Trump tariffs leave deep scars on Thai economy: BOT chief

Sethaput Suthiwartnarueput, Governor of the Bank of Thailand (BOT), warned in an interview with Nikkei Asia that US import tariffs — coupled with trade diversion from other markets — could seriously damage several Thai industries and leave lasting scars on the economy.

His remarks align with growing concerns across Asia, where the ripple effects of US tariff measures, introduced under President Donald Trump, are beginning to reach real sectors of the economy, after months of financial market volatility.

Sethaput highlighted that export-reliant sectors such as processed food, electronics, and auto parts — particularly tires — are especially vulnerable if access to the US market becomes restricted.

SMEs Face Rising Risk from Chinese Imports

Beyond exports, Thailand's domestic market is also at risk as goods that can no longer enter the US are increasingly redirected to Thailand. This includes products such as furniture, textiles, garments, plastics, petrochemicals, and steel.

“Imports will rise from multiple countries — but especially from China,” Sethaput noted.

“What’s particularly concerning for us,” he added, “is that many of the sectors being hit by surging imports are composed largely of SMEs. These businesses face higher risks, and SMEs remain a vital part of the Thai labour market.”

The central bank governor’s warning underscores the need for policy vigilance, as Thailand braces for both external trade shocks and internal structural vulnerabilities.

According to recent figures released by China’s General Administration of Customs, Chinese exports to the US dropped by 21% in April, following reciprocal tariffs announced by the Trump administration on April 2. In contrast, China’s global exports grew by 8%, with exports to Thailand jumping 28%—a sharp surge that has caught the attention of Thai policymakers.

Sethaput gave an interview with Nikkei Asia on May 23. Since the interview, the US trade policy landscape has only become more volatile. On May 28, the US Court of International Trade ruled to halt tariff collections, citing overreach by former President Trump. However, a day later, a federal appeals court granted a temporary stay, allowing the tariffs to continue for now, deepening uncertainty for global markets.

“The wide range of economic outcomes makes forecasting impossible,” Sethaput said, noting that the central bank had to do something it had never done before: publish two parallel economic scenarios.

On April 30, the BOT revised its GDP forecast and laid out two possible paths:

Base case: GDP growth of 2% in 2025

Worst-case: Growth as low as 1.3%

These projections align with the National Economic and Social Development Council (NESDC), which estimates Thai GDP growth in the range of 1.3–2.3%, with an average of 1.8% for the year.

“We expect to feel the real impact of tariffs in Q3 and Q4,” said Sethaput. “Much will depend on the outcome of trade negotiations.” He added that Thailand’s long-term potential growth rate is now estimated at just under 2%, reflecting structural constraints.

With exports accounting for more than 60% of Thailand’s GDP, prolonged trade disruption could pull growth below potential. To counter these headwinds, the BOT has already cut its policy interest rate twice this year, bringing the benchmark rate down to 1.75%.

“We believe monetary policy is already quite accommodative,” said the Bank of Thailand Governor, emphasising that the central bank considers more than just inflation targets when making policy decisions.

“We've taken into account signs of slowing growth that we expect to materialise in the near future,” he added. 

“I can’t tell you when the next rate cut might be, but accommodative policy remains necessary for Thailand at this moment.”

Baht Stability Still a Priority

A former World Bank economist, Sethaput has served as BOT governor since 2020. His five-year term is set to end on September 30, and under current rules, he is ineligible for a second term due to reaching Thailand’s mandatory retirement age of 60 this year.

Despite rising global uncertainty, Sethaput reiterated that the Bank of Thailand will continue to maintain stability in the Thai baht, supporting both monetary policy and overall economic growth.

“Thailand remains more bank-based than market-based, which means the financial impacts of trade tariffs are less severe than in countries like the US,” he noted.

While a weaker baht tends to benefit Thai exporters, Sethaput stressed that the central bank does not target any specific exchange rate.

“We are fully aware of the risks involved in trying to manage exchange rates too aggressively,” he said, pointing to the painful lessons from the 1997–98 Asian financial crisis, when excessive currency intervention played a key role in Thailand’s economic collapse.

Not Another 1997: Services Sector Offers a Buffer

Although Thailand is once again facing global headwinds, Sethaput believes the current economic challenges are not as severe as past crises.

“We still have the services sector, which should hold up even in the face of rising tariffs,” he said, suggesting that domestic tourism and other non-trade-dependent industries could provide a much-needed cushion.

“This storm is not as bad as the ones we've weathered before,” Sethaput remarked, referencing the 7.6% GDP contraction in 1997 and the 6.1% drop during the Covid-19 pandemic in 2020.

In comparison, the central bank’s current GDP forecast — between 1.3% and 2.0% growth in 2025 — looks modest but stable.

“We’ll weather this storm,” Sethaput said confidently. “We’ve seen worse—and we’ve made it through.”

Amid growing uncertainty over US trade tariffs, Sethaput emphasised that structural reform, not just interest rate cuts, is essential for Thailand to remain resilient in times of global disruption.

When asked how long the trade tensions might last, Sethaput candidly replied, “I don’t think anyone truly knows.”

Debt Restructuring Is Key

As tariffs continue to pressure the Thai economy, Sethaput said Thailand must improve its debt structure to reduce its reliance on monetary easing.

“Interest rates are a blunt instrument,” he explained. “Their benefits diminish over time.”

He warned that repeatedly lowering interest rates may encourage excessive borrowing, potentially worsening the country’s household debt burden and threatening long-term economic stability.

Thailand currently faces high levels of household debt, forcing commercial banks to tighten credit standards—particularly in consumer sectors like durable goods and automobiles. In 2024, for instance, car sales dropped by 26%, a clear reflection of weaker purchasing power.

At its peak in 2021, Thailand’s household debt reached a record 95.5% of GDP during the height of the Covid-19 crisis. Thanks to debt reduction efforts, the ratio has since declined to 88.4% by the end of 2024.

“At least it’s heading in the right direction, but 88% is still too high,” Sethaput remarked.

Turning a Crisis into Opportunity

Despite the risks, Sethaput sees a silver lining: the trade disruptions caused by US tariffs may offer ASEAN a strategic moment to deepen regional integration.

“One positive I hope comes from all of this is greater regional cooperation—especially among ASEAN nations and key economic partners,” he said, adding that Japan remains one of Thailand’s most important allies.

“Our economy has historically grown well thanks to Japanese investment,” Sethaput noted. “We are deeply grateful.”