Thailand’s Unexpected Tariff Reduction

Tensions between the United States and Thailand have escalated since U.S. President Trump’s 'Liberation Day' tariff broadside. While trade may be the weapon pointed at Thailand, the tensions run deeper than the trade deficit between the two nations. Market access and potential Chinese infiltration have increasingly frustrated the United States Government with what it views as non-tariff barriers to American goods, services, and influence. 

As a consequence of these underlying fissures in bilateral relations, Washington seemed to have initially deprioritised trade talks with Bangkok. In Thailand, polarised opinions and political instability slowed down the emergence of a clear position until attention to the region resurged this summer due to the border crisis with Cambodia and the subsequent U.S. - brokered ceasefire. 

The U.S. is Thailand’s largest export market, and the two countries share deep economic ties. American investors find Thailand to be an alternative to China, especially as Sino-American tensions intensified between 2018 and 2022. With the initial level of tariffs announced on Liberation Day, Thailand risked losing $6.14 billion in exports, according to the University of the Thai Chamber of Commerce. 

At the heart of the U.S. imposition of tariffs lies a Thai trade surplus. To appease the American administration, Bangkok presented five key initiatives to enhance the U.S. commercial presence in Thailand. Discussions mainly focused on increasing U.S. imports and reducing trade barriers. Debates regarding U.S. agricultural imports to Thailand contributed to much of the delay in finding a trade deal, with Thailand hoping to protect its domestic pork businesses, whilst President Trump looked for a political win for his supporters in the agricultural sector. Proper application of trade law has also been a critical topic during the negotiations, with the U.S. looking to impose stricter enforcement of rules of origin. Thailand rolled out offers of favourable investments, diplomatic overtures, and openness to purchasing up to 100 new military aircraft, but these suggestions saw little engagement from the U.S. until recently. U.S. officials appeared unsatisfied by largely symbolic measures, instead pushing for structural changes to the Thai economy and improved transparency. 

The turning point in trade negotiations did not come from the proposals presented by Thailand to the U.S., but as a result of a ceasefire agreement brokered by Washington in late July 2025 to end the Thai-Cambodian border conflict. As an incentive to end the ongoing hostility, Washington offered both Cambodia and Thailand a baseline tariff reduction to 19% from the earlier 27% rate. The transactional nature of the new tariff agreement was apparent and raised questions about the priorities of the Trump Administration. Talk of market access, trade liberalisation, and the elimination of transshipments were certainly important, but seem to have taken a backseat to the agreement of the ceasefire. 

The Thai government has hailed the tariff reduction as a diplomatic and economic victory, framing it as the result of the country’s balanced diplomacy approach and patience. Thailand, amid political turmoil at home, announced a new stimulus plan, amounting to $572 million USD, aimed at stabilising export-dependent industries in the face of global uncertainty and reduced trade with Cambodia. The Bank of Thailand has also intervened to stabilise the baht, which had fallen to a six-year low against the dollar prior to the ceasefire agreement. While positive, these measures have not totally alleviated investors' fears. Facing domestic political turmoil, a tenuous ceasefire with its southern neighbour, a northern neighbour in civil war, and global trade instability, the challenges facing Thailand are real and significant. 

The unpredictable nature of trade barriers and market access with the United States further increases the need for Bangkok to diversify its trading partners. While the recent breakthrough in the tariff rate is welcome, the uncertainty around future disruptions remains. International investors will be less confident in their future investments or the expansion of current investments. Another point of concern is the lack of attention paid to the bilateral relationship, economic or otherwise, from the U.S., as Thailand was only able to secure a trade deal after becoming the spotlight of international attention due to the border crisis with Cambodia. This reduction in priority for bilateral relations highlights the shifting of priorities in Washington’s relationship with Southeast Asia. 

While a 19% tariff deal finally emerged from the negotiations, it seems that consumer confidence in Thailand remains low, and economists fear a potential recession. The Ministry of Finance revised GDP growth projections to just 1.0% for 2025, down from 2.3% prior to the conflict and trade tensions. This number has now grown to a projected 1.6%, but the effects of regional instability and the global trade reduction remain. 

Regionally, the conflict and its resolution have also reshaped perceptions of U.S. involvement in Southeast Asia. Neighbours such as Vietnam and Malaysia cautiously welcomed Washington’s mediation. Thailand believes that the success in reducing its tariff baseline and the renewed attention from Washington validate its delicate balancing act between the great powers.

Although the two countries finally managed to strike a deal, Thailand should be prepared for the future. A more effective strategy could involve short-term compliance with key U.S. demands, such as reforming trade rules and curbing visible Chinese investments in critical sectors. This breathing room would allow Bangkok to accelerate efforts to diversify its trade relationships, particularly through ASEAN’s RCEP (Regional Comprehensive Economic Partnership) and the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership). 

Thailand could also enhance its long-term economic resilience and autonomy by pursuing a neutral, rules-based trading relationship with other like-minded partners such as Vietnam and Indonesia. It should also look for ways to diversify its exports and reduce its dependency on global value chains. One way to do so could be to look for new partners and expand trade agreements. Thailand could rely on ASEAN for deeper market integration in Southeast Asia, an opportunity the relevant countries seem to have started discussing in May 2025, during the Kuala Lumpur Summit, and continued in the following August ministerial meeting on the post-conflict stability. 

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ABOUT THE AUTHORS

Peyson Hunt is the research lead for the US-ASEAN Young Professionals Organisation and a Senior Visiting Research Fellow at the Cambodian Center for Regional Studies (CCRS). Peyson authors research papers, articles, policy briefs, and organises public symposiums on Southeast Asian security, U.S.–Cambodia relations, and ASEAN’s role in a multipolar world. 

Eugénie Martinez Lonné is the Head of Partnerships & Fundraising of European Guanxi, a non-profit aiming to promote EU-Asia relations. She is also involved in consulting works for international firms, advising clients in the energy and industry sectors on the

This article was edited by Daria Bogolyubova and George Banos.

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