Thailand Faces Pressure from Vietnam and Indonesia's Trade Deals with the US

Strategic Insights -

Thailand is negotiating a trade deal with the US, but Vietnam and Indonesia's successful trade agreements are putting pressure on the country. Investors may shift focus if Thailand fails to secure a favorable deal. US President Donald Trump recently announced a trade agreement with Indonesia, which will see Indonesian goods taxed at 19% while US exports to Indonesia will face no tariffs. In return, Indonesia has agreed to purchase $15 billion worth of energy products, $4.5 billion in agricultural goods, and 50 Boeing aircraft.

Key Takeaways:

  • Vietnam and Indonesia's trade deals with the US have put pressure on Thailand to conclude its trade negotiations with the US at a favorable tariff rate.
  • Thailand is aiming to reduce tariffs on 10,000 product lines to 0% and has proposed additional proposals to the US for further trade benefits.
  • The government has prepared mitigation measures for businesses potentially impacted by tariffs, including a soft loan scheme worth 200 billion baht to assist businesses.
  • Concerns have been raised that Thailand may be pressured to reduce tariffs to 0% to compete with Vietnam and Indonesia.
  • Amonthep Chawla, Executive Vice President and Head of Research at CIMB Thai Bank, expressed concerns that if Thailand fails to negotiate tax terms comparable to or near those of competitors, the country could face higher import tariffs.
  • Thailand's agricultural sector is more vulnerable, and its economic structure is more complex than Vietnam and Indonesia, which should be taken into consideration when negotiating tax reductions.
  • A tax rate of 25-30% would still be highly feasible and competitive for Thailand.
  • The Bank of Thailand (BOT) has been in continuous discussions with all sectors to ensure that the government and private sector work together to address the impact of tariffs.
  • Thailand's competitors, such as Vietnam and Indonesia, have significant trade surpluses with the US, namely $17.9 billion and $45 billion in 2024 for Indonesia and Thailand, respectively.

Statistics:

  • Indonesia's trade surplus with the US is $17.9 billion.
  • Thailand recorded a surplus of $45 billion with the US in 2024, 2.5 times larger than Indonesia's.
  • Vietnam relies on the US for more than 30% of its exports.
  • Thailand depends on the US for only 18% of its total exports.
  • The US has imposed 0% tariffs on Vietnamese and Indonesian exports.
  • Thailand has proposed reducing tariffs on 10,000 product lines to 0%.

Sources:

  • CNBC: "US, Indonesia seal trade deal as investors warn of fragmentation"
  • Reuters: "Thailand eyes zero-tariff exports to US, Vietnam and Indonesia pose threat"
  • The Bangkok Post: "Thailand's trade negotiations with US face pressure from Vietnam and Indonesia"