The global economy is undergoing significant changes as countries adapt to shifting trade dynamics and evolving geopolitical landscapes. According to the Thailand Development Research Institute (TDRI), the world is becoming increasingly polarized into four distinct groups, which may lead to a diminished role for the U.S. dollar in international trade. Dr. Kirida Bhaopichitr, TDRI's Director of International Economic Affairs, shared these insights during a recent seminar titled "Trade War: Turning Global Crisis into Opportunity for Thailand," held at the Ministry of Finance's 150th-anniversary event.
Dr. Bhaopichitr pointed out that the U.S. has implemented various tariff increases on imports as part of its "Make America Great Again" policy. This includes a 10% tariff on all imports and a 25% tariff on specific items such as steel, aluminum, and automobiles. With the U.S. importing approximately $3 trillion worth of goods annually, a mere 10% tariff could generate $300 billion in immediate revenue for the government.
These tariff policies are not without consequences. They have contributed to rising production costs and inflation within the U.S., making goods more expensive for consumers. Furthermore, Dr. Bhaopichitr noted that President Trump is also keen on reducing domestic energy prices by promoting oil and gas extraction, showing skepticism towards the transition to clean energy and carbon reduction.
Amid these changes, the geopolitical landscape is shifting as well. Trump has signaled a desire to reduce U.S. international involvement, particularly in providing military support to allies like Taiwan and Japan, suggesting that these nations should contribute financially for U.S. protection. Dr. Bhaopichitr warned that a decline in U.S. security assistance could lead to regional instability, particularly if China were to escalate its military actions towards Taiwan. Such developments could disrupt vital shipping routes, impacting Thailand's exports to Japan, China, and South Korea, and significantly increasing logistics costs.
Despite these challenges, there may be opportunities for Thai products to penetrate the U.S. market, particularly in areas where U.S. tariffs on Chinese goods are high. For instance, Thai-made syringes face a mere 15% tariff compared to a staggering 245% for their Chinese counterparts. Other Thai exports to the U.S. include mobile phone parts, which account for 60% of the country's exports to the U.S.
However, the U.S. may leverage market access as a bargaining chip, potentially reducing tariffs on American products such as soybeans and corn in exchange for lower import tariffs on Thai goods. This could lead to cheaper prices for these products in Thailand while simultaneously increasing competition for local producers from both U.S. and Chinese imports.
Dr. Bhaopichitr emphasized that Thailand must protect its export markets while diversifying its trade relationships. The U.S. remains Thailand's largest export market, accounting for 20% of its exports, while China represents 25% of its imports. Given the current trade war climate, it is crucial for Thailand to maintain its foothold in the U.S. market while also seeking opportunities in other regions.
Looking ahead, Dr. Bhaopichitr predicts that the global supply chain will continue to shift as companies seek to relocate their production bases. While Thailand may not benefit as much as countries like Vietnam, there is still potential for growth. The Board of Investment (BOI) has reported record levels of investment approvals over the past two years, with significant interest from both Chinese and U.S. investors.
The TDRI has identified four potential groups emerging in the global landscape: the U.S. and its allies, China and its partners, Europe and its allies, and neutral countries like Thailand, India, and Indonesia that seek to engage with all three groups. This fragmentation could lead to a decline in cross-group trade, creating challenges for traditional trade dynamics.
As the world shifts towards these four distinct blocs, the role of the dollar may diminish. Countries may increasingly use their local currencies for trade within their respective groups, leading to a potential decline in dollar transactions. Dr. Bhaopichitr noted that Hong Kong may no longer serve as a financial hub due to its proximity to China, with Dubai emerging as a new center for global finance.
To navigate these changes, the TDRI recommends that both the government and private sector focus on risk diversification. The government should work to expand markets, while businesses must avoid dependency on a single market. Investment strategies should be diversified, and savings should be maintained to effectively manage risks.
Additionally, the government should support the transition to clean energy and enhance digital infrastructure to better support business operations. With inflation expected to decline, the Bank of Thailand may consider reducing interest rates, which could provide relief for households and businesses alike.
Overall, the TDRI emphasizes the importance of strategic planning for Thailand's economic future amidst these global shifts. As the landscape evolves, it is crucial for the nation to adapt and seize opportunities while mitigating potential risks associated with the changing dynamics of international trade.
