Economic downturn looming for Thailand in 2026 if US trade agreement falls apart, potentially shrinking growth to a minimal 0.4%
Thailand's economy, particularly its major export sectors and agricultural industry, faces significant challenges in the wake of increasing US tariffs. The resilience in early 2025 has been attributed to front-loading of exports, where exporters accelerated shipments in anticipation of US tariff hikes. However, the second half of 2025 is expected to bring increased pressure due to these higher tariffs.
Major Export Sectors
The high tariff rates could lead to a substantial loss of competitiveness for sectors like textiles, garments, gems and jewelry, electronics, electrical appliances, processed foods, and rubber products, which are heavily dependent on exports to the US. With tariff rates as high as 36%, these sectors could find themselves at a pricing disadvantage compared to regional rivals like Vietnam and Indonesia, which have secured lower tariff rates of 20% and 19%, respectively.
This could result in job losses, particularly for more than 400,000 garment workers. The high tariff rates may also cause buyers to shift orders to countries with lower tariffs, potentially sidelining Thailand in global trade and investment.
Agricultural Industry
Thailand has maintained a strong stance against full tariff liberalization on US imports to protect its agricultural sector and domestic businesses. This protectionist stance could help safeguard the agricultural industry, but the outcome of ongoing negotiations with the US will be crucial in determining the long-term impact on Thailand's economy.
Broader Economic Impacts
Sustained high tariffs could deter foreign investment, as investors may prefer countries with more favorable trade conditions. This could impact Thailand's economic growth, with the Economic Intelligence Centre (EIC) of Siam Commercial Bank (SCB) predicting that Thailand's economy will grow by 1.5% in 2025. However, this projection assumes that Thailand will not fully reduce reciprocal tariffs with the United States before August 1, 2025.
The overall economic growth could be hampered by reduced competitiveness and decreased investment, affecting not just the export sectors but the entire economy. The SCB EIC forecasts that Thailand's GDP growth will slow further in 2026, likely expanding by just 1.2%.
Moreover, export sectors in Thailand, particularly electronics and electrical appliances, face growing risks of market share erosion in the United States. Thai exports with high import content may also be subject to stricter US rules of origin verification, compounding pressure on these key sectors.
In summary, increased US tariffs pose significant risks to Thailand's economy by eroding competitiveness, potentially leading to job losses, and deterring foreign investment. The agricultural industry is protected to some extent by Thailand's firm stance against full tariff liberalization, but the broader economic implications of sustained high tariffs include reduced foreign direct investment and stunted long-term growth.
- The resilience in Thailand's economy, particularly in the export sectors of textiles, garments, gems and jewelry, electronics, electrical appliances, processed foods, and rubber products, could diminish due to increased US tariffs, as these sectors rely heavily on exports to the US and face pricing disadvantages compared to regional competitors with lower tariffs.
- In the tourism industry, a decline in foreign investment due to unfavorable trade conditions could negatively impact travel and business, potentially resulting in reduced revenue for the transport sector and impacting the overall economy.
- The cultural sector in Thailand may also be affected, as the country's economy slows down and the focus shifts to addressing challenges in other sectors, potentially resulting in decreased resources for arts, entertainment, and cultural development.
- The finance sector, including banks and financial institutions, could experience pressure due to reduced foreign investment and economic growth, which may lead to decreased lending and investment opportunities.
- To mitigate these challenges, the Thai government may need to explore alternative markets and strategies for exports, as well as investments in infrastructure and education to attract more foreign investment and stimulate economic growth in other sectors.
