Thailand’s manufacturing base is weakening, and competitiveness is plummeting. Key issues like the EV car gamble and economic integration with China should be dominating Monday’s showdown between Prime Minister Srettha Thavisin and his economic ministers. They probably will not, with government spending and further stimulus being the preferred solutions.

Thailand’s weakening manufacturing base and lack of competitiveness are key issues ahead of a showdown on Monday between Prime Minister Srettha Thavisin and his economic ministers. Indeed, hard questions must now be asked about core assumptions underpinning the country’s economic policies. Chief among them is the country’s trade and closer economic integration with China. Next, as if to highlight this, is the country’s gamble on EV car technology at the expense of its traditional automotive sector, which has been left reeling with plunging sales both at home and abroad. This comes amid the trade war between the United States and China deepening and widening to include the European Union and other Western countries such as Australia.

Deputy Prime Minister Phumtham Wechayachai. Thailand’s Minister of Commerce is seen as pro-China. At the same time, the Pheu Thai-led government attempts to emphasise Thailand as a neutral international partner. However, Thailand’s trade and economic relationship with China is increasingly not neutral. Indeed, China uses the kingdom as an offshore base to circumvent US and other Western trade sanctions. Meanwhile, China is eroding Thailand’s export base in Southeast Asia with cheaper products in a dumping exercise under the Regional Comprehensive Economic Partnership (RCEP).

Embattled Thai Prime Minister Srettha Thavisin arrives back in Thailand this weekend from Japan. On Monday, he will convene a meeting at Government House to discuss the negative trends in Thailand’s weakening economy.

This comes amid renewed scrutiny of the kingdom’s economic fundamentals. Certainly, one of the biggest concerns here is the country’s decline in manufacturing output.

It has fallen for six consecutive quarters. In short, factory utilisation is now estimated at only 57%.

Stimulus is only short term, essentially it is economic jiggery-pokery that cannot replace facing hard facts and decisive action on structural problems

Certainly, there will be talk of stimulus measures but nothing can now disguise the wider realisation that Thailand’s economic strategy needs to be rethought.

In effect, stimulus is only financial jiggery-pokery which often leaves undesired consequences. For instance,  ballooning public debt obligations.

Two glaring discussion points are the kingdom’s growing engagement with China and EV car production.

Since 2019, EV car production has been a cornerstone of Thailand’s plan to modernise its manufacturing base. However, market trends in the last four months question this strategy.

First-quarter GDP growth surprises analysts based on higher tourism and consumer spending growth
Drivers in Thailand are turning their backs on the EV hype. Sales in April were down further at 18.4% from March

Sales of EV cars slumped in Thailand by over 73% in February compared to the same period last year. They have not recovered in March nor in April. Meanwhile, the trend is the same in the United States, Europe, and Australia.

At this time, it is not clear if this is a temporary hitch caused by resistance to EV cars by mainstream drivers.

Certainly, even as many US auto manufacturers scale back plans to expand EV car manufacturing, some analysts insist that in 2025 the market for the new technology vehicles will recover.

The old-fashioned Internal Combustion Engine (ICE) car industry was approximately 10% of Thailand’s GDP since it was established in the 1960s and 1970s

However, for Thailand, the problem is more acute. The old-fashioned automotive industry used to account for no less than 10% of the country’s GDP.

This week, figures showed that car production in Thailand declined by 11% in April. On Thursday, the Federation of Thai Industries (FTI) revealed a figure of 104,667 units for the month. For the opening four months of 2024, the total output was 518,700 units.

That is equivalent to a 25% slump. However, the industry still insists that output will be 1.9 million cars for 2024, up 3.2% from last year’s 1.84 million. In turn, that figure was down 2.2% on 2022’s figures.

The slump was exacerbated by tightening bank lending rules. In addition, domestic car sales were down 21.49% in April.

Nonetheless, for a country that is so dependent on the auto industry, these figures are disturbing.

Thailand’s auto industry has traditionally been bigger than countries such as Canada, the United Kingdom, and Italy. Undoubtedly, it is a key component of the country’s export sector.

In addition to that, it has over the past decades seen the development of a robust and impressive car parts manufacturing industry.

EV vehicle policy developed by the previous government under Deputy Prime Minister Somkid Jatusripitak. Came at the same time as the RCEP free trade pact

In summary, this is all being put at risk.

Part of this risk is the shift to EV production. In effect, an industry at present which is dominated by China.

Notably, it must be accepted that this risky strategy did not come out of nowhere. It was developed by Deputy Prime Minister Somkid Jatusripitak five years previously.

In truth, it was in response to a growing lack of competitiveness in the auto sector and the challenges posed in a free market with China.

This was shortly before the Regional Comprehensive Economic Partnership (RCEP) came into being. This is the free trade pact between ASEAN, China, Japan, South Korea, Australia and New Zealand.

