The Federation of Thai Industries (FTI) reveals that China's investment is monopolizing the entire system, severely impacting Thai SMEs. There are concerns about using Thailand as a base to flood the U.S. and European markets, with Western nations closely monitoring and pulling Thailand into the trade war. The Commerce Ministry indicates that the U.S.-China trade conflict is difficult to resolve.

Mr. Kriangkrai Theeranukul, Vice President of the Federation of Thai Industries (FTI), stated that while Chinese investment can positively drive economic activities, Chinese investors differ significantly from Japanese investors. Japanese investors typically bring in engineers and supervisors while hiring mostly Thai workers.

In contrast, due to its large population, China adopts the “China Model” for investment, bringing in all personnel from supervisors to factory managers and employees across all departments, claiming that foreign labor cannot compete with Chinese labor. This results in China relocating its entire workforce and suppliers to Thailand. Chinese SMEs following major firms will produce goods that Thai SMEs cannot compete with. Before China invested, Chinese SME products were already flooding into Thailand at lower prices than Thai factories, forcing Thai SMEs to import from China instead of producing themselves, which is more profitable. In the long run, this undermines Thailand's manufacturing strength, and the establishment of Chinese factories in Thailand further disadvantages Thai SMEs.

Moreover, many Chinese businesses that have set up in Thailand over the past two years are escaping the trade war, using Thailand as a production base to supply the U.S. market instead of factories in China. Ultimately, this will lead to increased scrutiny from the U.S. and Europe, resulting in trade retaliation and various pressure measures directed at Thailand, causing overall Thai products to suffer. Currently, the top 1-5 Chinese tire manufacturers have already established factories in Thailand, with three factories already in production and sending tires to the U.S., while two more are set to begin production. As of now, the three Chinese factories have faced U.S. retaliation for dumping, along with 2-3 Thai factories, which has never happened before.

Therefore, Thailand must control investments to achieve balance. While relocating investment to Thailand is beneficial, it must be managed in appropriate amounts. Ultimately, this could lead to a situation where businesses flee from China to use Thailand as a base to flood other markets, increasing the trade imbalance between Thailand and Europe, making Thailand more susceptible to scrutiny and potential U.S. tariffs. This also puts the Thai baht under observation, as the U.S. perceives the Thai currency as too weak, contributing to Thailand's increasing trade surplus with the U.S. each year.

Ms. Pimchanok Wonpatravanich, Director of the Office of Trade Policy and Strategy (OTPS), discussed the U.S.-China trade war that has been ongoing since 2018 and its continuous impact on various countries, including Thailand. However, trade data indicates that Thailand has been able to adapt to the trade war and seize the opportunity to export substitute goods to both the U.S. and China, increasing Thailand's market share in both markets. Additionally, both U.S. and Chinese investors are showing increased interest in investing in Thailand.

The trade war has altered trade relationships, with trade between the U.S. and China decreasing. U.S. imports from China dropped from 21.84% in 2017 (before the trade war) to just 18.39% in 2019.

Meanwhile, China's imports from the U.S. decreased from 8.41% in 2017 to 5.95% in 2019, impacting Thailand and other countries within China's production chain. This is evident from the declining demand for Thai products from China and countries in China's supply chain, such as Hong Kong, Taiwan, and South Korea, which has been clearly shrinking since the fourth quarter of 2018, when most of the U.S. and China measures took effect.

Nonetheless, Thai exports to the U.S. have continued to grow since the onset of the trade war, with growth rates of 5.5% in 2018, 11.8% in 2019, and 2.5% in 2020. Furthermore, in the first half of 2020, exports from Thailand to China and countries in China's production chain, such as Hong Kong, resumed growth, reflecting a reduction in the effects of the trade war. Businesses in the supply chain have begun to adapt more, allowing Thailand to benefit from trade diversion and increase its exports of substitute goods, thereby increasing its market share in both markets.

The ongoing conflict between major powers presents an opportunity for Thailand to attract investment to enhance its trade capabilities in the future, from both U.S. and Chinese investors, as well as investors from other countries that are likely to continue investing in Southeast Asian countries, including Thailand, after the COVID-19 situation improves.

However, it is essential to closely monitor issues related to U.S.-China relations and factors affecting Thai exports, such as the enforcement of the Phase One trade agreement between the U.S. and China, particularly structural issues like intellectual property and technology compliance that China must adhere to, in addition to increasing purchases of goods and services from the U.S. Other issues that have been raised as sources of conflict, such as human rights and governance in Hong Kong, as well as the upcoming U.S. presidential election at the end of this year, may also impact the relationship between the two countries and the overall U.S. foreign policy moving forward. Additionally, the ongoing COVID-19 pandemic continues to affect the economic and trade conditions and policies in many countries and may be used by the U.S. as a reason to implement various measures against China in the future.

SOURCE: www.bangkokbiznews.com