Structural Economic Reforms and Long-Term Competitiveness
Thai businesses are relieved that the United States has reduced its import tariff on Thai goods to 19%, aligning it with other regional countries. However, maintaining long-term competitiveness remains a significant challenge for domestic firms, alongside attracting foreign investment. Finance Minister Pichai Chunhavajira emphasized that regardless of the U.S. tariff levels, Thailand must accelerate structural economic reforms. The country needs to transform into a technologically advanced nation to achieve GDP growth of more than 3% in the long term. Without such actions, Thailand's GDP growth may only reach 2.2%, he warned.
Adapting to Global Economic Shifts
Nonarit Bisonyabut, a research fellow at the Thailand Development Research Institute, highlighted that the reciprocal tariff policy initiated by former U.S. President Donald Trump has shrunk the global economic pie. He stressed the need for Thailand to adapt and become more competitive by stopping support for inefficient sectors, liberalizing the service sector, and attracting artificial intelligence (AI) and digital industries to the country. The shrinking global economy, decreasing trade, and potential decline in foreign direct investment mean nations must become more capable.
When the economic pie is large, it's easier to share. Now that the pie is shrinking, Thailand must return to fundamentals, especially competitiveness. It must produce goods that are in demand and enhance technological capabilities. The younger generation must become more skilled, and new markets must be tapped into.
Government Policy Changes
The government must admit that subsidizing certain parts of the economy, such as agriculture, may be inefficient. State assistance should be reformed, with free financial grants shifted to measures that improve productivity and increase technology use. Thailand must pivot towards more skill-intensive industries, making labor-intensive industries unsustainable in the country.
Regarding the service sector, Nonarit said it's time to allow more competition, raise standards, and eliminate domestic monopolies, opening up opportunities for small players to better compete in the market. The Board of Investment (BoI), which is performing well, needs to develop further, especially in target industries. The BoI must accelerate investment in AI and various digital industries.
"We must figure out how to make such industries flourish in Thailand and ensure a long supply chain. This means going beyond the BoI's broad-based privileges — we need tailored, specific incentives for individual businesses," he said. If Thailand wants to become a trading nation or a transshipment hub, even with tensions between China and the US, it can still bring goods to be warehoused in Thailand, establishing a global trade center.
Investor Appeal and Strategic Reforms
Poj Aramwattananont, chairman of the Thai Chamber of Commerce, noted that Thailand possesses growth potential aligned with the chamber's "Unlocking New Growth" strategy launched earlier this year. The trade war presents an opportunity for Thailand to reshape its economy and enhance its appeal to investors in the short, medium, and long term.
In the short term, Thailand needs to boost business confidence, streamline operations, and urgently reform regulations and bureaucracy to improve transparency and efficiency. This includes re-evaluating various permits, such as environmental impact assessments, BoI approvals, and processes for importing foreign workers. The criteria for investment promotion under the BoI also need to be reviewed to better attract foreign investors.
For the medium term, Poj urged the government to enhance infrastructure and industrial capabilities, as well as support traditional sectors like food production, agriculture, and tourism. By leveraging innovation and technology, these industries could significantly elevate their value. The government must support entrepreneurs by providing access to capital and knowledge, enabling them to thrive in the digital age.
In the long term, strategic investments in education and labor reforms are essential to ensure the workforce is equipped with skills in AI and automation, as well as knowledge about net-zero emissions. Creating a supportive ecosystem for the next generation of entrepreneurs is vital.
Increasing Local Content and Transshipment Challenges
Manufacturers in Thailand should focus more on using locally sourced raw materials in their production to avoid additional tariffs for transshipment to the US via Thailand, according to the Federation of Thai Industries (FTI). Kriengkrai Thiennukul, chairman of the FTI, stated that developing appropriate measures for the transshipment issue is crucial. Transshipment is another U.S. tariff barrier that could be applied in addition to the 19% import duty on products from Thailand.
Vietnam faces a 20% reciprocal tariff and 40% levy on products exported from the country of origin via Vietnam to the U.S. This tactic targets Chinese manufacturers seeking to bypass U.S. duties, according to media reports. The FTI is conducting a survey covering 47 industries to establish how much domestic raw materials are used in their manufacturing processes.
It remains unknown how much local content the U.S. is seeking for certain industries and whether the target is only materials or products coming from China. Thai officials hope to clarify this in discussions with the U.S. Transshipment tariffs are a new challenge for Thai manufacturers, possibly forcing the adaptation of investment plans if there are requirements concerning the proportion of locally sourced raw materials.
Positioning as an AI Hub
Supparat Sivapetchranat Singhara na Ayutthaya, vice-chairman of the Thailand Data Center Association, emphasized that to remain relevant in the evolving global economy, Thailand must move beyond its traditional economic pillars of tourism, agriculture, and low-cost manufacturing, positioning itself as a hub for advanced industries. This goal can be achieved by becoming either an indispensable node in global supply chains or a magnet for innovation and digital talent.
Thailand should capitalize on its geographical and geopolitical advantages to establish itself as the "AI factory" for Indochina. This strategy involves ensuring continued access to the world's most advanced computing hardware, particularly the latest Nvidia graphics processing units, by implementing robust export control frameworks that meet international trust and compliance standards.
Infrastructure Upgrades and Tourism Reform
Based on the World Economic Forum's Travel and Tourism Development Index 2024, Thailand had the lowest score in tourist services and infrastructure compared with its other dimensions. Patom Siriwattaprayoon, chief executive of PCL Hospitality, said Thailand needs to reform the sector to be seen as a high-value destination that can attract new tourism investment. He suggested upgrading public transport that connects major airports serving the inner districts of tourist destinations.
The government should also accelerate the process of convincing unregistered hotels to enter the tax system to ensure fair competition and equal taxation while ensuring safe stays for tourists. Provinces with high potential, such as Phuket, should be regulated as special administrative districts, resembling the way Bangkok and Pattaya are administered. This shift would benefit the booming tourism and real estate sector on the island.
Call for Diversification and Market Expansion
Ongart Kittikhunchai, president of the Thai Food Processors Association, said in the immediate term, Thai businesses must expand into new markets to diversify risk and enhance their production processes to reduce costs while simultaneously producing higher-quality goods. In the medium term, businesses must restructure to adapt to global changes, particularly regarding financial and management systems.
For the processed food industry, which is closely tied to the agriculture sector, it must diversify its product offerings. Exporters should focus on creating a wider variety of innovative products, while ready-to-eat food producers must penetrate new overseas markets. Sidthisak Limvatanayingyong, president of the Thai Silver Exporters Association, urged the government to finalize negotiations for a free trade agreement with the EU to benefit Thai exporters, including the silver jewellery segment.
Tax incentives would be vital to drive progress in enhancing production technology, facilitating the import of advanced technologies, or fostering the development of local production technology.