As trade tensions between the U.S. and China continue to escalate, many companies are considering relocating production from China to other countries in Southeast Asia, including Thailand. This trend is driven by increased tariffs and a desire to diversify supply chains, and Thailand is positioning itself as an attractive alternative for these companies.

Background

In recent years, the relationship between the U.S. and China has been marked by trade conflicts, resulting in heightened tariffs on Chinese goods. In May 2024, the U.S. imposed a 100 percent tariff on Chinese electric vehicles to protect its domestic industry. Such actions have led companies to reconsider their production strategies to avoid the economic impacts of these tariffs.

Current Status

Thailand has actively worked to capitalize on this situation by offering incentives and improving infrastructure to attract foreign investments. For instance, Chinese electric vehicle manufacturer BYD recently decided to establish a factory in Rayong, Thailand, where it plans to produce several models for both domestic and export markets following U.S. tariff increases.

The Thai government has also approved substantial soft loans to stimulate the property market, indirectly supporting industry growth through increased demand for commercial real estate, which may attract further industrial investments.

Drivers Behind the Factory Relocations

Several factors contribute to the decision of companies to move production from China to Thailand:

• Trade Tensions and Tariffs: Higher tariffs on Chinese goods make it economically advantageous to shift production to countries with lower tariff rates.
• Supply Chain Diversification: Companies aim to reduce dependency on a single production base to avoid future disruptions.
• Cost Advantages: Thailand offers competitive labor costs and favorable tax incentives for foreign investors.

Differences in Tariff Rates Between China and Thailand for U.S. Imports

Tariff rates for goods imported to the U.S. vary depending on the country of origin and product category. After the U.S. raised tariffs on Chinese electric vehicles to 100 percent, the cost of importing these vehicles from China has increased substantially. Goods imported from Thailand are subject to Most Favored Nation (MFN) treatment, resulting in lower tariff rates than the punitive tariffs applied to China.

Future Outlook

Thailand continues to strengthen its position as an attractive destination for foreign investment by enhancing infrastructure and offering favorable business conditions. While some companies have already begun the process of relocating production to Thailand, this is an ongoing trend that is likely to intensify if U.S.-China trade tensions persist.

In summary, Thailand faces a significant opportunity to benefit from the global shifts in the manufacturing landscape, though its success will depend on its ability to maintain a stable and appealing investment environment.