Thailand faces an economic test as change becomes a reality in cars, farming and business

In addition, the impact of this free trade pact needs to be looked at by Thailand’s economic planners. India pulled out at the last minute. Thailand ratified the pact in October 2021, and it went into force in 2022.

Consequently, at the end of 2022, Thailand’s export performance began to face sharp headwinds.

It may well be that the kingdom was unprepared for a wider unprotected trade market with China. To put it simply, the politics may have exceeded the kingdom’s economic capabilities.

EV cars are a new battleground in the global trade war. The US imposes 100% tariffs on Chinese-made EV cars while the European Union is also expected to act

Certainly, it would be true to say that EV cars, just as with solar panels and computer chips, are now a battleground between the United States and China.

In short, there is a trade war between the two countries, and it is widening.

For instance, in mid-May, the US administration imposed a 100% tariff on Chinese-made EV cars. In effect, they are now blocked from the US market.

The European Union is predicted to follow suit. Despite a visit last week by President Xi Jinping to Europe, the European Union Commission is presently investigating China’s support for its EV industry. 

Most analysts accept that this is a prelude to tariffs being imposed. The fear of European policymakers is that if they fail to act, China will flood the market with cheap EV cars subsidised by Beijing.

European Union expected to hit China with its poor labour standards and other issues so as to block cheaper EV car sales from flooding European car markets

However, Europe will not be as blunt as the United States. Agata Kratz is a researcher with the Rhodium Group. 

She suggests that a 30% tariff would be as far as European Union policymakers can go.

However, as Thai exporters know, the Europeans have other means at their disposal which they will undoubtedly turn to. In turn, they will be under pressure also from the US administration.

‘This means that the EU will need to explore other tools and defensive instruments to try and stem the flow of China-made EVs coming into Europe,’ she added. They could include measures targeting data security, and strict enforcement of environmental and labour standards.

The upshot for Thailand may be a threat to its future access to US and Western markets. Amid the warming political conflict between China and the United States, there may soon be no room here for fence-sitting.

The world is no longer where it was twenty years ago in the heady days of free global trade.

Countries and economies must act to protect their interests. This includes Thailand, which is increasingly exposed. For instance, the United States is Thailand’s largest and most profitable export market by far.

Thailand may find its access to its biggest market compromised by US and European probes if Chinese firms use it as an offshore base to avoid trade tariffs

Economic analysts are already warning that Thailand is being compromised by dumping from China. 

Analysts are increasingly warning Thailand’s economic planners about this. In short, China’s enormous and controlled production base, when it cannot find markets, dumps them on the wider market that is still open to them.

Thailand moves to defend its solar energy sector from a US probe into Chinese firms here

In the meantime, an alternative is to ship the product through a third-party firm established in Thailand.

In effect, this is what happened with cut-price solar panels. This led to a US probe in 2022.

In turn, this has now led to a proposed 250% tariff on exports from Chinese companies based in Thailand. The Biden White House confirmed this during the week.

Thailand is being hit by cheap, subsidised Chinese goods output being dumped on Southeast Asian markets and an outdated, uncompetitive manufacturing base

It appears that Thailand is simply not prepared to rethink its close ties with China and the bright EV car vision at the same time. It would be anathema to current government policy.

Nevertheless, that does not mean that Thailand can escape the natural reaction of free markets. In short, they will continue to tear apart the country’s manufacturing and export base in the meantime.

Pipat Luengnaruemitchai is an economist with BofA, a division of Bank of America. He points to a decline in Thailand’s traditional export markets.

This includes rice and durian fruit, for instance. In terms of a shift in technology, Thailand is losing its share of computer hardware and auto exports.

All of these markets have been impacted by cheaper imports flooding in from China. In particular, Southeast Asia and China’s access through the RCEP. 

Products and goods that cannot be sold in the United States and other Western markets are being dumped.

On trade and economics, China is not Thailand’s friend. Increasingly, it is an arch competitor dumping products and goods while displacing Thai exporters

‘The influx of imports from China has intensified competition, leading to reduced market share for Thai goods globally. This trend is exacerbated by technological changes and shifting global demands that favour other exporters,’ Mr Pipat explained.

‘The influx of imports from China has intensified competition, leading to reduced market share for Thai goods globally. This trend is exacerbated by technological changes and shifting global demands that favour other exporters,’ he said.

PM wakes up to the threat of cheap Chinese goods dumped on Thailand driven by misguided economic policies
Elephant pants should be a Thai success story. Instead, it is a story of economic policy failure as manufacturing slips

An example of this was the recent controversy over elephant pants.

In brief, it came to light that Thai manufacturers were losing out to Chinese factories. In turn, that scandal highlighted Chinese products being shipped into Thailand VAT-free through huge online retailers.

Thailand is losing in its massive trade relationship with China. The kingdom is generating a gigantic annual trade deficit with its Communist neighbour

Nevertheless, government ministers talk about Thailand’s close relationship with China. On a visit to China last November, Deputy Prime Minister Phumtham Wechayachai hailed the communist country as the kingdom’s biggest trade partner.

