The two ways to satisfy Trump on trade

ECONOMY TALK

- Chartchai Parasuk

am terribly sorry for miscalculating the US's reciprocal tariff for Thailand at 35% in my previous article, when the actual rate imposed by Mr Trump on Monday was 36%.

This is the exact quote from my previous article: “Thailand, viewed as a Chinese exporting conduit, is likely to get a 35% reciprocal tariff to prevent further backdooring opportunities. The US negotiation team would tarnish its reputation by giving Thailand less than a 35% tax rate.”

Oops. I am not wrong after all, as I specifically said “less than 35% tax rate.”

The failure to recognise what the US really wants from the reciprocal tariff is the biggest mistake of the Thai negotiating team.

What the US really wants is to substantially reduce its trade deficit, which totalled US$918 billion in 2024. Of that amount, US$300 billion (9.8 trillion baht) was the deficit with China alone.

The problem is that the US does not only have a direct trade deficit with China. Craftily, China has shifted a substantial portion of its trade surplus with the US through “transshipments” via other countries.

According to my own estimate, transshipments via Vietnam and Thailand could account for at least US$30 billion and US$20 billion, respectively.

These transshipment countries will not be granted a lower reciprocal tariff than China's, which is tentatively set at 35%. If they were, the entire reciprocal tariff scheme would be ineffective, as China could simply reroute its products through other countries using transshipment.

Vietnam cleverly avoided such a high reciprocal tariff rate by splitting export products to the US into domestically produced goods and transshipments. The domestically produced products get a 20% levy, while the transshipped goods get a 40% levy.