Thailand Offers 70% Trade Surplus Cut to Avoid 36% US Tariff

In a strategic move to avert a 36% tariff threat from the United States, Thailand has submitted an emergency revised proposal. The proposal promises to reduce its trade surplus with the U.S. by 70% within five years, a significant acceleration from its previous timeline. This development comes as neighboring countries like Vietnam and Cambodia have already secured agreements with the U.S., intensifying the pressure on Thailand to secure favorable trade conditions and avoid being left with the worst terms in the region.

The revised proposal, submitted on July 7, includes commitments to increase market access for U.S. agricultural and industrial products. Additionally, Thailand has pledged to boost purchases of American energy and Boeing aircraft. If accepted, Thailand would immediately eliminate most import tariffs or non-tariff barriers on a range of products and gradually ease restrictions on a few others. This proposal is a response to the 90-day tariff suspension period announced by the Trump administration, which is set to expire on July 9.

The new proposal is more aggressive than the previous one, which aimed to eliminate the trade deficit over a decade. This shift indicates Thailand's willingness to make further concessions in the negotiations. The proposal was submitted following a high-level meeting between Thailand's Finance Minister and U.S. trade representatives, including the U.S. Trade Representative and the Deputy Secretary of the Treasury.

Thailand's Finance Minister emphasized that the products gaining increased market access are primarily those in short supply domestically, minimizing potential harm to local farmers and producers. The minister also noted that while Thailand is aiming for a 10% tariff rate, it is prepared to accept a range between 10% and 20%. The minister stressed the importance of avoiding the worst possible trade agreement in the region.

In addition to market access, Thailand has made significant commitments to increase its purchases of U.S. energy, particularly liquefied natural gas, and Boeing aircraft. State-owned companies, including SCG Chemicals and PTT Global Chemical, have pledged to import more U.S. ethane. PTT has also expressed interest in purchasing up to 200 million tons of liquefied natural gas annually from the Alaska gas project over a 20-year period, with potential joint development opportunities. National carrier Thai Airways has indicated plans to purchase up to 80 Boeing aircraft in the coming years, further solidifying these commitments as key components of Thailand's trade concessions.

The urgency of these concessions is driven by the economic pressures Thailand faces. As one of the countries racing to secure a trade agreement with the U.S. to avoid high tariffs, Thailand's economy could be severely impacted if it fails to reach a favorable deal with its largest export market. Securing a lower U.S. tariff rate is seen as crucial for protecting Thailand's trade-dependent economy from further downturns, especially given the region's highest household debt levels and weak domestic consumption.

A favorable trade agreement would also help alleviate investor concerns about political instability. The Prime Minister has been suspended by the court due to allegations of moral misconduct in handling a border dispute with Cambodia. The 90-day tariff suspension period has seen a significant increase in Thai exports, with a 15% surge in the first five months of the year, driven largely by advance orders. This trend underscores the importance of reaching a quick agreement to maintain export momentum.