Undoubtedly this is so, but who is winning from the exchange? Figures released under the ASEAN-China Free Trade Agreement showed trade of $87.62 billion between the countries for the first ten months of 2023. However, this left Thailand with a massive $29.7 billion trade deficit.

In addition, the question must also be asked about the benefits of this trade. If Chinese-owned firms are using Thailand to circumvent US and other international tariffs, how long will it be before this is questioned? Even in the short term, these are Chinese-owned firms, not Thai. 

At the same time, are these enterprises creating jobs and spinoff economic activity at a deeper level within the economy?

Old automobile industry created by Japanese and Western players developed into a sprawling auto manufacturing environment with large ancillary firms

In brief, this is what happened with Japanese investment into Thailand, particularly in the internal combustion engine auto sector that gave rise to massive ancillary Thai firms.

Not only is this not happening with EV cars but thus far, most Chinese EV cars are still imported. This comes despite pledges by Chinese firms to establish in Thailand. In addition, there are also huge government subsidy programmes. In effect, Thailand is paying a bounty of up to ฿100,000 for each Chinese car sold in Thailand

This was referred to this week by Mr Kriengkrai Thiennukul of the Federation of Thai Industries (FTI). He announced a study into the impact of the EV car policy on Thailand’s supply chains for ICE (Internal Combustion Engine) cars.

Furthermore, he appeared to accept that the EV transition policy being pursued by the government was impacting these firms.

Mr Kriengkrai explained that the study would look at how these firms could adjust to the new era. The industry leader accepted that these were mainly small and medium-sized firms.

Industry boss aware that the US-China trade war is particularly bad news for Thailand. Neither is neutrality an option in the cutthroat world of commerce

Mr Kriengkrai also ominously referred to the US-China trade war. Previously, this key industry champion had urged Thailand to take a more definite stance on what is a deepening and widening conflict that is cutting into the commercial sphere.

At the same time, he openly accepted that Chinese EV manufacturers will seek to use Thailand and Asian countries as bases to avoid tariffs.

He recommended the government take advantage of this trend.

‘The trade war is intensifying and putting pressure on industries, presenting a challenge to the Thai government as it seeks an appropriate stance amid a conflict that could impact its economy,’ he revealed.

Thailand’s gamble on EV cars’ success looks shaky given its own sales trend since February 2024 and worldwide market data this year. Hopes for a better 2025

The business leader referred to the Thai government’s now wildly optimistic EV car targets given the implosion in the local market we have seen since February 2024.

For instance, Thailand expects to be manufacturing 725,000 EV cars a year by 2030 in addition to 675,000 motorcycles and 34,000 utility vehicles.

Mr Kriengkrai referred to the government’s ambition for Thailand becoming an EV production hub. He referred to Board of Investment (BOI) agreements on ฿50 billion worth of investments in such production facilities.

This comes despite the negative trends seen recently. However, there is hope. For instance, the International Energy Agency reports that 20% of all cars sold worldwide in 2024 will be electric. In short, that is 17 million cars.

According to the world body, this figure is projected to rise to 50% by 2035.

In the meantime, a large proportion of Thailand’s exports are on the line. So too is the gamble Thailand is taking on the EV revolution and its closer economic partnership with China.

Join the Thai News forum, follow Thai Examiner on Facebook here
Receive all our stories as they come out on Telegram here
Follow Thai Examiner here

Further reading:

First-quarter GDP growth surprises analysts based on higher tourism and consumer spending growth

Finance Minister meets central bank boss as Fitch research house questions Thailand’s direction and tourism trade

Finance Ministry wants to rejig public debt figures by offloading 1997 financial crisis fund debt of ฿570 billion

Ung Ing launches attack on the Bank of Thailand questioning the desirability of its independence from government

Manufacturing down for the 18th straight month but the economy grew 1% in the first quarter says central bank

Baht falls even after the Bank of Thailand’s intervention. It has lost 8.8% of its value in 2024 so far

Central bank holds interest rates. Economy will grow 2.6% in 2024 as Srettha pushes home ownership

Central bank rate call a minor issue compared to the surge in fiscal spending and deficit planned in 2025

Economy unlikely to grow in first quarter as Thai manufacturing crumbles. Hard choices ahead

New Finance Minister expected in April as economic malaise deepens with downgrades in GDP growth

Bank of Thailand holding strong against a strident push by the PM for more populist economics as debt levels rise

Property market glut sees minister’s call for supports in the face of the central bank’s ongoing credit crunch

Prime Minister Srettha still doggedly pushing his less than popular and legally perilous Digital Wallet plan

Digital Wallet plan blown out of the water by corruption body on Tuesday warning of illegality

Srettha outlines Digital Wallet as his government begins to flounder with a faltering economy and confusion