The Bigger Threat Facing Thai Economy
While global attention fixates on Washington’s aggressive tariff policies, a leading Thai economic research institute has identified a more pressing danger to the kingdom’s economic stability. The influx of low-priced Chinese goods into domestic markets presents a substantially larger risk to Thailand’s gross domestic product than the punitive duties imposed by the United States, according to new analysis from the Thailand Development Research Institute (TDRI).
Somkiat Tangkitvanich, president of the TDRI, delivered this sobering assessment at a seminar hosted by the Stock Exchange of Thailand, challenging conventional wisdom about the primary threats facing Southeast Asia’s second-largest economy. His research suggests that while US tariffs create headline risks, the structural damage from unchecked Chinese import surges could prove three times more damaging to Thailand’s economic growth trajectory.
The findings arrive as Thailand navigates an increasingly complex trade environment. Washington has imposed a 19% reciprocal tariff on Thai goods, with specific sectors facing additional duties, while simultaneously pressuring Bangkok to prevent the kingdom from becoming a backdoor for Chinese exports seeking to circumvent American trade barriers. This dual challenge requires sophisticated policy responses that balance competing interests while protecting domestic industries.
US Tariffs Deliver Limited Blow
Contrary to widespread fears of economic catastrophe, the TDRI study reveals that the direct impact of US tariffs on Thailand remains relatively modest. From August to November 2025, Thai exports to the United States actually expanded by as much as 30%, with growth spanning multiple product categories driven by American demand for data center construction materials, computers, and computer parts.
“The impact of President Donald Trump’s tariffs has not been particularly bad. In terms of direct effects, it can almost be ignored,” stated Mr Somkiat during his presentation. He noted that Thailand’s average US tariff rate of 19% remains comparable to rates applied to other countries, with the kingdom even maintaining a slight advantage over regional competitor Vietnam.
When weighted against specific products such as hard disk drives, which face a 0% US tariff, Thailand’s effective tariff rate actually declined from 19% to 16.5% as of August 2025. Even after accounting for sector-specific tariffs on aluminium and steel, which pushed the overall effective rate to 17.6%, the burden remains manageable according to the TDRI’s economic modeling.
The institute’s calculations estimate that US tariffs will reduce Thailand’s GDP by approximately 0.3 percentage points total. Spread across multiple years, this translates to an annual GDP dip of merely 0.1 percentage points, a figure Mr Somkiat characterized as insufficient to constitute a major economic setback.
Trade Diversion Floods Domestic Market
The more alarming scenario emerges from the TDRI’s analysis of Chinese trade diversion. As Washington imposes tariffs ranging from 30% to over 50% on Chinese goods, Beijing is redirecting billions of dollars worth of exports originally destined for American markets into Southeast Asia, with Thailand facing its highest influx of Chinese goods in a decade.
Independent economist Ath Pisalvanich projects that US tariffs will divert between 69.78 billion and 88.30 billion baht worth of Chinese industrial products into Thailand over the next three years. These shipments, comprising telecommunications equipment, automobiles, computer hardware, and network devices, threaten to overwhelm domestic manufacturers already struggling with thin margins.
The trade data reveals an alarming acceleration. During the first nine months of 2025, Thai imports from China surged approximately 33% compared to the same period last year, when growth stood at merely 10%. This influx threatens to widen Thailand’s trade deficit with China from $46.66 billion to $63.63 billion, representing a structural shift that could permanently alter the kingdom’s industrial landscape.
Mr Somkiat explained the mechanism driving this surge. With Chinese production levels unchanged but American market access restricted, goods unable to enter the US are being exported elsewhere. The TDRI conducted simulations showing that if Thai products prove unable to compete in both global and domestic markets against this wave of low-priced Chinese imports, the impact on Thai GDP could reach 0.8 to 0.9 percentage points, nearly triple the damage projected from US tariffs.
The Human Cost of Cheap Imports
The economic statistics translate into tangible hardship for Thai workers and businesses. More than 100 factories in Thailand have closed every month for the last two years according to estimates from local think tanks, while textile and manufacturing sectors report declining sales and forced layoffs.
Isma Savitri, an Indonesian business owner operating the sleepwear brand Helopopy, describes a regional pattern affecting entrepreneurs across Southeast Asia. Her popular pyjamas sell for $7.10, yet she observes similar Chinese designs flooding markets at roughly half that price. “Small businesses like us feel squeezed,” she told international media outlets. “We are struggling to survive against an onslaught of ultra-cheap Chinese products.”
In Indonesia, approximately 250,000 textile workers lost their jobs over a recent two-year period after some 60 garment manufacturers shut down, including Sritex, once the region’s largest textile maker. Mujiati, a 50-year-old worker laid off from Sritex after 30 years of service, expressed the helplessness felt by many: “When we see the news, there are lots of imported products flooding the domestic market, which messes up our own market. Who can we complain to? There’s no-one.”
Navigating the Transshipment Trap
Beyond the direct competition from Chinese imports, Thailand faces a secondary risk that could trigger even more severe American retaliation. Washington has explicitly warned that it will impose transshipment tariffs of up to 40% on goods suspected of being rerouted through third countries to disguise their Chinese origin.
