Thailand's Exports Face U.S. Tariff Increase: Key Insights

On July 24, 2023, the U.S. increased tariffs on Thai imports from 10% to 12.5% under Section 301 of the Trade Act, marking a net increase of 2.5 percentage points. This adjustment affects a broad range of products, but the Thai government has clarified that more than 2,120 items are exempt from these tariffs, including crucial exports like integrated circuits, natural rubber, and tapioca starch. This exemption accounts for over half of Thailand's total export value to the U.S., as reported by the Deputy Spokesperson for the Prime Minister's Office, Lallida Periwitthana.

Officials indicated that the new tariff rate is at a similar level to those imposed on competitors such as China, Vietnam, and the Philippines, suggesting that it may not significantly impact Thailand's competitive edge in the U.S. market. Lallida noted that exporters, particularly small and medium-sized enterprises (SMEs), should evaluate the implications on a product-by-product basis rather than reacting solely to the overall tariff increase.

In contrast, Cambodian media reported that the U.S. has imposed a 10% tariff on Cambodian goods, which is lower than the rate applied to Thailand. Former American Chamber of Commerce in Cambodia president Casey Barnett highlighted that while Cambodia has secured several important exemptions, including duty-free treatment for products that cannot be produced in the U.S., the country faces significant challenges. Notably, a special tariff exemption for Cambodian garment exports is contingent on the volume of U.S.-produced cotton used in manufacturing, which poses risks given Cambodia's heavy reliance on Chinese textile inputs.

While the Thai government is negotiating an Agreement on Reciprocal Trade (ART) with the U.S. to safeguard the interests of Thai exporters, Cambodian officials are also preparing for a second round of tariffs expected to be announced by the USTR, which could further impact the garment sector. Barnett warned that Cambodia could lose garment orders to competitors like Indonesia and Bangladesh unless it attracts investment in textile manufacturing, as these countries are also subject to the 10% U.S. tariff but have more substantial domestic textile production capabilities.

Philippine officials reported that approximately $6.25 billion worth of Philippine-made goods, or about 34.28% of the country’s exports to the U.S., are now subjected to the 12.5% tariff. This assessment, according to the Department of Trade and Industry (DTI), highlights that the Philippines faces a more significant exposure compared to Thailand, where only a fraction of exports are impacted. Notably, products most affected include leather and travel goods, apparel, footwear, and toys, as stated by Bianca Pearl R. Sykimte, director of the DTI-Export Marketing Bureau.

Philippine exports exempted from the new tariffs include electronic products like semiconductors and auto parts, which align with the exemptions reported by Thailand. However, the DTI noted that while around $11.98 billion in Philippine exports are exempt, the overall exposure to tariffs is still considerable compared to Thailand's situation.

Malaysian officials have emphasized their country's relatively favorable position in the U.S. market due to a lower tariff rate of 10%. Johari, a Malaysian trade official, stated that this rate is among the lowest imposed by Washington, allowing Malaysian exporters to maintain a competitive edge over regional peers facing higher tariffs. He pointed out that while the U.S. has imposed a 12.5% tariff on Thailand and many others, Malaysia's 10% rate is a significant advantage, albeit one that may be temporary unless further trade reforms are enacted.

Despite the exemptions in Thailand, the government acknowledges that the effects of the tariff hike will vary among businesses, depending on product classification, supply chain dynamics, and U.S. import conditions. Therefore, it is crucial for exporters to remain informed about specific tariff codes and their respective impacts.

Moreover, Johari expressed concerns regarding the potential for Malaysia to face even higher tariffs in the future, particularly due to ongoing investigations into forced labor practices, which have already led to the imposition of the current 10% tariff. He noted that Malaysia's commitment to addressing these issues through a reciprocal trade agreement with the U.S. is essential for maintaining its competitive position.

As Thailand navigates this complex trade landscape, the focus remains on maintaining access to the U.S. market while exploring alternative markets and enhancing the competitiveness of Thai products. Meanwhile, the Cambodian garment sector faces a critical juncture, with industry leaders urging swift action to bolster domestic textile manufacturing capabilities to safeguard against potential losses in export orders.