Thailand faces a daunting challenge as the United States implements a 36% reciprocal tariff on Thai exports starting August 1, 2025. This tariff, announced on July 7, 2025, is notably higher than those applied to Thailand's regional competitors like Vietnam, Indonesia, and Malaysia, which have secured lower rates through trade negotiations with the US. The steep tariff threatens to undermine Thailand's export competitiveness, particularly in the US market, which is a critical destination for Thai goods and services.
The Federation of Thai Industries (FTI), led by Chairman Kriengkrai Thiennukul, has been proactive in gathering data from 47 industrial groups and 11 clusters to assess the impact of the tariff hike. The FTI highlights that key sectors such as machinery and parts, electrical machinery, rubber, furniture, automotive parts, steel products, leather, and ceramics are at high risk due to their significant reliance on the US market, with some sectors depending on the US for 28-35% of their export value.
According to the FTI, the US has already negotiated reduced tariffs with Vietnam, cutting import taxes from 46% to 20% for Vietnamese goods and 40% for goods transferred from China under controlled conditions. The UK also benefits from a reduced 10% tariff on cars, with a quota of 100,000 units annually, along with increased access for agricultural products like beef and ethanol. These preferential rates place Thailand at a disadvantage if it cannot secure similar concessions.
Compounding the challenge, the US and China recently agreed on a tentative trade deal during high-level talks in London, which lowers US tariffs on Chinese goods from 145% to 55% and Chinese tariffs on US goods from 125% to 10%. However, this agreement awaits formal signatures from Presidents Trump and Xi Jinping and official confirmation from the Chinese government.
Thailand’s export sector is vital to its economy, contributing over 58% of GDP in the first quarter of 2025, with industrial goods alone accounting for more than 47%. The imposition of a 36% tariff threatens to increase the cost of Thai goods entering the US, potentially leading to a loss of market share, reduced investor confidence, and higher production costs.
Data from May 2025 shows Thai exports reaching $31 billion, an 18.35% year-on-year increase, marking the highest growth in 38 months. Yet, the Joint Standing Committee on Commerce, Industry and Banking warns that sustained high tariffs could cause exports to contract by over 10% in the latter half of 2025, dragging overall growth close to zero for the year.
The Office of Small and Medium Enterprises Promotion (OSMEP) projects that around 3,700 Thai SMEs will be severely affected by the tariff hike, with exports to the US expected to drop by 25-30% from August 2025 onwards. This contraction could reduce SME GDP growth for 2025 from 2.6% to just 1.7%. The higher costs—estimated to be 16% above competing countries—may prompt US importers to switch to alternative suppliers, escalating the risk for Thai businesses producing similar goods.
SMEs represent a significant portion of Thailand’s export economy, with the US being their second-largest market. Top SME export products include machinery and equipment (like air conditioning units and processors), electrical appliances, gems and jewelry, plastics, and furniture, which together make up 60% of consumer goods exports. SME imports from the US have also surged, particularly in intermediate goods such as LNG gas, machinery, steel, aluminum, and electrical appliances, essential for domestic production.
The tariff hike’s ripple effects extend beyond exports. OSMEP forecasts a 15% decline in foreign direct investment as companies reconsider Thailand’s attractiveness amid rising costs. There is also concern over a potential shift in production bases to countries with lower tariffs, which could lead to job losses, especially in manufacturing, and increased unemployment. Furthermore, an influx of goods from other countries seeking new markets may flood Thailand, threatening local businesses’ revenues if adequate measures are not taken.
In response, the FTI urges the Thai government to implement a comprehensive relief package. Key recommendations include providing low-interest loans and debt moratoriums, reducing corporate income tax for exporters affected by US tariffs, subsidizing export-related costs such as port services, customs procedures, and certification fees, and offering tax incentives for legal expenses incurred in negotiating with US authorities.
Additionally, the FTI advocates for accelerated negotiations of new Free Trade Agreements (FTAs) to open alternative markets, support initiatives like SME Pro-active programs and Trade Missions to expand export opportunities, and promote the “Made in Thailand” (MiT) campaign to boost domestic sourcing and branding. Encouraging higher local content usage through tax breaks and productivity improvements is also on the agenda, alongside measures to stabilize the Thai baht to maintain regional competitiveness.
The Thai National Shippers' Council (TNSC), represented by President Thanawat Pholvichai, shares concerns but remains cautiously optimistic. He expressed hope that the Thai negotiation team can secure a tariff rate at least 2% lower than Vietnam’s, providing exporters more breathing room to adjust. Mr. Pholvichai described the US as a “big bully” demanding trade benefits to rectify its longstanding trade deficit and competitiveness loss, underscoring the importance of fair treatment for Thailand, especially since its trade surplus with the US is smaller than Vietnam’s.
Mr. Pholvichai also warned of three critical domestic factors that could undermine Thailand’s competitiveness amid these external pressures: rising minimum wages, monetary policy decisions affecting interest rates, and the enforcement of legal frameworks, particularly concerning foreign investors and business operations. He stressed the need for the government to carefully consider wage policies to avoid escalating production costs, ensure appropriate interest rates in collaboration with commercial banks, and rigorously monitor foreign business activities to prevent adverse impacts on the economy.
Exports in July 2025 fell sharply by 30%, reflecting the US market’s current stockpiling of goods and signaling the urgency for Thailand to adapt. Given that the US market accounts for roughly 18% of Thailand’s exports—an estimated 2 trillion baht—diversifying export destinations is easier said than done, especially as other countries face similar global challenges.
To mitigate the impact, Thai SMEs and exporters are urged to seek new markets and partners, leverage existing FTAs, and consider relocating production to countries not subject to high US tariffs. Concurrently, Thailand must bolster economic confidence, promote investment, and develop strategic sectors such as health tourism, wellness and medical services, and regional logistics hubs. Managing the influx of goods from other countries is also critical to protect domestic industries.
In sum, the imposition of the 36% US reciprocal tariff places Thailand at a crucial crossroads. The government and private sector must collaborate closely to negotiate favorable terms, implement targeted relief measures, and pursue strategic economic diversification to safeguard Thailand’s export-driven economy and its millions of workers dependent on these global markets.
