Thailand Considers Zero Tariff on US Goods to Avoid Trump’s 36% Export Penalty

In a high-stakes move that could reshape its trade landscape, Thailand is working urgently to finalize a broad economic agreement with the United States before an August 1 deadline. The core issue: a threatened 36% tariff by the Trump administration on Thai exports to the US—Thailand’s largest export destination in 2024, which accounted for nearly 18% of its total outbound shipments.

If the two sides fail to reach an agreement, the impact could be devastating: Thai shipments to the US could nosedive, shaving as much as one percentage point off Thailand’s GDP growth projections for 2025, according to internal economic assessments.

What’s Driving the Crisis?

The crisis was triggered by President Donald Trump’s broader trade offensive aimed at stopping the transshipment of Chinese goods through third-party nations. Thailand was one of several countries to receive tariff warning letters, with the US suspecting that some Thai exports may be rerouted Chinese products intended to dodge ongoing US-China trade war restrictions.

Earlier, the Trump administration had imposed 20% tariffs on Vietnam and an even steeper 40% rate on re-exported goods considered part of illegal rerouting schemes.

Thailand’s Trade Playbook: Zero-Duty Access and Regulatory Reforms

In response, Thailand has crafted a multi-layered proposal aimed at appeasing US demands:

1. Zero-Duty Market Access for US Goods

Thai Finance Minister Pichai Chunahavajira announced that Bangkok is willing to slash tariffs on various US products—most notably longan fruit and tilapia fish—to zero, mirroring previous tariff cuts for other trading partners.

2. Opening Up to Left-Hand Drive US Cars

Thailand is also looking to amend domestic regulations to allow the import of left-hand drive vehicles—a significant policy shift that would directly benefit US automobile manufacturers.

3. Waiving Duties on Already FTA-Covered Goods

Pichai hinted at eliminating duties on US goods already covered under free trade agreements with other countries, leveling the playing field for American exporters.

4. Enhanced US Goods Procurement

As part of a broader strategy to reduce its $46 billion trade surplus with the US (2024 figures), Thailand has offered to increase imports of US agricultural products and liquefied natural gas (LNG).

US Demands Go Beyond Economics

While tariff concessions and non-tariff barrier reductions are part of the talks, Washington’s demands are not purely economic. Pichai revealed that “ambitious proposals” from the Trump administration also touch on geopolitical issues, raising concerns over Thailand’s traditional balancing act between China and the West.

These broader asks could potentially include:

Aligning more closely with US defense initiatives in the Indo-Pacific.
Scrutiny of Thai companies’ connections with Chinese tech firms.
Cooperation on supply chain diversification away from China.

Pichai warned that conceding too much on these fronts could ignite domestic unrest and hurt Thailand’s long-term neutrality in regional geopolitics.

Domestic Content Clause: Not a Major Threat

The US has also raised concerns about local content requirements in Thai manufacturing. However, according to Pichai, most of Thailand’s exports are from older industrial sectors with high domestic inputs, making compliance relatively straightforward. This includes exports like:

Processed food
Rubber products
Textiles
Low-tech machinery

Surge in Exports Ahead of Tariff Deadline

Interestingly, anticipation of the looming tariff threat has led to a 15% jump in Thai exports to the US during the first five months of 2025, as businesses rush to fulfill orders before any punitive tariffs kick in.

But if the talks fall apart and the 36% tariff comes into force, this surge could be quickly followed by a dramatic collapse in export volumes.

Will the Deal Go Through?

While no final agreement has been inked yet, Thai officials remain optimistic about concluding negotiations before the August 1 deadline. Pichai stated that the government is pursuing a “mutually beneficial and sustainable” trade agreement, which won’t just be about avoiding tariffs but will help reshape Thai-US trade relations for the future.

However, with the US pushing for far-reaching reforms and Thailand hesitant to cede too much strategic ground, the final shape of the deal remains uncertain.