Far East: How the Thai Baht’s Vulnerability Echoes The Economy’s Cry For Help
A Thai farmer counting the money she received from selling rice. via Reuters.
It is evident that President Trump’s tariff plan has wreaked havoc across the global economy, which has led to either tension or negotiations across many nations. Within hours after the announcement of the tariffs, stocks and currencies alike responded badly. Out of all of the currencies, however, Thai baht seems to take one of the deepest cuts, especially in the emerging Asian market.
Many experts have pointed to the fact that the U.S. is Thailand’s largest trading partner, and the Thai economy’s over-reliance on American demands has backfired. However, looking through the numbers, the inadequate monetary policies, and the negotiation that no one knows where or when it will take place, it became crystal clear that the Thai economy has sustained some bad cuts and is barely holding on. As the tariffs go into effect, and are now paused, Thailand is scrambling to find a way to bring its currency out of crisis while its economy is on the American tariff’s death row.
America’s ‘Most Favored Nation’ Falling Out Of Favor
On April 2nd, President Trump’s tariff plans were announced, sending shockwaves across the global economy. That shockwave was felt all the way in Bangkok as Thailand was subjected to over 36% of the U.S. import tariff. This huge percentage spares no industry, no matter big or small, from the risks that come with the tariff on Thailand’s exports to the U.S., its largest trading partner.
The trade relationship between Thailand and the U.S. has been seen as a miracle, with Thailand’s adoption of liberal trade and investment policies in the 1990s, the U.S. has become Thailand’s closest trading partner since then. This trade relationship has even outperformed any other bilateral trade relationship globally during the COVID-19 pandemic, showing their deep economic connections. This special relationship, however, was not well exemplified when Thailand was forced to face 36% tariffs, the 5th highest in Southeast Asia behind Myanmar, Vietnam, Laos, and Cambodia.
On May 7th, the Joint Standing Committee on Commerce, Industry and Banking (JSCCIB), a foundation under the Thai government, revised Thailand’s 2025 GDP growth forecast to 2–2.2%. This does not include worst-case scenario projections, which estimate growth could fall to as low as 0.7% if the full 36% in tariffs is implemented and no agreement is reached by July 9th, when the current tariff pause expires.
In its revised report, the committee mentions that as the direct consequences of the U.S. tariffs, over 1.4 trillion baht in damage could surface within the next 10 years, and the pressure exerted on over 3.7 million employees and almost 5,000 SMEs if the situation exacerbates in the future.
Bandaids Don’t Fix Bullet Holes
As markets open and the Thai baht takes a sharp hit, the Bank of Thailand is compelled to intervene swiftly to maintain investor confidence and sustain economic activity. In response to these tariffs, a set of monetary measures has been introduced, though both observers and officials acknowledge that they do not fully address the underlying vulnerabilities.
The Bank of Thailand headquarter in Bangkok, Thailand. Chalinee Thirasupa via Reuters.
The central bank has cut its key interest rate to a two-year low of 1.75% in order to sustain the economy as the Thai government is seeking to negotiate with the U.S. in regards to reduction or complete elimination of tariffs. Despite the bank’s committee voting 5-2 in favour of the interest rate, the voices grew different throughout the implementation as the response was seen as accommodative, and a recession is on the horizon.
"U.S. trade policies and potential retaliations from major economies will cause significant changes in the global economic, financial, and trade landscape,” said the Bank of Thailand’s Assistant Governor Sakkapop Panyanukul.
The tariffs themselves could not have come at a better time as the country is forecasted to receive fewer tourists, from 39.5 million last December to 37.5 million at the end of this year. Moreover, inflation was already forecasted to go down from 1.1% to 0.5% according to the BOT. This means that having a “technical” recession forecast added will send Thailand’s economy into overdrive.
Do We Negotiate? Do We Diversify?
A bank employee gathering the Thai baht notes at a bank in Bangkok, Thailand. Athit Perawongmetha via Reuters.
These are likely the thoughts running through the minds of many Thai entrepreneurs and workers, as the tariffs pose significant risks to Thailand’s key industries. From agricultural to manufacturing, Thai producers are questioning the negotiations as the Thai government does not seem to take the tariff issues seriously and having not named a single date where negotiations between countries could start has spiked the uncertainties.
Diversification doesn't seem like the best solution either, as experts question the extent to which Thailand can truly diversify its markets. A diversification will need more than a buyer, it needs a total reconfiguration of the global supply chain. This puts Thailand in a very sensitive position where it does not possess the ability to reconfigure its markets, nor does it possess much of an ability to find new, bigger groups of buyers for what it already makes. Moreover, as most of the manufacturing firms that operate in Thailand are multinational brands, they are tied to what their parent offices tell them to and severely restrict Thailand’s ability to shift towards a new market anytime soon.
Right now, the most sensible way out of Thailand’s imminent economic crisis would be to begin the negotiations with the U.S. as soon as possible to avoid the worst-case scenario when the deadline of the tariffs arrives. With that being said, no one really has a clue about when and where this trade negotiation will take place and under what circumstances. As the Bank of Thailand’s measures start to reach the limit of what it can do, the losing hand in this economic downfall will be upon the everyday, working Thai people, who are already struggling to make ends meet.