Light ahead for US-Thailand trade deal after ceasefire with Cambodia

[BANGKOK] After months of uncertainty over the tariff rate imposed on its exports to the US, last week’s deadly border clash between Thailand and Cambodia added fresh geopolitical risk to an already tense trade stand-off.

The news of Monday’s (Jul 28) ceasefire agreement between the nations brings hope of a potential trade deal with the US.

Fighting had broken out on Thursday along the Thai-Cambodian border, killing at least 32 people and displacing more than 200,000 civilians. The violence came as Thailand struggles to finalise a trade agreement with Washington, even as regional peers Indonesia, Vietnam and the Philippines have secured deals that cap US tariffs at 19 to 20 per cent.

However, on Monday in Putrajaya, Malaysian Prime Minister Anwar Ibrahim said that the leaders of Thailand and Cambodia have agreed to an immediate and unconditional ceasefire to end their border clashes at a special meeting. Both countries had agreed to let Malaysia, Asean’s current chair, mediate the conflict.

Both Thailand and Cambodia, which run sizeable trade surpluses with the US, face tariffs of 36 per cent on their exports to the American market starting Aug 1 if no deal is struck.

For Thailand, one of the most export-reliant economies in the region, such a steep rate – among the highest globally – would deal a heavy blow to its already faltering economy.

US President Donald Trump on Saturday, following calls with Cambodian Prime Minister Hun Manet and Thailand’s acting Prime Minister Phumtham Wechayachai, tied the outcome of the trade talks to the cessation of fighting.

He wrote on Truth Social: “They are also looking to get back to the ‘Trading Table’ with the United States, which we think is inappropriate to do until such time as the fighting stops.”

In Scotland, where Trump reached a deal with European Commission President Ursula von der Leyen, he elaborated on the issue. “So I called the prime ministers of each country, and I said we are not going to make a trade deal unless you settle this war,” he told a press conference.

Growth on the line

Economists had already projected Thailand’s gross domestic product growth of less than 2 per cent this year under a best-case scenario of 10 to 20 per cent US tariffs. That forecast is now expected to be downgraded to below 1 per cent if the full 36 per cent rate takes effect.

Thailand’s economy remains heavily export-driven, recording around US$300 billion in exports last year. The US accounted for 18 per cent of those shipments – one of the highest shares in Asean, behind only Vietnam and Malaysia.

During the first six months of 2025, Thailand’s exports grew 15 per cent year on year, with much of that attributed to front-loading by US clients. Exports to the US were up 41.9 per cent in June.

Thailand’s second main engine of economic growth is tourism, a sector now facing fresh headwinds as a sharp drop in Chinese visitors, spooked by security concerns, has been further compounded by the border conflict.

The kingdom’s tourism arrivals in the second quarter fell 12 per cent year on year, after falling 5 per cent in Q1 of FY2025, driven by weakness from North Asia, South-east Asia, the Middle East and China (down 40 per cent), according to government figures. Arrivals are expected to reach 32 million to 33 million, compared with 35 million in 2024.

Sluggish domestic factors

And unlike many neighbouring countries, Thailand’s domestic consumption remains sluggish, crippled by high household debt (88 per cent of GDP), which cuts into spending.

“If you cannot improve your competitiveness in the export sector, and you have high household debt, it constrains your ability to build your economy through domestic channels because already people have to pay a lot of their incomes to service their debt,” said Tan Kim Eng, senior director for Asia-Pacific sovereign ratings at S&P Global Ratings, at a recent Bangkok conference.

While Thailand has a well-diversified range of export items, including automobiles and auto parts, agricultural commodities, processed foods, electrical appliances and electronics, it has lagged in moving up the value-added ladder in electronics, nowadays the main driver of export success.

In this sector, Thailand already faces stiff competition from Asean neighbours, which now look like they will face lower tariff rates in the important US market.

“The impact of tariffs on Thailand will actually depend on the tariffs imposed on its competitors,” said Louis Kuijs, chief economist for Asia-Pacific at S&P Global Ratings, speaking at the same event.

Most of the Asean economies are competitive in the US market, so it matters less how competitive Thailand is compared to US factories – which are unlikely to reopen – and more how it stacks up against other Asean exporters, he said.

Thailand is also competing with China in the US market.

“A lot depends on the tariff rate on China as it is Thailand’s main competitor in the US market,” said Kirida Bhaopichitr, research director at the Thailand Development Research Institute.

“China is Thailand’s main competitor in 18 of the top 20 Thai exports to the US,” she pointed out.

The final tariff rate on China is expected to be announced on Aug 11.

Political risks

Thailand’s efforts to secure a deal with the US are further complicated by its own political disarray – the conflict with Cambodia had added to this.

Thai Prime Minister Paetongtarn Shinawatra was suspended from her post by Thailand’s Constitutional Court on Jul 1, after a supposedly private conversation with former Cambodian leader Hun Sen was leaked, in which she called him “uncle” and criticised the Thai commander of the border region.

Paetongtarn is the daughter of Thaksin Shinawatra, a former prime minister and billionaire businessman once known to have close personal ties with Hun Sen.

Thailand’s political scene has arguably been shaky for the past two decades, with much of the divisiveness centred on power struggles between powerful politicians, such as Thaksin, and the elites identified with royalists, the military and entrenched business groups.

“We have to wait for a government that is able to get its policy vision lengthened to the extent that it is able to implement polices to deal with some of the problems,” said S&P’s Tan.

He added: “But this development (US tariffs) is not likely to change the metrics in such a way that we may have to change our outlook, because overall the Thai metrics are still quite resilient. But it is not helpful.”