Mr Somkiat emphasized that Thailand must vigilantly monitor transshipment activities and ensure the United States does not view the kingdom as a transit base for Chinese goods destined for American markets. This concern has grown more acute as Chinese manufacturers establish operations in Southeast Asian countries specifically to avoid US duties on products made in China.
Arada Fuangtong, director-general of the Department of Foreign Trade, confirmed that technical negotiations with the US regarding tariffs continue, with particular focus on rules of origin. Under current US regulations, imported raw materials used in Thailand count as local content only if they undergo substantial transformation, including changes to the Harmonized System code classification. Future agreements may shift toward regional value content calculations, though Washington’s definition of “region” increasingly refers to alliance partnerships rather than geographic proximity.
The complexity of these rules creates compliance challenges for Thai exporters. While Thailand maintains free trade agreements with 18 countries, utilization remains surprisingly low. Of 930 Thai-listed companies, 354 engage in exports, yet only 193 currently utilize FTA privileges. The total value of goods benefiting from these agreements amounts to just $11 billion, suggesting significant untapped potential for trade diversification.
Outdated Rules Hamper Competitiveness
The tariff pressures have exposed deeper structural deficiencies within Thailand’s trade and investment framework. Outdated regulations originally designed to protect infant industries now shield inefficiency and weaken competition, preventing the economy from adapting to contemporary challenges.
Thailand’s tax structure presents particular contradictions. While World Trade Organization commitments have reduced official import taxes to roughly 10% on average, the system continues to protect key industries through complex tariff differentials between raw materials and finished goods. In the electric vehicle sector, for instance, fully assembled EVs from China enter duty-free under the Thailand-China free trade agreement, while essential components such as batteries still face tariffs. This creates the perverse incentive where importing complete vehicles costs less than importing parts for local assembly.
Quota systems compound these distortions. In the coffee industry, imported beans within quota face 30% taxes, while shipments exceeding quotas jump to 90%. Meanwhile, instant coffee imports face only 49% tariffs, making it cheaper to import processed products than raw materials for domestic roasting. These arrangements raise costs, exclude new market entrants, and favor established players with historical import privileges.
Service sectors face equally restrictive conditions. Foreign ownership remains capped at 49% in many industries, work permits require cumbersome procedures, and telecommunications markets suffer from limited competition. According to the Service Trade Restrictiveness Index, Thailand ranks among the most restrictive countries for services, fourth out of 51 nations examined, with little improvement over the past decade.
Weak enforcement of product standards has additionally transformed Thailand into a destination for goods failing stricter controls elsewhere. A survey by the Federation of Thai Industries found that 45% of member companies reported sales declines exceeding 20% due to cheap or low-quality imports, with some products selling at prices suggesting questionable safety standards.
Pathways to Economic Resilience
Faced with these dual challenges from US trade policy and Chinese import surges, Thai policymakers must pursue strategic adaptations to secure long-term economic stability. Mr Somkiat argues that Trump’s tariff policies should serve as a catalyst for Thailand to accelerate negotiations for a free trade agreement with the European Union and to pursue membership in the Organisation for Economic Co-operation and Development.
Without such adaptations, including amendments to laws posing structural obstacles, Thailand’s economy will struggle to recover. “When the rules change but the mindset and policies do not, we will end up worse off than before,” Mr Somkiat warned.
Krungsri Research has outlined specific scenarios illustrating the stakes involved. If the US maintains 36% tariffs on Thai goods, the kingdom could face export losses of 162 billion baht, with textiles, electronics, food and beverages, and rubber products bearing the brunt. GDP growth for 2025 could drop to just 1.5% under this scenario, compared to 2.1% if a negotiated settlement reduces tariffs to 20%.
However, securing lower US tariffs through zero-tariff offers on American imports creates its own risks. Such agreements could trigger a 188 billion baht surge in US agricultural and manufactured goods, creating what analysts term a “Twin Influx” alongside the ongoing flood of Chinese products. Sensitive domestic sectors, particularly agriculture employing nearly 28.6% of the workforce, could face existential threats from this double competition.
The most viable path forward involves accelerated market diversification through existing and prospective free trade agreements. The European Union has signaled renewed interest in concluding negotiations with Thailand by 2027, while the Regional Comprehensive Economic Partnership offers opportunities for deeper regional integration. Success requires Thai businesses to master complex rules of origin and compliance requirements that have historically deterred FTA utilization.
The Essentials
- Chinese goods diverted from US markets pose a GDP risk of 0.8-0.9 percentage points to Thailand, nearly triple the 0.3 point impact projected from US tariffs
- Thai imports from China surged 33% in the first nine months of 2025, potentially widening the bilateral trade deficit from $46.66 billion to $63.63 billion
- Between 69.78 billion and 88.30 billion baht worth of Chinese industrial products are projected to enter Thailand over the next three years due to trade diversion
- Thailand faces a 36% US tariff threat, though current effective rates stand at 17.6% after exemptions for products like hard disk drives
- Only 193 of 354 Thai-listed exporter companies currently utilize free trade agreement privileges, representing $11 billion in trade value
- Washington threatens 40% transshipment tariffs on goods suspected of being rerouted through Thailand to disguise Chinese origin
- Analysts recommend accelerating EU FTA negotiations and OECD membership while reforming outdated trade and investment regulations
