Bangkok: Views are varied as the United States announces a 19% reciprocal tariff on Thailand. The private sector points to success and recommends using a hundred billion baht budget to reform Thai production to make it more competitive. The capital market sees the potential for Thai stocks to reach 1,400 points. Academics assess that the trade war is far from over, with the impact of the US-China trade war requiring Thailand to employ precise fiscal and monetary policies.
According to Thai News Agency, after the US announced a 19% reciprocal tariff on Thailand, down from 36%, effective August 1st, this rate is similar to the ASEAN region where agreements have been reached: Vietnam at 20%, Indonesia, the Philippines, Thailand, Cambodia, and Malaysia at 19%, and Singapore at 10%. However, the US has additional requirements: if there is a false claim or a transit route for goods, Vietnam will be charged an additional 40%, while Indonesia will add another 19%.
Mr. Chanin Chalisaraphong, Vice Chairman of the Thai Chamber of Commerce, stated that the 19% tariff rate is a significant success. The US's initial announcement of 36% is considered appropriate and comparable to all regions, ensuring that Thai products will be competitive in all sectors. However, what the government and private sector must work together on from now on is major reforms in all areas to enhance competitiveness. This agreement liberalizes all sectors, including agriculture, industry, and services. Therefore, Thailand must cooperate in reforms that will prepare for future liberalization of all markets. Meanwhile, the US's regulations on origin prohibiting the imitation of rights from other countries is a positive move, as domestic products are being empowered throughout the supply chain, truly enhancing the potential of SMEs.
"The public and private sectors must collaborate to reform the entire system to ensure competitiveness. The government must use the over 100 billion baht prepared for economic stimulus to develop a plan for the private sector to reduce costs and increase efficiency. Each group will develop a plan to reduce costs and increase efficiency. Meanwhile, the agricultural sector, where Thai exports total 2 trillion baht in agricultural and food products annually, must grow by 7% annually. Production efficiency must be increased, innovation and R and D must be increased, and Thai farmers' agricultural products valued more highly."
Mr. Kittipon Praipaisankit, Deputy Managing Director of UOB Kay Hian Securities, stated that the 19% US tariff rate is a positive figure, competitive and on par with the region. This provides stability and, in the medium term, Thai stocks could see an upside potential, with the Thai stock index potentially reaching 1,400 points. However, the short-term remains concerning due to the slowdown in the Thai economy, which, due to Thailand's prior export acceleration, is not expected to be particularly strong. Furthermore, the tax rate in South America is very low, at around 10%, lower than in ASEAN. This indicates that the US wants to adjust its production system, bringing supply chains closer to America from Asia. Thailand will need to adapt in the future.
Mr. Amonthep Chawla, Senior Executive Vice President and Head of Research at CIMB Thai Bank (CIMBT), stated on his Facebook page that lower tax rates offer Thailand the opportunity to survive alongside its neighbors amid heightened US trade barriers. However, he cautioned against the ongoing US-China trade war, which could lead to indirect impacts, such as a slower growth in Chinese tourists or a decline due to China's increasingly fragile economy. Strengths that need to be further developed include developing the domestic production chain, adjusting business costs to be competitive, and implementing precise fiscal and monetary policies. Fiscal policy should focus on supporting the economy and helping sectors affected by high import costs, such as certain agricultural sectors. Industries where Thailand has reduced import taxes may require labor relief measures or stimulate domestic consumption. Meanwhile, monetary policy remains accommodative, with low inflation allowing for further interest rate cuts. Slow e conomic growth, increased liquidity, and increased lending, while the tourism sector remains weak, necessitating further stimulus.
The 19% tariff also caused Thai exports to contract less than expected. Competitive products include electronics, automotive parts, tires, processed foods, and mobile phone parts. However, Thai export growth is likely to contract in the second half of the year because the US will reduce overall imports (due to accelerated stockpiling in advance and a slowing economy due to rising inflation). This will slow down the Thai manufacturing sector, and employment, working hours, and consumption risk lower growth in the second half of the year. The good news is that they should remain stable, without contracting as they would with higher tariffs.
While Thailand must reduce the risk of "impersonating" export rights because the strict US tariffs have reduced transshipment (illegally using Thai rights) because it will be hit with an additional 40% tariff, Thailand must be careful: products with high import content may be seen as not actually produced in Thailand. The solution is to accelerate the creation of production bases for important products, especially high-technology products, focusing on electronic groups such as semiconductors.
In addition, foreign direct investment (FDI) may increase, with investors relocating from China to Thailand, avoiding the competition from Vietnam and Indonesia. Target products: Those subject to similar tariffs and focused on the US export market, such as electrical appliances, batteries, automotive parts, etc. Don't forget that Thai entrepreneurs will benefit from lower raw material costs from lower tariffs on US imports, such as pharmaceuticals and medical supplies, food products and animal feed, corn, soybeans, and others, which will support investment in this sector. Another caution: Thailand still has a disadvantage in terms of cost structure, such as high labor costs, expensive electricity costs, and redundant regulations. Try to create selling points such as ESG and renewable energy.