seen as a negotiation tactic by the US to secure better agreements with various nations in both economic and security aspects. The outcomes of these negotiations will need to be closely monitored, as they will determine the future trade direction of each country.
•    Thailand faces a 37% tariff (up from the widely announced figure of 36%), while other trading partners are subject to varying reciprocal tariff rates, all of which will take effect on April 9, 2025. Additionally, the US is imposing 10% baseline tariff on other trading partners not subject to reciprocal tariffs, effective from April 5, 2025. Steel/aluminum and autos/auto parts already subject to 25% tariff rate under Section 232 will be exempt from reciprocal tariffs. Pharmaceuticals, semiconductors, lumber and copper are also exempt from reciprocal tariffs, but it remains to be seen whether they will be subject to import tariffs under Section 232.
•    Impact on Thai trade (excluding negotiation outcome): Thailand’s exports in 2025 are projected to contract by 0.5%, down from the prior estimate of 2.5% growth. This decline is driven by the US tariff hike on Thai goods to 37% - significantly higher than the anticipated rate of 10%.
•    Direct Impact: Thai exports to the US are expected to shrink by 10% in 2025 due to a significant decline in US demand for Thai products. This is particularly true for products where Thailand heavily relies on the US market and/or products where Thailand is subject to higher import tariffs by the US than competitors. These products include electronic components, electrical equipment, automotive parts, tires, food (rice, fish, shrimp, pet food), and jewelry. Given the high level of global market competition and limited profit margins, Thai businesses may struggle to reduce prices to maintain demand.
•    Indirect Impact: Thai exports to other markets are expected to be increasingly affected by

• Exports of goods related to the supply chains of various trading partners exporting to the US. This is particularly true for exports to China, ASEAN, the European Union, and Japan, especially in products such as electronic components, automotive parts, tires, polymers, and chemicals.
• Thai exports to other markets are likely to face increased competition, especially with Chinese products such as automobiles, electronic components, furniture, electrical equipment, toys, plastics, and polymers.
• Overall exports will be affected by slowing global demand. High import tariffs imposed by the US on its trading partners are expected to significantly pressure global economic growth this year, which will also affect other products such as agricultural products, food and refined oil. 

•    However, the export estimate has already taken into account some support from the increased value of gold exports due to higher prices and demand. The proportion of gold exports to total exports is expected to rise from 2.9% in 2024 to 3.4% in 2025.
•    Thai imports in 2025 are expected to grow at a slower pace at 1.0%, down from the previous estimate of 3.4%. This is due to a reduction in imports of raw materials and intermediate goods, in line with the export slowdown, and the declining global crude oil prices. Additionally, the forecast includes some support from the increased value of gold imports due to higher prices. However, since the base value of gold imports was high in the previous year, the growth rate of gold imports is expected to expand at a lower rate than that of gold exports this year.
•    Impact on Thailand’s overall economy: Private investment is expected to slow, while household consumption will be further affected by the recent earthquake. The tourism sector also faces heightened risks. However, the impact of the trade war remains uncertain, as it depends on the negotiations between each country and the US. These negotiations could lead to changes in the import tariffs imposed by the US in the future. Additionally, it is important to monitor the government’s measures to mitigate these impacts.
•    The expected foreign investment from BOI promotion applications in the previous year may be delayed amid uncertainties about the trend of global trade and supply chains. Additionally, the impact of the earthquake on March 28 is expected to slightly delay construction in the real estate sector. Previously, KResearch projected a continuous decline in private sector construction investment this year, and currently deems that private sector investment in 2025 will decrease to 1.4% from the previous estimate of 2.5%.
•    Private consumption is further impacted by reduced consumer confidence following the earthquake on March 28. The US tariff hike is expected to affect the economy through a deeper contraction in Thailand's manufacturing sector, leading to slower employment growth. Given the high household debt, KResearch has revised down its forecast for private consumption growth to 2.0% from the previous estimate of 2.4%.
•    Thailand's international tourism market has been affected by the earthquake, exacerbating the decline in the number of foreign tourists from key markets such as China, Malaysia and South Korea since February. Amidst the competition to attract tourists and the global economic slowdown going forward, KResearch has revised down its forecast for the number of foreign tourists visiting Thailand this year to 35.9 million persons from the previous estimate of 37.5 million persons.
•    Initially, KResearch has assessed the impact of various events on the Thai economy and projected that the overall impact would be 1.0% of GDP, resulting in a downward trend of GDP growth in 2025 from 2.4% to 1.4%, with the view that the Thai economy will slow down significantly in the second half of this year.
•    Monetary and fiscal policies may need to be more accommodative than initially anticipated. KResearch expects that the policy interest rate might be reduced sooner, possibly in April, with at least one more reduction in the second half of 2025. Additionally, fiscal measures are expected to be introduced to mitigate the impacts, despite increasing fiscal constraints.
•    KResearch believes that the government should urgently clarify its proposals for negotiating trade deals with the US, including setting clear timelines, as well as assessing the impact and remedy measures for various scenarios to build confidence among investors, businesses, and households.

Scan QR Code