Thailand Braces for Trade Turbulence as US Switches to Flat 15% Tariff

 

 

Federation of Thai Industries calls for 150-day negotiation deadline with Washington as structural weaknesses and SME fragility cast a shadow over the 2026 economic outlook.

 

 

Thailand's industrial sector is on alert after the United States abandoned its reciprocal tariff system — following a legal defeat — and introduced a uniform 15% import duty on all countries under Section 122. 

 

Although the change technically lowers Thailand's rate from 19%, business leaders say the shift offers only limited relief and masks deeper economic vulnerabilities.

 

At Thansettakij's 46th anniversary event on Monday, Kriengkrai Thiennukul, president of the Federation of Thai Industries (FTI), said the flat-rate approach reduces the risk of sudden, politically driven spikes of 40–50% that characterised the previous system. 

 

However, he cautioned that Washington's ongoing trade deficit, current account imbalance, and high debt levels meant further trade measures could not be ruled out.

 

"Uncertainty remains the primary risk," Kriengkrai said at the FTI's 46th anniversary event. "The number has improved, but the policy environment is still unstable."
 

 

 

Exposed sectors and new threats
The FTI has flagged several Thai export categories as particularly vulnerable, including electronics, IC components, hard disk drives, consumer goods, furniture, apparel, frozen and processed foods, and gems and jewellery. 

Exporters with thin margins face the sharpest pressure, even under a uniform tariff.

 

 

 

 

Thailand's status as one of 15 countries running a significant trade surplus with the United States adds to its exposure, potentially inviting additional scrutiny from Washington. 

 

The FTI also warned of two further risks: a surge of diverted Chinese exports into ASEAN markets — undercutting Thai SMEs on price — and the misuse of Thailand as a transshipment hub by countries facing higher US duties, which could trigger American investigations.

 

To address these pressures, the FTI is urging the government to conclude trade negotiations with Washington within 150 days, accelerate pending free trade agreement talks to open new markets, and introduce protective measures for domestic SMEs.

 

 

 

 

Fragile recovery, weak foundations

The economic outlook for 2026 is subdued. The IMF and World Bank forecast Thai GDP growth of just 1.6%, broadly in line with domestic projections of 1.6–2% from the Joint Standing Committee on Commerce, Industry and Banking.

 

Thailand closed 2025 on a stronger note than expected, with fourth-quarter growth of 2.5% lifting the full-year figure to 2.4%. But analysts warn the momentum is fragile. 

 

The FTI's 10 Plus stimulus package could push 2026 growth above 2% if sustained, though much depends on policy consistency.

 

SMEs remain the economy's most exposed pressure point. Credit flows to the sector have fallen for more than ten consecutive quarters, signalling acute liquidity stress. 
 

 

 

 

 

 

Without targeted support, the FTI warns, many small businesses may not survive — deepening the weakness of Thailand's domestic manufacturing base.

 

The structural picture is equally concerning. Despite export growth of 12.9% in 2025, manufacturing output declined — a sign that Thailand's trade performance relies heavily on processing imported inputs rather than generating domestic value. 

 

FDI applications reached 1.8 trillion baht in 2025, but investment decisions are increasingly being deferred as businesses adopt a wait-and-see stance amid persistent trade uncertainty.

 

 

 

 

The "Sick Man of Asia" question

Kriengkrai pointed to a stark regional comparison. Once the second-largest economy in Southeast Asia after Indonesia, Thailand has grown below 2% for much of the past decade while Vietnam averaged 8% annually — prompting the Financial Times to label the country the "Sick Man of Asia."

 

Without genuine structural reform — including higher labour productivity, targeted industrial policy, and investment in innovation — Thailand risks slipping further down regional rankings by 2030.

 

"The new government must prioritise a unified, proactive economic team," he said. "Policy continuity is essential to restore confidence."

 

The FTI's broader message is pointed: the US tariff ruling may ease short-term pressure, but the trade war is not over. Thailand's challenge now is to rebuild its economic foundations before the window for competitive recovery closes.