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6 Nov 2024

Econ Digest

Trump’s election victory adds uncertainty for the Thai economy

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        Trump has claimed victory in the US presidential election, securing a majority in both houses of Congress. The US stock market and US dollar have reacted positively. However, it is expected that the US economy may face risks from rising inflation and a potential economic slowdown going forward.

  • Donald Trump has won a second term as US President and the Republican Party has secured a majority in both the upper and lower houses (Republican Sweep). As a result, the policies that Trump campaigned on are able to pass through the Congress without much difficulty. Immediate policy priorities expected for the first 100 days following the inauguration on January 20, 2025 include an increase in import tariffs, lowering of the corporate tax and individual income tax rates, an extension of Trump’s 2017 tax law, mass deportation of undocumented immigrants, and a boost in domestic fossil fuel production.
  • After the US presidential election results came out, the US dollar strengthened, with the US dollar index reaching its highest point of the day at 105.44 (on November 6 at 8.00 p.m. Thailand time), or up 1.95% from the previous day’s closing level. US 10-year government bond yields also rose to near the 4.50% level, driven by increasing inflationary pressure, lower expectations for US policy rate cuts, and higher fiscal risks. Meanwhile, the US stock market responded positively with the Dow Jones futures index rising by more than 1,300 points (on November 6 at 8:00 p.m. Thailand time).
  • However, the US inflation risk tends to increase due to an increase in import tariffs, the deportation of undocumented immigrant workers, and higher fiscal deficits. Meanwhile, corporate income tax cuts and domestic production support measures, plus the possibility that the US may impose trade protectionism against countries that are China's production base, may boost investment and stimulate the US economy, though it takes time. In the short-term, domestic demand is likely to be pressured by high inflation and slow interest rate cuts, which will increase the risk of stagflation in the US economy. The situation still depends on additional economic measures to alleviate the inflationary impact from higher import taxes.
  • Overall trade protectionism and changes in global supply chains could pose downside risks to Thailand's economy and industries.
  • In the short-term, Thailand may benefit from the acceleration of US imports and the import of some Thai products replacing Chinese products such as semiconductors, solar cells, rubber gloves, fruit juice, television equipment, PCA, and toys, etc. However, going forward, Thai exports may be at risk of being affected by President Trump's import tariff hikes, as Thailand has the 12th-highest trade surplus with the US (in 2023) among all US trading partners. This issue needs to be monitored, and the final outcome will depend on negotiations between Thai and US officials. In addition, Thai exports and tourism may be affected by increased pressure on the Chinese economy.
  • Thailand may partially benefit from the relocation of production bases, but this is unlikely to happen soon. Similarly, foreign direct investment (FDI) shifts to other countries will not occur immediately. Entrepreneurs’ investment decisions depend on various conditions, including the costs and medium-term income opportunities for each product in each country. Additionally, it will depend on the tariff rates imposed by the US and the extent to which the country is investigated as a Chinese company or involved in Chinese supply chains.
  • FDI in automotive and electronics manufacturing may increase in Thailand and several other ASEAN countries, as well as in Mexico, India, and Eastern Europe. However, battery electric vehicles (BEVs), which have started to attract investment and production in Thailand-most of which are Chinese brands-will have difficulty in exporting to the US and the European Union. Exports to other markets such as ASEAN will also face increased competition. Meanwhile, Thailand’s electronics exports to the US going forward may be at risk of being taxed similarly to solar panels, not to mention the country’s limited readiness (in terms of clean energy, highly skilled labor, etc.) to adapt to technological changes, driven by demand for more sophisticated smart chips in AI and GenAI.
  • Thai manufacturers of chemicals, construction materials (steel), textiles, and clothing tend to face increasing competition from imported Chinese products and/or China’s investment in Thailand due to China’s overproduction. Moreover, rising tariffs on Chinese products imposed by Western nations have pushed China to seek new export markets to release its products and support its business operations, which will further increase competition for Thai products in both domestic and export markets.

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