How Trumps Tariffs benefit Thailand as a manufacturing base

Manufacturing-base web

The current problems between the US and China started in March 2018 when China was accused by the US of unfair trade practices and the US president proceeded to announce import tariffs on imported Chinese goods worth US$60 billion. From then on things have escalated with more tariffs on Chinese goods at currently being imposed, worth an estimated an estimated US$200 billion. Naturally, the Chinese president retaliated and proceeded to announce his tariff increases in a range of 5 to 10% on a large number of US goods worth an estimated US$60 billion and according to experts in the textile industry, this problem is not expected to go away soon.

A determined Trump is pressing ahead:

President Donald Trump has already made it known that the US is ready to increase tariffs even further in the event that the two countries failed to come to an agreement about trade. It is very likely that tariffs can be imposed on all goods which are imported from China for as long as China continues to impose its own tariffs and changes its attitude on key issues such as intellectual property theft which the US has accused it of on numerous occasions. There is a lot of uncertainty and only time will show how this situation will resolve itself, but in the meantime US citizens can expect increases in the prices of many products imported from China. One of the industries affected by this is the textile industry. One large industry that has been significantly affected is the textile and garment industry.

Thailand leading the way for garment production: The case of SUPA International

Many US clothing brands are moving their operations out of China because of increased labor costs and the new tariffs which are being imposed. It has become difficult for garment manufacturers in China to compete with those in Southeast Asia countries such as Thailand, Vietnam and Laos. One such company is SUPA international which is one of the largest clothing factories in Thailand – they have seen tremendous growth in the last six months with an increase in sales of more than 150%. The reasons for these increases were explained by Mr. Toasak Kosolsak the CEO of the company. SUPA international have seen a huge increase in the number of US clothing brands who have expressed a desire to move their manufacturing out of China and into Southeast Asia in an attempt to remain competitive. According to the CEO, the company is positive about this development and they are in the process of expanding their factory to ensure that it has the capacity to fulfill existing and new demands and they are doing this without losing sight of their commitment to maintaining high quality and service standards.

SUPA International clothing factory in Thailand

A very uncertain time when businesses should move quickly:

It is very difficult to predict how things between the US and China will turn out over the long term, especially in light of globalization where it was seen how numerous national economies have meshed together. This also has an impact on modern business supply chains and many other complex relationships. One must remember that there are hundreds of different products, each of which might be differently impacted by tariff rises and this is why it is extremely difficult to determine the exact economic cost and also the ultimate results of all those tariff increases.

How does Thailand enter into the equation?

Siam Commercial Bank is of the opinion that Thailand could be expected to benefit from the US-China trade war at least in the short term. There are products such as ethanol and plastics which is exported by Thailand which may benefit while China attempt to seek alternative markets for those products which have previously been imported by US citizens. There are many economists who are of the opinion that in the medium term a situation where there are rising interest rates because of an ongoing confrontation between the US and China could lead to a situation that will impact negatively on economic growth all across the globe. In a country where exports amount to 70% of the annual GDP, Thailand, can be negatively impacted by a slower global economy.

Looking further ahead: US, China, Thailand:

Over an extended period of time, the impact of the current US-China conflict may not amount to much. Any void is eventually filled – companies from outside of the US and China will eventually make up the shortfalls which have resulted from increased tariffs. One could also expect to see a situation in the US and in China where consumers and also businesses will also adjust to the situation eventually and they will find a new balance in some other way. The challenge for companies such as Thailand might depend on several factors such as timely government policies and geopolitical courage.

How can Thailand benefit?

Most businesses today are constantly on the move and they are very dynamic as can be seen in the Chinese markets where the mere threat of a trade war caused Chinese companies to immediately look at solutions for the crisis at hand. Chinese businesses have already taken steps to find new markets in Southeast Asia several months before the tariff increases were made. Nevertheless, everyone knows that Thailand is very high on the list as a viable contender for the Chinese market for some industries when manufacturing companies start to look for suitable markets. It is also helpful that Thailand is located very close to China while it also has an excellent industrial infrastructure with well-developed logistics and they are also blessed with a relatively stable economic environment and they are already enjoying open trade relationships with many of the lucrative market such as the US. This is why Thailand will also be attractive to Chinese investors who will seek to relocate their production supply chain in an attempt to evade the US tariff barriers.

In Thailand – the future is bright:

Thailand can eventually develop into an alternative manufacturing option to China for some industries including textiles. Such foreign investment can positively impact Thai imports and the economy might flourish even though the bigger global economy might show indications that it is slowing down. This is certainly interesting times for business and entrepreneurs located in Thailand as there is a strong possibility that lucrative opportunities may be coming their way in the near future.