US tariff impact on Thailand remains limited amid export exemptions

Global trade-policy tensions have returned to the fore as the United States presses ahead with protectionist measures to safeguard its interests and supply chains.

The latest action invokes Section 301, a law that allows the US to take retaliatory trade action against trading partners.

The measure targets forced-labour issues and covers more than 60 trading partners.

The move places direct pressure on free trade through tariffs and other barriers, raising production costs and forcing further adjustments across global supply chains.

Vinit Visessuvanapoom, director-general of the Fiscal Policy Office, said the Finance Ministry was closely monitoring uncertainty surrounding global trade policy.

The US has raised its import tariff on Thai goods from 10 per cent to 12.5 per cent, but the government expects the near-term impact to remain limited because the increase is relatively small.

Vietnam, one of Thailand’s main regional competitors, also faces a tariff rate of 12.5 per cent, meaning Thailand is not placed at a competitive disadvantage against Vietnamese products.

Vinit said the impact would also be cushioned by exemptions covering several major Thai exports, including animal and plant products; sugar and sugar products; steel; aluminium scrap; semiconductors and electronic components; and medicines and their components.

Dhanakorn Kasetrsuwan, chairman of the Thai National Shippers’ Council, said the private sector had already anticipated that Thailand could be affected by the US import-tariff measure and had viewed Vietnam as a key benchmark.

Indonesia, meanwhile, currently faces a rate of 10 per cent, and any further changes affecting the country would need to be closely monitored.

Although a rate of about 12.5 per cent leaves the overall situation relatively stable, Dhanakorn said Thai exporters would still be affected, particularly those selling low-margin products such as food, rice and grains.

These exporters cannot easily raise prices to offset higher costs because they compete heavily on price, especially with India, which has strong rice-production capacity and can sell at lower prices than Thailand.

He cited tensions around the Strait of Hormuz as an example, saying Thai rice exports to Middle Eastern markets had fallen by 65 per cent during the crisis.

The decline demonstrated the severity of price competition and its effect on Thailand’s market share.

For the US market, products that form part of American industrial supply chains should be able to hold up because they are necessary for production, Dhanakorn said.

Products outside those supply chains are likely to face greater pressure, as Thai exporters may have to absorb tariff costs about 2.5 percentage points higher than those faced by some competitors.

“Although US importers are responsible for paying the import duty, in practice they often ask exporters to share the burden. If they switch to suppliers in countries facing lower tariffs, their costs will be lower than those of Thai goods. Thai exporters may therefore have to accept lower margins to retain their orders,” Dhanakorn said.

He said the measure would affect not only Thailand but global trade as a whole.

Higher US import costs would eventually be passed on to consumers through more expensive goods, particularly consumer products and everyday essentials, potentially pushing US inflation higher.

Rising inflation could then prompt monetary and fiscal responses, including interest-rate cuts or measures to assist the public, creating a continuing cycle of intervention.

Dhanakorn stressed that changes in the trade policies of major powers inevitably affect all countries that depend on exports.

Meanwhile, the Commerce Ministry is accelerating negotiations with US authorities to seek a resolution, limit the impact and protect Thailand’s trade interests.

The government has also sent officials to monitor and verify facts concerning structural problems in Thailand, including overcapacity and trans-shipment.

Trans-shipment involves goods from third countries entering Thailand before being re-exported to the US to avoid tariff barriers.

Vinit said accelerating efforts to tackle these problems would help ease trade obstacles and improve the accuracy of Thailand’s Manufacturing Production Index, allowing it to reflect actual economic conditions more closely.

Dhanakorn said businesses must urgently improve their production processes and reduce costs by strengthening raw-material procurement, finding alternative suppliers, raising production efficiency and managing expenses at every stage.

At the same time, the government should review regulations that obstruct business operations, reduce bureaucratic procedures and related costs, and abolish unnecessary rules to help Thai companies compete more effectively overseas.

“Competing countries are moving quickly to improve their regulations and make trade and investment more flexible. Reforming the bureaucracy and reducing state-imposed costs must therefore be pursued seriously by all agencies, rather than treated as the responsibility of any single organisation, to strengthen the long-term competitiveness of Thai businesses,” Dhanakorn said.