Thai Political Instability Threatens Economy Amid US Tariff Concerns

Thailand is caught in a perfect storm. Political upheaval at home collides with looming US tariffs abroad, rattling markets and leaving economists worried. Political instability—like coalition splits or cabinet shake‑ups—frays investor confidence. At the same time, a looming 36% US tariff threatens to hobble key Thai exports. So, how did we get here, and what’s next?

Political Turbulence: Coalition Cracks and Cabinet Instability

• Coalition chaos: The Pheu Thai Party depends on partners like Bhumjaithai. But disagreements (particularly over top ministries) recently forced Bhumjaithai out. That withdrawal all but guarantees a weakened government or even early elections .

• Economic red flag: Siam Commercial Bank’s economists warn that Thailand’s economy can’t sustain a full-blown political showdown. With no economic buffer, expectations of a House dissolution or drawn-out minister reshuffles could be disastrous .

• Industries on edge: Rising household debt, tourism slowdowns, and stalled infrastructure plans—especially in IT—are already showing cracks.

US Tariff Threat: A 36% Hammer Over Thai Goods

• Timeline ticking: A 90‑day pause on US tariffs lifts in July. After that, tariffs could surge to 36% unless Thailand secures a waiver.

• Big export partner: The US purchased $55 billion worth of Thai goods in 2024—almost 20% of Thai exports. But the outcome? A $45.6 billion trade deficit.

• Negotiation strategy: Thailand’s plan? Boost imports of US goods, crack down on trans‑shipment, invest in American jobs—all to convince Washington to back off .

Economic Pulsecheck: Are We Heading for Recession?

Economic indicators paint a bleak picture:

• Exports propped up, not enough: May 2025 saw a 18.4% year‑on‑year export jump—helped partly by a weak baht and last‑minute shipments ahead of tariff hikes.

• Consumer mood sours: Confidence has dropped for four straight months—the lowest in 27 months. That’s a recession warning if it doesn’t rebound soon .

• Growth slows: The first-quarter GDP rose 3.1%, but annual projections have since dropped to around 1%–2%, meaning a sluggish year ahead .

Policy Moves: Stimulus, Central Bank, and Internal Reforms

Thailand’s government and central bank are actively responding:

1. Stimulus spending:

   • A 157 billion‑baht package aims to boost economy-wide activity.

   • A proposed 3.78 trillion‑baht budget for fiscal 2026, with growth expectations pegged at 2–3%, though this doesn’t yet account for possible tariffs.

2. Monetary policy:

   • Bank of Thailand has slashed rates to 1.75%, a two‑year low, but admits a high degree of uncertainty around tariff fallout—especially in manufacturing.

3. Structural reform push:

   • Thailand is debating tariff cuts on US imports (e.g., luxury motorcycles), aiming to narrow trade imbalances and make the US more amenable to waiver requests.

   • Economists say the time is now to stop playing catch-up—advocate bold, long-term economic strategy given the new global trade paradigm .

Sectoral Snapshot: Who’s Hurt, Who’s Holding On?

A simplified look:

Looking Ahead: What to Watch in Coming Months

• Tariff deal deadline: Goal is waiver before July’s expiry—do negotiations hold, and will Thailand meet the US halfway?

• Domestic stability: Can cabinet reshuffle or new elections restore faith—or could it backfire?

• Economic outcomes: Will stimulus and rate cuts help offset export losses and wavering domestic demand?

Conclusion

Thailand stands at a crossroads, buffeted on two fronts: domestic political fragility and the specter of crushing US tariffs. Both storms are feeding off each other—political distrust slows reform, tariffs strain the economy. Now, the clock is ticking: will Thailand negotiate a deal in Washington and stabilize at home, or will this perfect storm push the kingdom toward recession?