Thailand risks losing golden chance
Just as Thailand looks ready to displace Chinese parts and products in American cars and kitchens, dysfunctional politics may cost it the opportunity.
After five years of military rule, the Southeast Asian nation has returned to a fragile democracy. A pro-junta alliance is still negotiating with potential allies to form the next government following elections in March. It will have a threadbare majority in the lower house of parliament, limiting its ability to push a bold legislative agenda.
The new government’s annual budget will be delayed by three months to start from January next year. In addition, as much as US$20 billion (636 billion baht) in infrastructure contracts related to an ambitious manufacturing and logistics hub on the eastern seaboard will miss their May deadline, Bloomberg News reported this week.
To see the opportunity cost of the political gridlock, consider rubber. Or more specifically, the $3.3 billion of Thai tyres, tubes, pipes, hoses, transmission belts, mats, gaskets, dock fenders and rubber gloves that the US imported last year.
In the first three months of 2019, these imports jumped 21%. Predictably, American importers switched to Thai suppliers after the Trump administration imposed a 10% additional tariff on $200 billion of Chinese-made goods last September, including rubber-based automotive parts and other goods.
The punitive duty rose to 25% in May. That should put Thailand well on the way to becoming the top supplier of these goods to the US, reclaiming a lead over China that it lost almost two decades ago. So far so good. But the authorities in Bangkok must look over their shoulders. Vietnam has increased its share of US rubber product imports to a fifth of Thailand’s. In 2000, it had only one-hundredth of Thailand’s 6% share. India is also catching up.
Thailand’s problem is one of competitiveness. The society is ageing, the currency has become almost a yen-like safe haven, and political sclerosis is keeping the economy stuck in the middle-income trap. Overall Thai exports fell a worse than expected 2.6% from a year earlier in April, a second straight month of decline. Shipments to China, Thailand’s No.1 export destination until recently, have struggled to grow since last September. Expanding the US market is thus a top priority.
A fiscally conservative Bangkok elite, supported by the army, has been trying to banish the populist influence of former Prime Minister Thaksin Shinawatra ever since he was deposed as a democratically elected prime minister in a 2006 coup. His sister was similarly ousted in 2014.
But even with the odds stacked against it in the last election, the Thaksin-linked Pheu Thai party will have substantial clout in parliament. While the pro-military camp may get a chance to govern, the economic agenda that it proclaims will be the focus of the next administration may be a casualty of political stalemate. Rather than invest at home, Thai businesses may continue to move billions of dollars overseas.
Trump’s trade action against China handed Thailand a golden chance. It’s unclear how long the tariffs will stay in place or at what stage the spat between Washington and Beijing will trigger the global recession that bond markets are anticipating. While the window remains open, it’s up to politicians in Bangkok to take advantage.