FLASH
22 July 2025
Unresolved U.S. Trade Negotiations Ahead of the August 1 Deadline: Implications for Thailand
Since July 7, 2025, the White House has begun issuing official notifications to 23 trading partners regarding the latest reciprocal tariff rates
SCB EIC highlights that U.S. retaliatory tariffs on Thai exports, which might be higher than those on key competitors, pose an additional risk to the Thai economy in five critical areas.
1. Key Thai export products may face the risk of losing market share in the U.S. to competitors, as nearly all of Thailand’s main competitors are subject to lower U.S. retaliatory tariff rates (based on the latest rates).
In particular, Thai products in the electronics and electrical appliances segments may lose market share to key competitors in ASEAN, Japan, and South Korea. In addition, Thailand may also face the risk of being subjected to circumvention tariffs, similar to Vietnam, which would further increase trade costs and could lead to more stringent origin verification measures.
2. If Thailand agrees to unconditionally open its market to U.S. products (worst-case scenario), the agricultural and livestock industries, particularly pork, broiler chicken, and corn, would be highly vulnerable. This is because Thailand’s production costs are considerably higher than those in the U.S., even after factoring in shipping costs. Furthermore, the country relies primarily on domestic agricultural produce, with most producers being small-scale farmers. Should the government choose to open the market for these product groups in exchange for retaliatory tariff reductions, domestic consumers may benefit from lower prices. However, this could also increase the risk to food security. Additionally, producers and stakeholders along the domestic supply chain may be broadly affected, especially small-scale farmers who face relatively higher production costs.
3. Domestic demand will weaken further in the second half of the year, with potential contraction in private investment and a sharper slowdown in consumption, particularly in Q4. Investment plans may be postponed due to policy uncertainties, including U.S. import tariffs and retaliatory tariffs that the U.S. may impose on Thai goods, possibly at higher rates than on competitors, especially if key competing countries face lower U.S. tariff barriers. As a result, foreign investment could be diverted to those competing countries instead. Additionally, the recent U.S.-China agreement to impose significantly lower reciprocal tariffs, down from rates previously exceeding 100% just 1–2 months ago, may reduce the incentives for manufacturers to relocate production from China to Thailand, as was previously the case. Private consumption will continue to soften and is expected to slow more markedly in Q4, a period when the Thai economy will fully absorb the impact of U.S. import tariffs. This could lead to declining employment and a further weakening of domestic spending, amid already subdued consumer confidence.
4. There is a growing likelihood that the MPC will cut the policy rate two more times this year to align with the worsening economic outlook, which is now expected to be weaker than the MPC’s earlier assessment. However, if negotiations with the U.S. fail, downside risks to the Thai economy will intensify further, potentially prompting the MPC to deliver more than two policy rate cuts this year.
5. The government should thoroughly assess both the benefits and drawbacks of opening the market to U.S. products. Negotiations on tariff reductions must prioritize balance—considering the potential gains from lower retaliatory tariffs alongside the adverse impacts on Thai businesses from increased competition with imported goods. One option may be to open the market for certain products under specific conditions, rather than through full liberalization. At the same time, support measures should be prepared for affected businesses, including short-term liquidity assistance, market diversification efforts, and accelerated efforts to enhance the competitiveness of domestic producers.
1. Key Thai export products may face the risk of losing market share in the U.S. to competitors, as nearly all of Thailand’s main competitors are subject to lower U.S. retaliatory tariff rates (based on the latest rates).
In particular, Thai products in the electronics and electrical appliances segments may lose market share to key competitors in ASEAN, Japan, and South Korea. In addition, Thailand may also face the risk of being subjected to circumvention tariffs, similar to Vietnam, which would further increase trade costs and could lead to more stringent origin verification measures.
2. If Thailand agrees to unconditionally open its market to U.S. products (worst-case scenario), the agricultural and livestock industries, particularly pork, broiler chicken, and corn, would be highly vulnerable. This is because Thailand’s production costs are considerably higher than those in the U.S., even after factoring in shipping costs. Furthermore, the country relies primarily on domestic agricultural produce, with most producers being small-scale farmers. Should the government choose to open the market for these product groups in exchange for retaliatory tariff reductions, domestic consumers may benefit from lower prices. However, this could also increase the risk to food security. Additionally, producers and stakeholders along the domestic supply chain may be broadly affected, especially small-scale farmers who face relatively higher production costs.
3. Domestic demand will weaken further in the second half of the year, with potential contraction in private investment and a sharper slowdown in consumption, particularly in Q4. Investment plans may be postponed due to policy uncertainties, including U.S. import tariffs and retaliatory tariffs that the U.S. may impose on Thai goods, possibly at higher rates than on competitors, especially if key competing countries face lower U.S. tariff barriers. As a result, foreign investment could be diverted to those competing countries instead. Additionally, the recent U.S.-China agreement to impose significantly lower reciprocal tariffs, down from rates previously exceeding 100% just 1–2 months ago, may reduce the incentives for manufacturers to relocate production from China to Thailand, as was previously the case. Private consumption will continue to soften and is expected to slow more markedly in Q4, a period when the Thai economy will fully absorb the impact of U.S. import tariffs. This could lead to declining employment and a further weakening of domestic spending, amid already subdued consumer confidence.
4. There is a growing likelihood that the MPC will cut the policy rate two more times this year to align with the worsening economic outlook, which is now expected to be weaker than the MPC’s earlier assessment. However, if negotiations with the U.S. fail, downside risks to the Thai economy will intensify further, potentially prompting the MPC to deliver more than two policy rate cuts this year.
5. The government should thoroughly assess both the benefits and drawbacks of opening the market to U.S. products. Negotiations on tariff reductions must prioritize balance—considering the potential gains from lower retaliatory tariffs alongside the adverse impacts on Thai businesses from increased competition with imported goods. One option may be to open the market for certain products under specific conditions, rather than through full liberalization. At the same time, support measures should be prepared for affected businesses, including short-term liquidity assistance, market diversification efforts, and accelerated efforts to enhance the competitiveness of domestic producers.