The US’s announcement of a 25% tariff on automobiles has triggered fresh concerns over the sluggish Thai automotive industry as analysts worry about the short-term impact and long-term export uncertainties.
The new tariff, announced on Thursday by US President Donald Trump, is scheduled to take effect on April 2, while auto parts shippers can expect to face new duties no later than May 3, according to media reports.
“We are really concerned about Trump’s policy and will monitor the impact,” said Surapong Paisitpatanapong, vice-chairman of the Federation of Thai Industries and spokesman for the federation’s Automotive Industry Club.
The announcement came as car exports slowed down during the first two months of this year, with volume plunging by 18.1% year-on-year to 143,644 units, according to the club.
Last month, car exports fell by 8.34% to 81,323 units.
Mr Surapong attributed the decrease to many factors, including Washington’s trade policy which caused Thailand’s trading partners to reduce purchases of mostly internal combustion engine-powered cars in order to wait for a clearer tariff policy from Trump.
It will also not be good for Thai auto parts manufacturers when they face the tariff in May, said Mr Surapong.
Local parts makers are already affected by a technological disruption as electric mobility technology is becoming more popular.
Buyers’ difficulties accessing auto loans amid the high household debt also caused a significant drop in domestic car sales, affecting both auto parts and car manufacturers.
Psychological impact
Suwat Wattanapornprom, head of research at Krungsri Securities (KSS), said the announcement by Trump to raise the tariff on imported cars from 2.5% to 25% is expected to have a negative psychological impact on Thai automotive companies in the short term.
About 4-5% of Thailand’s auto exports and 10% of automotive parts go to the US. The value of automotive exports to the US is about US$1 billion, making Thailand the 9th largest exporter to the US, representing about 5% of total US imports.
Around half of US auto demand is served by imports with the balance being domestic production.
“Impacts could also be realised by electronic parts which serve the automotive sector. KCE Electronics, for example, primarily exports to Europe but also ships about 20% of its printed circuit boards to the US,” said Mr Suwat.
KSS recommends an underweight stance on the sector. Nonetheless, Trump also stated that there would be room for negotiations for reciprocal taxes, he said.
Amonthep Chawla, chief economist at CIMB Thai Bank, said the US still needs imports of as much as 50% to serve its auto demand.
“If the same tariff rate is applied to automobiles imported from every country, Thailand’s exports to the US will remain competitive. But if the different rates are applied to different countries or Thailand faces tariffs but manufacturers from other countries are exempt, that would be a big concern,” Mr Amonthep said.
Besides automotive, sectors exposed to risks from US tariffs include electronic parts, processed food, chemicals and agricultural products, he added.
Maybank Securities said among regional economies, Thailand also exports the most automobiles to the US in absolute terms.
Even though the US market accounts for only 7% of its auto exports, excess supply from other exporters displaced by the blanket US duties on autos will nevertheless be a major supply shock, Maybank said in a research note.
