New US Tariffs on Thailand: The Need for Market Diversification

Using Section 301 of the US Trade Act, the US Trade Representative (USTR) investigated Thailand and several other countries over concerns related to prohibitions on the importation of goods produced with forced labour. The latest set of tariffs seeks to compel Thailand and other US trading partners to import less from China.

The investigation was initiated on 11 March 2026, and the findings were reached on 5 June. It concluded that Thailand and another 53 countries failed to impose a legal prohibition on the importation of goods produced wholly or in part with forced labour. In response, the USTR sought to enforce such a prohibition. Six out of 60 countries investigated complied in part with the request to fight the use of forced workers: Canada, Ecuador, the EU, Indonesia, Mexico and Pakistan. For them, the additional tariff rate is 10 per cent. For the other 54 countries, including Thailand, additional tariffs of 12.5 per cent are expected to be imposed.

The additional tariff should have only a moderate effect on Thai exports to the US. First, the 12.5 per cent rate lies between the 10 per cent tariff imposed (under Section 122 of the Trade Act of 1974) from March to August 2026 and the 19 per cent reciprocal tariff imposed from August 2025 to February 2026.

Second, and more importantly, the additional tariff is imposed on imports from 60 US trading partners, which accounted for 99.4 per cent of the US’ total imports. Given the narrow tariff differences, it is unlikely to result in trade diversion from countries with higher US import tariffs to those with lower tariffs. This is especially true for Southeast Asian economies, which serve as global production bases that complement one another. It appears that the actual objective of the latest levy is to serve as a substitute for the original sweeping reciprocal tariff, which was declared void by the Supreme Court. 

While efforts to prohibit forced labour should continue regardless of the investigation findings, the immediate policy focus should be on diversifying export markets away from the US.

Thirdly, the impact of the new tariff is also limited by exemptions set out in Annex A, which are justified on the grounds of domestic production constraints and supply shortages. These exemptions overlapped with those applied under the earlier US reciprocal tariff pursuant the International Emergency Economic Powers Act (IEEPA). The exempted items account for nearly 60 per cent of Thailand’s total exports to the US in 2025. Additional exemptions are also being prepared for textiles and apparel exports to the US. Hence, it is estimated that around 40 per cent of Thailand’s total exports to the US would be subject to the additional tariff (Figure 1).

Tariff Free

Table 1: Value and Share of Article 301 Tariff-exempt US Imports from Thailand (2022 to 2025)

Year	US imports of tariff-exempt imports from Thailand (USD million)	Share of the total US imports from Thailand (%)
2022	26,376	41.9
2023	24,723	42.2
2024	29,497	44.7
2025	56,375	59.7

The adverse effect of the additional tariff varies substantially across industries. Table 1 presents the top five product groups of these non-exempted items by value. They are machinery & electrical equipment; plastics & rubber; vehicles, aircraft & vessels; beverages & tobacco and base metals. They accounted for 69 per cent of total non-exempted imports in 2025 (Table 2).

When US Tariff Have Different Impacts

Table 2: Top 5 Categories of Non-exempted Products under US Article 301

2025	Value of non-exempted US imports from Thailand ($ mil)	Share of total non-exempted US imports from Thailand (%)	% share of total US imports from Thailand (%)	US imports from Thailand (exempt and non-exempt)
Machinery & electrical equipment	11,385	30	18	63,703
Plastics & rubber	6,637	17	86	7,747
Prepared foodstuffs; beverages & tobacco	3,157	8	81	3,918
Vehicles, aircraft & vessels	2,782	7	99	2,814
Base metals & articles thereof	2,458	6	84	2,922
Others	11651	31	87	13,341
Total	38,070	100		94,445

The top product group, machinery and electrical equipment, accounted for nearly 30 per cent of total non-exempted imports in 2025, but its share of the total US imports from Thailand was only 18 per cent. The remaining 82 per cent of the US imports from Thailand under this product group were exempted from US tariffs. Their value grew rapidly during the trade war between the US and China, rising from USD22.7 billion in 2022 to USD52.3 billion in 2025. These tariff-exempt machinery and electrical equipment were mainly produced and supplied by Thailand-based US multinational enterprises seeking to reduce their dependence on imports from China. Hence, the effect of the additional tariff on this product group would be rather limited.

By contrast, the effect of the additional tariff on other Thai exports to the US is expected to be much greater. This applies to the next four biggest categories after machinery and electrical equipment: plastics and rubber, prepared foodstuffs, vehicles, aircraft and vessels and base metals. For each of these four categories, non-exempted items accounted for more than 80 per cent of total US imports (Table 2). For plastic and rubber products, for example, non-exempt exports to the US accounted for 86 per cent of Thai exports to the US. This means that the effect of the additional tariffs on these five product groups would be greater.

Policy Implications

Can Thailand avoid the additional tariff? The answer is likely to be ‘no’ even though the investigation has not yet been completed. The USTR appears to be seeking to compel the US’ trading partners to import less from China, using concerns over forced labour as a justification. Canada and Mexico have implemented labour import provisions demanded by the US. However, the USTR found these efforts insufficient and imposed an additional 10 per cent tariff on these countries. In the case of Canada, only two out of 50 suspected and intercepted shipments were prohibited. The case against Mexico concerns the use of imported inputs produced wholly or in part by forced or compulsory labour.

While efforts to prohibit forced labour should continue regardless of the investigation findings, the immediate policy focus should be on diversifying export markets from the US. This strategy should be pursued industry by industry, based on each industry’s reliance on the US market. 

In the short term, a silver lining from the additional tariff may be a surge in front-loaded import demand from the US. The findings of another Section 301 investigation are focused on structural excess capacity. The findings are expected soon and could lead to further tariffs. However, any such boost would likely be temporary and should not offset the need for longer-term market diversification in Thailand.

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