THAILAND IS caught in the crossfire of the trade war between China and the United States and the Kingdom’s future economic relations with the two superpowers are precariously uncertain.
The United States is one of Thailand’s biggest investment partners. Two-way trade volume between the two countries last year totalled Bt1.4 trillion, behind China (Bt2.5 trillion) and Japan (Bt1.8 trillion). Thailand’s exports to the US last year were valued at Bt898.8 billion, following China (Bt997.9 billion), according to the Ministry of Commerce.
Economic relations between Thailand and the US have been strengthened since the Treaty of Amity and Commerce signed in 1833. During the post-second world war and the Cold War eras, Thailand got economic aid from the US.
As the world has developed, Thailand has diversified its economy and now China is Thailand’s largest export market.
While China has a geographically closer trade link with Thailand, the Kingdom has a close connection with the US politically and militarily, said Teerana Bhongmakapat, economics professor and former dean of Chulalongkorn University’s Economics Faculty.
Against a backdrop of rising economic power, Thailand and the US have pursued different trade policies.
Thailand has embraced multilateralism under the World Trade Organisation (WTO) while the US has moved away from the WTO and is moving towards bilateralism, especially under President Donald Trump who has asserted “America First”.
“Thailand still believes that we will benefit from the WTO, while the US does not think so,” said Teerana.
Even before Trump took office nearly two years ago, former President Barack Obama stayed away from the WTO and initiated the Trans-Pacific Partnership (TPP), a regional trade bloc that did not include China.
Trump abandoned TPP – which has subsequently changed its name to the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) – as he chose a bilateralist approach to renegotiate with trade partners, in particular those having large trade surpluses with the US.
Thailand had a trade surplus worth $20.2 billion (Bt675.2 billion) last year, ranked 11th among various countries, according to the United States Census Bureau.
On the surface, the trade policies implemented by Trump and Obama look different, but the underlying substance of their approaches is the same, Teerana said.
Thailand and other developing countries demand that advanced countries, including the US, open farm markets while advanced countries demand more intellectual property protection and service liberalisation in developing markets. The conflict has stalled trade negotiations under the WTO for many years.
Many have expected that trade tensions will increase as Trump has opened disputes with China, Europe, Canada, Mexico and other Asian countries.
“Unfortunately, Trump sees alliances as competitors, he interprets countries as companies that are competing against each other,” Teerana said.
The impact on Thailand remains to be seen.
“Thailand is not the main target of the US for trade disputes, so the impact is almost nothing,” said Soraphol Tulayasathien, director of the economic stability analysis division at the Finance Ministry’s Fiscal Policy Office.
The International Monetary Fund has warned that a trade war could slash world economic growth by 0.5 percentage points by 2020. Soraphol said the impact on Thailand may be only 0.01 percentage points.
The affect is less because most of Thailand’s exports to China, about 70 per cent, are for domestic consumption, while only 30 per cent is in supply chains. The US is targeting products that originate in China, he said.
A trade war is unlikely to affect the tourism industry, which accounts for 14 per cent of Thailand’s GDP, Soraphol said.
The US may import more from Thailand or some investors may shift their production base to Thailand to avoid a trade war, he said, adding that it would be unlikely that some US investors in Thailand would relocate their factories back to their home country.
Sompop Manarungsan, president of the Panyapiwat Institute of Management, believed that competition for economic and political influence between the US and China will definitely affect Thailand.
He said the US will also pay more attention to Asean as the region is on the South China Sea, which is a strategic point for both China and the US.
“Thailand has to be very careful. We don’t know what will happen, but we still need to have trade and investment relations with the two giants,” he added.