Seizing the opportunities for Thai industry amid more severe decoupling
To seize on the opportunity, Thailand needs support from export promotion policies as well as proactive business adjustments.
Intensifying geopolitical tensions accelerate economic decoupling.
The erosion of trust among countries, particularly major economies like the US and China, is exacerbating geopolitical tensions and straining international relations. In response, these nations are increasingly emphasizing self-reliance or reliance on allied nations, while preventing nations perceived as threats to national security from reaping benefits and gaining competitive advantages. As such, international policies in the periods ahead will likely emphasize trade and investment restrictions, with the aim to enhance national security, particularly by strengthening domestic supply chains and allied networks to maintain international order. Such a trend is expected to lead to deglobalization and more pronounced decoupling.
The changing global trade landscape is creating new opportunities for countries with a neutral stance.
To gain a deeper understanding of the circumstances, SCB EIC conducted an in-depth analysis of the impact of intensifying economic decoupling trends on international trade patterns by categorizing countries into 3 groups based on their ties with the US and China, as well as geopolitical factors. The findings reveal that post-economic decoupling, international trade patterns will shift significantly. Countries with conflicting stances will be less reliant on trade with each other and instead will rely more on countries with a neutral stance. Thailand, with its maintained neutral stance in the global geopolitical arena, is well-positioned to benefit from trade and investment diversions away from increasingly polarized countries.
Thai business will be affected differently.
While Thai exports may benefit from the shifting trade landscape, the impact on different manufacturing sectors will be uneven. SCB EIC finds that these sectors can be classified into 2 groups (1) Sectors with potential upside. Sectors that are likely to enjoy the most benefits include computer and electronics, and automotive and parts, and (2) Sectors with downside risks from increasing competition from other countries with a neutral stance, and the US's growing reliance on imports from regional competitors. Sectors with high risks include textiles and electrical equipment.
To seize on the opportunity, Thailand needs support from export promotion policies as well as proactive business adjustments.
While some sectors may benefit from changes in the global supply chain landscape, the sectors may also face increasing risks and competition. To seize the opportunity, Thailand must tailor its export promotion policies and proactively adjust business strategies to the specific context of each sector, taking into account the varying potential gains and losses across different sectors, which can be classified into 4 groups:
1) High manufacturing competency, high-competition products: Government policies for this group should prioritize on increasing manufacturing capabilities, enhancing value-add, and creating competitive advantages. Similarly, businesses should adapt by highlighting their product strengths and expanding into targeted markets. Effective strategic planning will be crucial to increase market share and keep pace with evolving global trends.
2) High manufacturing competency, low-competition products: Government policies for this group should focus on encouraging new market expansions to diversify risks and upgrading manufacturing processes to meet environmental sustainability standards. Meanwhile, businesses should adapt to mitigate climate change risks and invest in renewable energy.
3) Low manufacturing competency, low-competition products: Government policies for this group should provide incentives to existing operations while encouraging investments to upgrade manufacturing capabilities with a focus on existing export markets. Concurrently, businesses should adapt by increasing their manufacturing technology potential and developing a deeper understanding of the preferences of US-allied and Chinese-allied markets to improve market access.
4) Low manufacturing competency, high-competition products: Government policies for this group should facilitate a smooth transition to high-potential manufacturing sectors based on modern supply chain dynamics. Meanwhile, businesses should quickly adapt to the modern supply chain and seek technology partners.
Amid global conflicts, Thailand can still benefit if the government and business sectors are attuned to the rapidly shifting global landscape and take proactive steps to adapt. By doing so, Thai exports can successfully navigate and thrive in both “united” and “divided” global market conditions.
