Thailand's Economy Faces 1.1% GDP Contraction as US Tariff Threat Looms

Leading economists warn manufacturing exodus to Latin America likely as 36% tariffs would devastate competitiveness

 

Thailand's gross domestic product could contract by 1.1% this year if the United States proceeds with imposing 36% tariffs on Thai imports from 1st August, according to leading economists who are urging the government to implement emergency monetary and fiscal measures.

 

The stark warning comes after President Donald Trump sent a letter to Thailand indicating the end of a 90-day suspension period, with tariffs reverting to their original 36% level. 

 

The move has sparked concerns amongst Thailand's economic community about the nation's competitiveness and investment attractiveness.

 

Dr Piyasak Manasant, Head of Economic Research at InnoVest X Securities, warned that Thailand's full-year GDP could turn negative by approximately 1.1%, with the second half potentially contracting by 4-4.5%. 

 


"Since the United States is Thailand's main market and global tariffs will impact spending and tourism," he told Krungthep Turakij newspaper.


 

The economist called for urgent policy intervention, recommending the Bank of Thailand implement at least one emergency interest rate cut of 0.25% before August, with potentially deeper cuts required. 

 

He also urged acceleration of the government's 1.1 trillion baht economic stimulus budget disbursement.

 



 

Competitive Disadvantage

Amonthep Chawla, Executive Vice President and Head of Research at CIMB Thai Bank, emphasised that the 36% tariff rate would severely impact confidence and investment climate. 

"This tax collection at this level is considered very high compared to competing countries like Vietnam, where the US collects only 20% for general goods," he said.

The disparity places Thailand at a significant disadvantage, particularly in technology and electronics industries. 

  

Amonthep warned this could lead to downward revisions of Thailand's 2025 GDP forecast below the expected 1.8%.

 

Products directly affected include telephone components, computer equipment, and electronic components, whilst Thailand may retain competitiveness in automotive tyres, air conditioners, and animal feed despite higher tariffs.

 

Latin America Alternative

Burin Adulwattana, Managing Director and Chief Economist at Kasikorn Research Center, revealed that Thailand's GDP growth for 2025 could fall from the projected 1.4% to approximately 1.1-1.2% due to US tariffs.

 

More concerning, he noted businesses are likely to relocate production to countries with lower tariffs, such as Vietnam at 20% or Latin American nations facing only 10% tariffs. 

 


"There's hardly any reason to produce goods in Thailand, except for sectors where Thailand has expertise and cost advantages like automotive tyres," he said.


 

Burin highlighted that the Trump administration seeks Thailand to reduce non-tariff barriers, including opening pork markets, simplifying customs procedures, Foreign Business Act requirements, and intellectual property protection improvements.
 

 



 

Market Reaction and Outlook

Speaking at the FETCO Investor Confidence Index conference, Kobsak Pootrakook observed that the 36% tariff outcome reflects Thailand's offer not being a "good deal" for the United States. 

 

He warned Thailand risks losing 10-16% of its export-investment capacity if unable to present better proposals within 2-3 weeks.
 

  

The economist noted that the US stock market's relatively modest 400-point decline suggests resilience, whilst President Trump's recent "One Big Beautiful Bill" providing corporate and personal tax relief may allow tariff increases without significantly impacting US inflation.

 

Kobsak suggested Thailand should consider opening its market to certain US products, particularly those Thailand cannot produce domestically or produces in limited quantities, such as wine, soybeans, and meat products. 

 

He emphasised the importance of maintaining economic momentum, arguing that finding a "good deal" through strategic market opening without tariff barriers is essential. 

 

Meanwhile, he called for government support measures to assist those affected by tariff reductions, alongside private sector and SME efforts to seek new markets beyond the US, including Bangladesh, Indonesia, India, Pakistan, and Africa, with state backing for risk guarantees in these emerging markets.

 



 

Strategic Recommendations

Pipat Leungnruemitchai, Managing Director and Chief Economist at Kiatnakin Phatra Financial Group, outlined five approaches for Thailand to navigate the crisis:

 

1. Understanding US demands : Thailand must acknowledge America's desire for market opening, tariff reductions, and solutions to counterfeit goods and transshipment issues.

2. Gradual agricultural liberalisation : Implementing measures to reduce impact whilst compensating affected sectors with public understanding and private sector participation.

3. Competitiveness development : Attracting high-value technology investments through R&D benefits, tax credits for EV components, AI hardware, and data centres.

4. Unified war room : Establishing coordinated decision-making between Treasury, Commerce, Agriculture, and private sectors.

5. Export market diversification : Leveraging RCEP, CPTPP, and GCC agreements whilst accelerating EU free trade negotiations.

 



 

Investment Implications

Economists unanimously warned that foreign direct investment attractiveness would diminish significantly, with investors questioning the logic of establishing Thai factories when facing 36% tariffs compared to better alternatives in Vietnam.

 

The threat extends beyond immediate export losses to fundamental questions about Thailand's manufacturing competitiveness and its role in global supply chains.

 

As Latin America emerges as a potential alternative with only 10% tariffs, Thailand faces an urgent need to negotiate a more favourable arrangement or risk substantial economic displacement.

 

The government now faces the challenge of balancing export sector protection with domestic agricultural interests, whilst navigating complex political coordination between ministries under different party supervision.

(2025/07/08-00:00)