BANGKOK -- U.S. tariffs and the subsequent flood of diverted products into Thailand are likely to damage different industries in Southeast Asia's second-largest economy, possibly leaving deep scars, warned Bank of Thailand Gov. Sethaput Suthiwartnarueput in an exclusive interview.
His cautionary words resonate across Asia, as the tariffs implemented by U.S. President Donald Trump begin to affect the real economy after wreaking havoc on financial markets over the past couple of months.
Sethaput pointed out that export-dependent industrial sectors could be adversely affected if they cannot access the U.S. market to sell products like processed food, electronics and auto parts -- especially tires.
What's more, the domestic market is also expected to be hit by the influx of products that fail to enter the U.S. and are then subsequently dumped into Thailand, such as furniture, textiles and apparel, plastics, petrochemicals and steel, Sethaput said.
"The surge of imports will come from many countries, but a significant source of it, obviously, will be from China," he said.
"For us, what's particularly worrisome are [those industries affected by a flood of imports]. In this set or subset of sectors, there are a lot more SMEs," said Sethaput. "They will be much more vulnerable, and they account for a fairly significant employment footprint."
According to Chinese customs authorities, the country's exports to the U.S. dropped by 21% in April since the Trump administration announced its "reciprocal tariff" measures on April 2.
Meanwhile, Chinese global exports grew by 8%, with exports to Thailand rising 28%.
The central bank governor met with Nikkei Asia on May 23, and uncertainties surrounding the tariffs have deepened since then. A U.S. trade court on Wednesday ordered an immediate halt to the duties, ruling that Trump had exceeded his authority in imposing them. The next day, a federal appeals court temporarily reinstated the tariffs.
Sethaput said such a wide range of economic impacts makes it difficult for the central bank to make economic predictions, prompting it to do "something we have not really done before, which is to put out two scenarios."
The BOT on April 30 lowered economic projections, projecting one stronger possible outcome of 2% economic growth this year, and another, weaker projection of only 1.3% growth.
That was in line with the National Economic and Social Development Council (NESDC), which forecast the Thai economy to grow 1.3%-2.3%, given the median forecast of 1.8% growth this year.
"We'll start to see the effects of [tariffs] play out in the third and fourth quarters. A lot of that again depends upon the negotiations and how they will play out," Sethaput said. "Our estimates for a long-term potential growth rate were in the high twos."
Recent projections indicate that the economy will fall short of its growth potential as tariff disruptions hamper Thai exports, which make up over 60% of the country's gross domestic product (GDP).
To support the economy, the BOT has cut the policy rate twice this year, setting the current rate at 1.75%.
"We feel that the current monetary policy stance is accommodative," he said, adding that the BOT did not only consider its inflation target when it decided to cut rates. "We feel that it takes into account some of this weaker growth outlook that we see going forward," he said.
"I cannot tell you when we would cut the rate again, but easing monetary policy is still necessary for Thailand now," the governor added.
Sethaput, a former World Bank economist, has held the BOT governorship since 2020. His five-year term will end on Sept. 30, and he cannot seek a second term as he will reach the retirement age of 60 this year.
He emphasized that the BOT will continue to maintain the stability of the Thai baht in order to keep its accommodating policy and foster growth.
Thailand is more of a banking-driven country than a market-driven one, and the tariff impact on its financial markets has been smaller compared with countries like the U.S.
"A weaker baht tends to be more beneficial for exporters in Thailand. While that statement is true, we don't have a set target or level of exchange rate in mind," he said.
"We fully recognize the dangers and the risks of trying to do too much regarding the level of the exchange rates," the governor added, hinting at a hard lesson learned from the Asian financial crisis in the 1990s.
Sethaput compared the current economic headwind with the previous crises, and said he is not overly pessimistic about the current one because Thailand still has its service sector, which is expected to remain intact despite Trump's tariffs, and could play a key role in supporting the Thai economy.
"This storm is not as bad as the ones that we have been through," Sethaput said, referring to when Thai GDP shrank 7.6% in 1997 and when the economy contracted by 6.1% during the COVID-19 pandemic in 2020.
He cited that the growth projections of 1.3% to 2.0% this year are much better compared to those gloomy days.
"We will get through this storm because we've been through worse and we've got through worse," he added.
Sethaput expects it to take some time to tackle the Trump tariff problem, saying it would depend on how Thailand handles negotiations with the U.S. But when asked how long the trade issues will last, he said, "I don't think anyone really knows."
As long as tariff headwinds remain, Sethaput suggested that the country insist on restructuring, particularly its debt, to make itself more resilient in moments of crisis instead of always turning to rate cuts to foster business.
"Interest rates are a very blunt instrument and they affect a lot of things," he said. "The benefits of lowering rates gradually become less and less," adding that a lower interest rate would encourage people to borrow more and that could pile up the debt that weighs on the economy.
Thailand is struggling with high household debt, which forces banks to apply strict loan access. This then leads to a reduction of purchasing power on durable goods, particularly cars, with annual car sales falling by 26% in 2024.
The Thai household debt reached a record high of 95.5% in 2021 when Thailand was still battling the COVID-19 pandemic. However, the BOT has been implementing measures to reduce household debt in recent years, and as a result has been able to cut the debt to 88.4% of GDP by the end of 2024.
"At least directionally, it's going on the right direction," said Sethaput. "But, 88% is still too high."
Looking at the positive side, Sethaput said the trade disruption caused by Trump's tariffs could be a good opportunity for ASEAN to build closer economic ties within the region at a time that the world is reaching for a new trade equilibrium.
"One thing that I hope to see coming out of all this is greater integration in the region, especially within ASEAN, plus its partners," Sethaput said, mentioning Japan as a special trade partner to Thailand.
"We have had quite successful economic performance in the past because of investment from Japan," he said. "We very much appreciate that."
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